Friday, November 9, 2007
Iran-Iraq Oil Pipeline: So much for Iraqi anti-Iran effort!
Today, http://www.iraqoilreport.com reports that groundbreaking has taken place on an oil pipeline from Iraq to Iran. Crude will be shipped there to be refined. Another pipeline is being planned to ship refined products back to Iraq. So much for Bush's effort to get the Iraqis on board with an anti-Iran war effort!
Nihilism, continued
This is the gist of what was lost from the previous post. The Friedman/Cowen story has the liberal tourists keeping the price above the equilibrium price with their do-gooding, as if they were governments imposing price supports. But they aren't governments imposing price supports. Nevertheless, the market adjusts, via seller's waiting times, so that the disequilibrium price becomes an equilibrium - given the time spent waiting for a sale, the quantity supplied will equal quantity demanded - but the resulting "equilibrium" features enormous waste.
Here is the implicit nihilism. Imagine a market like this. Trading begins at noon. At a given price, sellers and buyers converge at mid-day. If there are more sellers than buyers, then tomorrow sellers arrive earlier - and in fewer numbers, since the net price - net of the opportunity cost of the time lost waiting for the market to open- is lower. If there is still excess supply, waiting times grow, fewer sellers come. Finally we get an equilibrium with the appropriate waiting time - quantity demanded will equal quantity supplied - given the wait - and so there are no forces acting to change either waiting time or price. It's a lousy and inefficient equilibrium, but an equilibrium just the same. And nothing in the standard theory rules out such an equilibrium. Any price can be an equilibrium, with the appropriate waiting time on the part of either buyers or sellers. The textbooks implicitly imagine an auctioneer - the famous Walrasian one- who refuses to allow trade at any prices other than the unique price that gives an equilibrium with no waiting time. There is no such figure - not only does he have no clothes, he is a fiction! Anything can happen. "Market forces", with no help from the dead hand of the interfering state, needn't give us a waste-free equilibrium. All we need is a little bit of price rigidity and the endogenous adjustment of waiting times.
Here is the implicit nihilism. Imagine a market like this. Trading begins at noon. At a given price, sellers and buyers converge at mid-day. If there are more sellers than buyers, then tomorrow sellers arrive earlier - and in fewer numbers, since the net price - net of the opportunity cost of the time lost waiting for the market to open- is lower. If there is still excess supply, waiting times grow, fewer sellers come. Finally we get an equilibrium with the appropriate waiting time - quantity demanded will equal quantity supplied - given the wait - and so there are no forces acting to change either waiting time or price. It's a lousy and inefficient equilibrium, but an equilibrium just the same. And nothing in the standard theory rules out such an equilibrium. Any price can be an equilibrium, with the appropriate waiting time on the part of either buyers or sellers. The textbooks implicitly imagine an auctioneer - the famous Walrasian one- who refuses to allow trade at any prices other than the unique price that gives an equilibrium with no waiting time. There is no such figure - not only does he have no clothes, he is a fiction! Anything can happen. "Market forces", with no help from the dead hand of the interfering state, needn't give us a waste-free equilibrium. All we need is a little bit of price rigidity and the endogenous adjustment of waiting times.
Stepping In It, or the Market Nihilism of Libertarian Economics
Brad Delong reviews the glut of Freakonomics-style books here:
http://chronicle.com/temp/reprint.php?id=ldhnqhyg1grv71j1t99yfvp04t0csw1c
He likes Tyler Cowen's Discovering Your Inner Economist. He cites a passage where Cowen claims that "liberal" foreign tourists who insist on paying high prices to the poor for services don't actually help them. From what I can make out from Delong's account ( I haven't read Cowen's book), it is a rent-dissipation argument. Lots of people line up to get the high prices the tourists are paying; the difference between the price and opportunity cost at the less-than-optimal quantity of services offered becomes the opportunity cost of waiting for the "big score-" a pure deadweight loss - a cost to the sellers that is a benefit for no one. I may be putting words into Cowen's mouth from David Friedman, who has a similar argument, centered on rickshaw drivers in Hong Kong and generous Western tourists, in his Hidden order - an older book also mentioned in Delong's review. Silly liberal Do-gooders. Being altruistic is being selfish! Being selfish is being good! It's so nice when the expedient (offer the lowest price you can get away with) coincides with what is right!
But think about what's going on here. The tourists' behaviour is keeping the price above its equilibrium price - just like a government-enforced minimum wage would do. The ensuing waiting time then makes what was a disequilibrium price an equilibrium after all - but a wasteful equilibrium. The price the tourists offer just compensates the seller for his opportunity cost plus the lost time waiting for a sale. But the tourists, nota bene, are not a government! Where are the famous "market forces" here? In their eagerness to score one off liberals, Friedman and, it appears, Cowen, have exposed a dirty little secret of free-market economics, that it has nothing to say about disequilibrium. Think of a market like this: Trading begins at noon. Given a price, sellers and buyers appear at noon. If more sellers appear than buyers, then tomorrow sellers will arrive earlier than noon - but fewer sellers than yesterday since the price, net of the opportunity cost of lost time waiting, is lower than yesterday. If there are still more sellers than buyers, they arrive even earlier (but in even fewer numbers) tomorrow. We have an equilibrium when the opportunity cost of the time spent waiting for the market to open equals the difference between the price and the opportunity cost proper. Then the number of sellers equals the number of buyers and there is nothing causing the waiting time - or the price- to change. And we have big deadweight losses. And there is no dead hand of the state to pin the blame on. Any price, under these dynamics, can be an equilibrium - coupled with the appropriate waiting time for either buyers or sellers. What would rule this out? What rules it out in the textbooks is the implicit assumption of the famous Walrasian auctioneer who refuses to allow trading to take place at "false" prices - prices other than that one where quantity supplied equals quantity demanded with zero waiting time on the part of either buyers or sellers. But there is, alas, no auctioneer. Anything can happen!
http://chronicle.com/temp/reprint.php?id=ldhnqhyg1grv71j1t99yfvp04t0csw1c
He likes Tyler Cowen's Discovering Your Inner Economist. He cites a passage where Cowen claims that "liberal" foreign tourists who insist on paying high prices to the poor for services don't actually help them. From what I can make out from Delong's account ( I haven't read Cowen's book), it is a rent-dissipation argument. Lots of people line up to get the high prices the tourists are paying; the difference between the price and opportunity cost at the less-than-optimal quantity of services offered becomes the opportunity cost of waiting for the "big score-" a pure deadweight loss - a cost to the sellers that is a benefit for no one. I may be putting words into Cowen's mouth from David Friedman, who has a similar argument, centered on rickshaw drivers in Hong Kong and generous Western tourists, in his Hidden order - an older book also mentioned in Delong's review. Silly liberal Do-gooders. Being altruistic is being selfish! Being selfish is being good! It's so nice when the expedient (offer the lowest price you can get away with) coincides with what is right!
But think about what's going on here. The tourists' behaviour is keeping the price above its equilibrium price - just like a government-enforced minimum wage would do. The ensuing waiting time then makes what was a disequilibrium price an equilibrium after all - but a wasteful equilibrium. The price the tourists offer just compensates the seller for his opportunity cost plus the lost time waiting for a sale. But the tourists, nota bene, are not a government! Where are the famous "market forces" here? In their eagerness to score one off liberals, Friedman and, it appears, Cowen, have exposed a dirty little secret of free-market economics, that it has nothing to say about disequilibrium. Think of a market like this: Trading begins at noon. Given a price, sellers and buyers appear at noon. If more sellers appear than buyers, then tomorrow sellers will arrive earlier than noon - but fewer sellers than yesterday since the price, net of the opportunity cost of lost time waiting, is lower than yesterday. If there are still more sellers than buyers, they arrive even earlier (but in even fewer numbers) tomorrow. We have an equilibrium when the opportunity cost of the time spent waiting for the market to open equals the difference between the price and the opportunity cost proper. Then the number of sellers equals the number of buyers and there is nothing causing the waiting time - or the price- to change. And we have big deadweight losses. And there is no dead hand of the state to pin the blame on. Any price, under these dynamics, can be an equilibrium - coupled with the appropriate waiting time for either buyers or sellers. What would rule this out? What rules it out in the textbooks is the implicit assumption of the famous Walrasian auctioneer who refuses to allow trading to take place at "false" prices - prices other than that one where quantity supplied equals quantity demanded with zero waiting time on the part of either buyers or sellers. But there is, alas, no auctioneer. Anything can happen!
WHACK-A-MOLE 101 REVISITED
by the Sandwichman
"There’s an arcade game called Whack-a-Mole in which a plastic mole pops up and you pound its head with a mallet. The lump-of-labor fallacy is the Whack-a-Mole of arguments about jobs. As often as you slam it, it reappears somewhere else." -- Timothy Taylor
It has taken three years but the Sandwichman's rebuttal to Timothy Taylor -- originally posted to MaxSpeak in the fall of 2004 -- is now published in the September issue of the Review of Social Economy: "Why Economists Dislike a Lump of Labor".
"There’s an arcade game called Whack-a-Mole in which a plastic mole pops up and you pound its head with a mallet. The lump-of-labor fallacy is the Whack-a-Mole of arguments about jobs. As often as you slam it, it reappears somewhere else." -- Timothy Taylor
It has taken three years but the Sandwichman's rebuttal to Timothy Taylor -- originally posted to MaxSpeak in the fall of 2004 -- is now published in the September issue of the Review of Social Economy: "Why Economists Dislike a Lump of Labor".
Thursday, November 8, 2007
Very flattering review of The Confiscation of American Prosperity
Instability Inc.
The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression
Michael Perelman
Palgrave Macmillan
By Seth Sandronsky
The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression
Michael Perelman
Palgrave Macmillan
By Seth Sandronsky
Can a recent history of the U.S. economy read a bit like a crime story? Yes, in the hands of Michael Perelman, an author and economics professor at CSU Chico.
His new book, The Confiscation of American Prosperity, is a timely arrival this fall. The housing bubble is shrinking and harming many, and the author’s analysis puts such current affairs into a sane context. Perelman writes that the early 1970s was the end of the “Golden Age” of post-World War II prosperity. Corporate America’s rate of profits slumped in the late 1960s due to German and Japanese rivals grabbing market shares and profits. How to try and get it back? Politicians and think tanks united to weaken corporate regulation and taxation. And the two political parties targeted New Deal and Great Society policies, which protected the American people from the market economy.
What followed was a sea change for the nation’s majority. Perelman focuses on how this happened, who led the charge and to what ends.
The author details how a small but strong minority of Americans hoarded the bulk of growth from the sweat of a diverse labor force. As the nation’s gross domestic product tripled from 1970 to 2003, the “top 13,000 tax-paying households ... saw its wages and salaries increase fifteen-fold.” Meanwhile, for the bottom 99 percent of Americans, average income remained basically unchanged between 1970 ($36,008) and 2004 ($37,295). Perelman surveys a wide variety of sources, defining his and their concepts and terms. The author’s prose is jargon-free. That may startle some readers used to opaque English from economists such as Alan Greenspan, former head of the nation’s central bank.
Wednesday, November 7, 2007
Dems overcome anti-illegal immigrant frenzy in Virginia
In yesterday's election, the Democrats won back control after over a decade of the State Senate by gaining four seats, mostly in tending-Dem Northern Virginia. It was close, and the Republican effort to save themselves came to a head in Prince William County, where the local Board of Supervisors has enacted a draconian law to go after illegal immigrants, worst in the nation. This was the new Republican red meat issue, scaring people in the Tsongas race in Mass., and embarrassing Hillary Clinton in the last Dem debate. In any case, here in Virginia, in the end it did not save the bacon for the GOP. (They still hold the House of Delegates, but Dems gained about 4 seats there also.)
Tuesday, November 6, 2007
Gisele Bündchen and Exchange Rates
I don’t think anyone would question whether Gisele Bündchen is simply breathtakingly beautiful. Well it seems BBC thinks she has particular views about the value of the dollar versus the value of the Euro:
CNBC notes, however, the BBC may have gotten the story wrong:
Even if Ms. Bundchen was as bearish against the dollar as Mr. Buffet, she could let Proctor & Gamble pay her in dollars, consume what she wants in NYC, and for any funds left over – convert those into Euros in a very efficient capital market. Sure – there’d be some transaction costs but with an annual salary of $30 million per year, she’s already playing in the big leagues where transactions costs represent a very small fraction of the volume traded.
The world's richest model has reportedly reacted in her own way to the sliding value of the US dollar - by refusing to be paid in the currency. Gisele Bündchen is said to be keen to avoid the US currency because of uncertainty over its strength. The Brazilian, thought to have earned about $30m in the year to June, prefers to be paid in euros, her sister and manager told the Bloomberg news agency.
CNBC notes, however, the BBC may have gotten the story wrong:
CNBC Squawk Box producer Stephanie Landsman spoke by telephone with Anne Nelson, Bundchen's manager. Nelson tells us reports that Gisele wants to be paid in euros are "false." Nelson's take: "Some idiot in Brazil reported something just to make news." Nelson points out that Gisele lives in New York City, and thus needs U.S. dollars for her big-city lifestyle. Of course, anyone who disagrees with Warren Buffett's investment wisdom does so at their own risk. But we have to think Gisele gets enough U.S. dollars that she can absorb any potential weakness against the Euro and avoid giving the unfortunate impression that she is negative about the United States in any way.
Even if Ms. Bundchen was as bearish against the dollar as Mr. Buffet, she could let Proctor & Gamble pay her in dollars, consume what she wants in NYC, and for any funds left over – convert those into Euros in a very efficient capital market. Sure – there’d be some transaction costs but with an annual salary of $30 million per year, she’s already playing in the big leagues where transactions costs represent a very small fraction of the volume traded.
Price Discrimination 101
My fellow bloggers seem to have the big picture in focus. Here's something a little smaller. In my Principles class, I have students read this clever Slate article on price discrimination, "The mystery of the rude waiter," by Tim Harford.
http://www.slate.com/id/2134489/
He suggests that a restaurant may deliberately employ a rude waiter in the bar, in order to discriminate, charging a high price in the dining room and a lower price in the bar for the same food. The rude waiter keeps the high rollers in the dining room - it's the hurdle that the low willingness-to-pay customers jump to get the lower price.
Here are some numbers that I use to illustrate Harford's point. Suppose there are two potential customers, rich and poor. The rich person will pay up to $24 for a meal with decent service, but only $11 for a meal served badly. The numbers for the poor person are $10 and $9, respectively. The cost of a meal is $5. The differential in each case is the Willingness-to-Pay for good service, which is higher for the rich than for the poor. Without the rude waiter, the seller would charge $24, sell to the rich only, and make profits of $19 (this beats the $10 profit he could make serving both at a price of $10). With the rude waiter, he will set the price in the bar at $9 and the price in the dining room at a little less than $22. The rich person then chooses the dining room, getting consumer surplus of a little bit more than $2 ($24 minus a little bit less than $22), as opposed to the $2 surplus ($11 -$9) he would get eating in the bar. The seller's profits are then $31 - $10 = $21.
Harford then discusses price discrimination through quality degradation generally (where the lower quality version of the good is the high quality version with resources spent to degrade it!). Do these possibilities worry Tim? Not a bit of it. In good "real is rational / what me worry?" fashion he asks "what are the alternatives?": the crux is that without price discrimination, the seller "could have passed up the opportunity to serve low-end customers altogether. That would have been no better."
Yes. Well, I chose numbers where that is true, but it needn't be. In my example, change the rich person's willingness to pay to $14. Now, if unable to discriminate, the seller does best to sell to both at $10 each, earning profits of $10. The discriminatory price scheme would set the bar price at $9 as before, and the dining room price at a bit less than $12, thus giving profits of (a bit less than) $11. Compared to the no-discrimination outcome, net benefits are obviously lower, since total value drops by $1 due to the degradation, while costs are identical. If the degradation costs something (and the seller would be willing to spend up to the $1 increase in profits to degrade if necessary) - say the waiter must get extra compensation to make up for the disutility of being mean-the efficiency loss is even greater. Funny how this second possibility gets overlooked. Dr. Pangloss, call your office!
http://www.slate.com/id/2134489/
He suggests that a restaurant may deliberately employ a rude waiter in the bar, in order to discriminate, charging a high price in the dining room and a lower price in the bar for the same food. The rude waiter keeps the high rollers in the dining room - it's the hurdle that the low willingness-to-pay customers jump to get the lower price.
Here are some numbers that I use to illustrate Harford's point. Suppose there are two potential customers, rich and poor. The rich person will pay up to $24 for a meal with decent service, but only $11 for a meal served badly. The numbers for the poor person are $10 and $9, respectively. The cost of a meal is $5. The differential in each case is the Willingness-to-Pay for good service, which is higher for the rich than for the poor. Without the rude waiter, the seller would charge $24, sell to the rich only, and make profits of $19 (this beats the $10 profit he could make serving both at a price of $10). With the rude waiter, he will set the price in the bar at $9 and the price in the dining room at a little less than $22. The rich person then chooses the dining room, getting consumer surplus of a little bit more than $2 ($24 minus a little bit less than $22), as opposed to the $2 surplus ($11 -$9) he would get eating in the bar. The seller's profits are then $31 - $10 = $21.
Harford then discusses price discrimination through quality degradation generally (where the lower quality version of the good is the high quality version with resources spent to degrade it!). Do these possibilities worry Tim? Not a bit of it. In good "real is rational / what me worry?" fashion he asks "what are the alternatives?": the crux is that without price discrimination, the seller "could have passed up the opportunity to serve low-end customers altogether. That would have been no better."
Yes. Well, I chose numbers where that is true, but it needn't be. In my example, change the rich person's willingness to pay to $14. Now, if unable to discriminate, the seller does best to sell to both at $10 each, earning profits of $10. The discriminatory price scheme would set the bar price at $9 as before, and the dining room price at a bit less than $12, thus giving profits of (a bit less than) $11. Compared to the no-discrimination outcome, net benefits are obviously lower, since total value drops by $1 due to the degradation, while costs are identical. If the degradation costs something (and the seller would be willing to spend up to the $1 increase in profits to degrade if necessary) - say the waiter must get extra compensation to make up for the disutility of being mean-the efficiency loss is even greater. Funny how this second possibility gets overlooked. Dr. Pangloss, call your office!
Monday, November 5, 2007
Save Labor Studies at University of Missouri, Kansas City
PETITION TO RESTORE FULL FUNDING FOR THE INSTITUTE FOR LABOR STUDIES (ILS) AT UMKC
TO: Guy Bailey, Chancellor UMKC
Karen Vorst, Dean, College of Arts and Sciences UMKC
SPONSORED BY: UMKC chapter of the American Association of University Professors (AAUP)
BACKGROUND: Although ILS was given a short reprieve, it is still slated for termination. Please sign the petition to insure it has a future.
The current civilian labor force in the United States numbers over 153,000,000 people. Labor studies is the only academic discipline that focuses on the conditions and needs of that workforce and the history of working people.
In the summer of 2007 UMKC announced it was closing the Institute for Labor Studies by defunding it. ILS is the only labor education program between Columbia, MO and Albuquerque, NM. ILS provides crucial services to our community and educates working people about their rights, for example, through credit and non-credit courses, conferences, and the weekly radio show, Heartland Labor Forum, on Community Radio KKFI 90.1 FM.
We the undersigned, recognizing the value of labor education, particularly at a time of outsourcing and continuing attacks on unions and our standard of living, strongly urge UMKC to restore full funding for the Institute of Labor Studies.
-----------------------------------------------------------------
TO SIGN THIS PETITION:
1) Above or below the petition, type in:
a) your name
b) your Academic/Organizational Affiliation (if any)
c) your city and state.
2) Click on "Reply" to this e-mail (send to e4dnetwork@gmail.com)
PLEASE DISTRIBUTE WIDELY TO OTHER PEOPLE AND YOUR NETWORKS.
Many thanks to all those who wrote the Chancellor in response to our earlier appeal. And many thanks in advance for your help with this petition.
Patricia Brodsky
David Brodsky
TO: Guy Bailey, Chancellor UMKC
Karen Vorst, Dean, College of Arts and Sciences UMKC
SPONSORED BY: UMKC chapter of the American Association of University Professors (AAUP)
BACKGROUND: Although ILS was given a short reprieve, it is still slated for termination. Please sign the petition to insure it has a future.
The current civilian labor force in the United States numbers over 153,000,000 people. Labor studies is the only academic discipline that focuses on the conditions and needs of that workforce and the history of working people.
In the summer of 2007 UMKC announced it was closing the Institute for Labor Studies by defunding it. ILS is the only labor education program between Columbia, MO and Albuquerque, NM. ILS provides crucial services to our community and educates working people about their rights, for example, through credit and non-credit courses, conferences, and the weekly radio show, Heartland Labor Forum, on Community Radio KKFI 90.1 FM.
We the undersigned, recognizing the value of labor education, particularly at a time of outsourcing and continuing attacks on unions and our standard of living, strongly urge UMKC to restore full funding for the Institute of Labor Studies.
-----------------------------------------------------------------
TO SIGN THIS PETITION:
1) Above or below the petition, type in:
a) your name
b) your Academic/Organizational Affiliation (if any)
c) your city and state.
2) Click on "Reply" to this e-mail (send to e4dnetwork@gmail.com)
PLEASE DISTRIBUTE WIDELY TO OTHER PEOPLE AND YOUR NETWORKS.
Many thanks to all those who wrote the Chancellor in response to our earlier appeal. And many thanks in advance for your help with this petition.
Patricia Brodsky
David Brodsky
Strike-Bike Stricken
On November 1, Strike-Bike was locked out. The Nordhausen factory had been occupied by its workers since July 10, producing over 1800 bicycles. (You could order them in any color you want as long as it was red.) Now the court has taken over and the future of the operation is in doubt.
It’s always good when workers take an initiative, but the long term prospects were hardly rosy. This is one more instance in which a worker takeover occurred in response to the failure of capitalist owners, “lemon self-management” so to speak. There was self-exploitation as well: workers paid themselves just 10 euros an hour in their last-ditch attempt to keep the business going.
For a real test of self-organized production there has to be a level playing field: profits to be had by both owners and workers. And the goal would not be (only) to stave off insolvency, but to transform products and production methods for a better world.
It’s always good when workers take an initiative, but the long term prospects were hardly rosy. This is one more instance in which a worker takeover occurred in response to the failure of capitalist owners, “lemon self-management” so to speak. There was self-exploitation as well: workers paid themselves just 10 euros an hour in their last-ditch attempt to keep the business going.
For a real test of self-organized production there has to be a level playing field: profits to be had by both owners and workers. And the goal would not be (only) to stave off insolvency, but to transform products and production methods for a better world.
Iran Saber Rattling and Oil Prices
Steve Mufson talks to various market participants about the rise in oil prices. The views of one trader and an economist after the jump.
Menzie Chinn provides some analysis and offers this thought:
Menzie has a point – but let me suggest that this is the price of a really bad foreign policy.
"It would be silly if we waited until things were not available," said a veteran energy trader at a U.S. hedge fund, who spoke on the condition of anonymity to protect his business relationships. He said traders have become convinced that military conflict between the United States and Iran is inevitable. He added, "People react to perceptions of what will happen. That's not idle speculation."
Menzie Chinn provides some analysis and offers this thought:
Of course, if one believes these threats are necessary, then the higher oil price is the price of pursuing our foreign policy. If one believes that Iran's acquisition of nuclear weapons is off by many years, then the pursuit of this diplomacy via threats is a costly diversion. Or it's even counterproductive. Indeed, with each dollar's increase in the price of a barrel of oil, an additional $3.7 billion is transferred (on an annualized basis) to the oil exporting countries (including Iran, Russia, Venezeula, Saudi Arabia, the Gulf States).
Menzie has a point – but let me suggest that this is the price of a really bad foreign policy.
Sunday, November 4, 2007
How Capitalism Works
The David H. Brooks story hits on all the high notes of capitalist excess: taking advantage of investors, selling the Pentagon defective goods, an ostentatious life style, and perhaps even more.
Kessler, Robert E. 2007. "Former LI military Contractor Is Busted for Living Lavishly with Cash from Investors and Company, Feds Say." Newsday (26 October): p. A 7.
“The former head of the Long Island company that provided most of the body armor for U.S. soldiers in Iraq and Afghanistan was arrested at dawn yesterday in a Manhattan apartment by FBI and IRS agents on charges of looting the company and investors of nearly $200 million to pay for a lavish lifestyle. That included supporting a stable of trotting horses; a face-lift for his wife; a diamond, ruby and sapphire-encrusted belt buckle in the shape of a U.S. flag; and an $8-million bat mitzvah for his daughter, which featured music stars including 50 Cent and Kenny G, according to Benton Campbell, the U.S. attorney for the eastern district.”
“Brooks allegedly made the huge stock option gain in 2004 by selling shares in the company shortly after he said he had no intention of selling the stock and shortly before the stock plunged because of reports about the quality of its body armor, the indictment said.”
“Brooks pleaded not guilty at arraignment in U.S. District Court in Central Islip and was held without bail by U.S. District Court Judge Joanna Seybert, pending a hearing Monday. Seybert acted after prosecutor Martin said that in the past year Brooks had purchased a single diamond worth $10 million, unspecified millions in gold and had surreptitiously moved $22 million to banks in Switzerland and Senegal. The United States does not have an extradition treaty with Senegal, Martin said.”
Brooks has a history of controversy: In 1992, Brooks and his brother, Jeffrey, are investigated by the Securities and Exchange Commission for insider trading scandal within Jeffrey Brooks’ small brokerage. The firm agrees to pay a $405,000 fine without admitting wrongdoing. In 2005, the company recalls all vests containing Zylon because of concerns over how quickly the fiber degrades. In 2006, DHB’s subsidiaries settle nationwide class-action suits over those vests.
##
O’Brien, Timothy L. 2006. “All’s Not Quiet on the Military Supply Front.” New York Times (22 January).
“DHB might have remained anonymous if not for a spate of recent events. The quality and adequacy of vests supplied to soldiers in Iraq has come into question over the last year, culminating in a Pentagon study, first reported by The New York Times this month, that said that 80 percent of the Marines who died in Iraq from upper-body wounds might have survived if they had had body armor covering more of their torsos. (It was the military, and not manufacturers, that determined the specifications for the vests DHB supplied the Marines, said DHB).”
“The Marines and the Army recalled about 23,000 Point Blank vests from the field last year after The Marine Corps Times reported that the Marines acquired the vests despite warnings from Army personnel that the vests had what the newspaper described as “critical, life-threatening flaws.” The Marine Corps issued a statement in November saying that there was “no evidence to suggest that soldiers or Marines have been at risk, or that these vests will not protect against the threat they were designed to defeat”.”
Kessler, Robert E. 2007. "Former LI military Contractor Is Busted for Living Lavishly with Cash from Investors and Company, Feds Say." Newsday (26 October): p. A 7.
“The former head of the Long Island company that provided most of the body armor for U.S. soldiers in Iraq and Afghanistan was arrested at dawn yesterday in a Manhattan apartment by FBI and IRS agents on charges of looting the company and investors of nearly $200 million to pay for a lavish lifestyle. That included supporting a stable of trotting horses; a face-lift for his wife; a diamond, ruby and sapphire-encrusted belt buckle in the shape of a U.S. flag; and an $8-million bat mitzvah for his daughter, which featured music stars including 50 Cent and Kenny G, according to Benton Campbell, the U.S. attorney for the eastern district.”
“Brooks allegedly made the huge stock option gain in 2004 by selling shares in the company shortly after he said he had no intention of selling the stock and shortly before the stock plunged because of reports about the quality of its body armor, the indictment said.”
“Brooks pleaded not guilty at arraignment in U.S. District Court in Central Islip and was held without bail by U.S. District Court Judge Joanna Seybert, pending a hearing Monday. Seybert acted after prosecutor Martin said that in the past year Brooks had purchased a single diamond worth $10 million, unspecified millions in gold and had surreptitiously moved $22 million to banks in Switzerland and Senegal. The United States does not have an extradition treaty with Senegal, Martin said.”
Brooks has a history of controversy: In 1992, Brooks and his brother, Jeffrey, are investigated by the Securities and Exchange Commission for insider trading scandal within Jeffrey Brooks’ small brokerage. The firm agrees to pay a $405,000 fine without admitting wrongdoing. In 2005, the company recalls all vests containing Zylon because of concerns over how quickly the fiber degrades. In 2006, DHB’s subsidiaries settle nationwide class-action suits over those vests.
##
O’Brien, Timothy L. 2006. “All’s Not Quiet on the Military Supply Front.” New York Times (22 January).
“DHB might have remained anonymous if not for a spate of recent events. The quality and adequacy of vests supplied to soldiers in Iraq has come into question over the last year, culminating in a Pentagon study, first reported by The New York Times this month, that said that 80 percent of the Marines who died in Iraq from upper-body wounds might have survived if they had had body armor covering more of their torsos. (It was the military, and not manufacturers, that determined the specifications for the vests DHB supplied the Marines, said DHB).”
“The Marines and the Army recalled about 23,000 Point Blank vests from the field last year after The Marine Corps Times reported that the Marines acquired the vests despite warnings from Army personnel that the vests had what the newspaper described as “critical, life-threatening flaws.” The Marine Corps issued a statement in November saying that there was “no evidence to suggest that soldiers or Marines have been at risk, or that these vests will not protect against the threat they were designed to defeat”.”
ONE OH SEVEN
by the Sandwichman
Following up on PGL's two Brads posting, Sandwichman notes the following from de Long:
"As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small."
My question -- relatively speaking -- would be: "relatively small" compared to what planet?
As the chart above indicates, the US Dollar has already been unwinding slowly and smoothly against the Euro and the Loony for quite some time. For the most part, increases in US stock market indexes have only been nominal, in terms of the steadily depreciating US Dollar.
From Sandwichman's Loony perspective, the USD has been a Potemkin currency for the last five years. The only thing MASKING what otherwise would have manifested as the economic distress of the past five years has been the bubblicious infusion of easy credit. If "nothing happens" -- that is if "imbalances of world trade and capital flows unwind slowly and smoothly" those deferred chickens are comin' home to roost. This would not be a "new" global economic distress but only the realisation of a distress that has been there all along.
There's no such thing as an unassisted smooth landing -- "unwinding" will not do the trick, no matter how lovingly slow and smooth. It will require some form of massive intervention to forestall or mitigate global economic distress. The only questions are: what's left? and will it work?
Following up on PGL's two Brads posting, Sandwichman notes the following from de Long:
"As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small."
My question -- relatively speaking -- would be: "relatively small" compared to what planet?
As the chart above indicates, the US Dollar has already been unwinding slowly and smoothly against the Euro and the Loony for quite some time. For the most part, increases in US stock market indexes have only been nominal, in terms of the steadily depreciating US Dollar.
From Sandwichman's Loony perspective, the USD has been a Potemkin currency for the last five years. The only thing MASKING what otherwise would have manifested as the economic distress of the past five years has been the bubblicious infusion of easy credit. If "nothing happens" -- that is if "imbalances of world trade and capital flows unwind slowly and smoothly" those deferred chickens are comin' home to roost. This would not be a "new" global economic distress but only the realisation of a distress that has been there all along.
There's no such thing as an unassisted smooth landing -- "unwinding" will not do the trick, no matter how lovingly slow and smooth. It will require some form of massive intervention to forestall or mitigate global economic distress. The only questions are: what's left? and will it work?
The Two Brads on the Overvalued Yuan
A few months ago, Brad Setser noted the lack of real appreciation of the yuan on an overall basis despite rising Chinese inflation. Today, Brad DeLong discusses the implications.
Which means China should let the yuan appreciate and maintain full employment by stimulating domestic demand. But I interrupted Brad:
Which has basically been the Chinese approach to date. Again – it would seem a change in Chinese macroeconomic policy with more domestic demand expansion and less emphasis on net export demand is in order. The two Brads appear to be strongly arguing that the yuan revaluation should accelerate.
Under two scenarios - both concerning China - the unwinding of global imbalances could cause regional if not global depression. In the first scenario, China keeps up its attempt to maintain full employment in Shanghai, Guangzhou, and elsewhere not by stimulating domestic demand but by trying to boost exports further by keeping the yuan stable against the dollar and falling in value against the euro. The effort to maintain the dollar-yuan exchange rate at a level approved by China's State Council has already led to an enormous increase in the Chinese economy's financial liquidity. The consequences of this are now manifested in property and stock market inflation, but not yet in rampant and uncontrolled consumer price inflation - at least for now. But if China does not accelerate the yuan's revaluation, the world might see a large burst of consumer inflation in China in the next two or three years.
Which means China should let the yuan appreciate and maintain full employment by stimulating domestic demand. But I interrupted Brad:
The second scenario is more dangerous for the entire world. In this scenario, once again China continues to attempt to maintain full employment by keeping the yuan undervalued. But this time, the Chinese government manages to restrain domestic inflation, so the US' trade deficit with Asia stops falling and starts rising again.
Which has basically been the Chinese approach to date. Again – it would seem a change in Chinese macroeconomic policy with more domestic demand expansion and less emphasis on net export demand is in order. The two Brads appear to be strongly arguing that the yuan revaluation should accelerate.
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