by the Sandwichman
J. Bradford DeLong calls for "more aggregate demand". Some of the responses:
"More debt! Let's party!" "Maybe we should stop looking for ways to keep moving at locomotive speeds. Take a walk for a while." "So, the levees have failed and flooding has ensued. Your plan is to pump like mad then rebuild in the same place." "But what is really appalling and scary is that the best answer you and others can come up with is 'go out and spend' until we find the next locomotive." "The commodities price run up is far more than the effect of speculation, but rather an indication that the world economy is straining against fundamental physical limits." "New times ahead, not more of the same with variations."
Can you say "paradigm shift"? But wait. There is a Keynesian cure available. The ultimate solution put forward by Keynes and identified by him explicitly as one of three essential "ingredients of a cure." Why do our self-styled Keynesians insist on restricting their policy too kit to only two of those three ingredients and eschewing the third and ultimate ingredient?
In a letter to the poet, T.S. Eliot, dated April 5, 1945, John Maynard Keynes identified shorter hours of work as one of three "ingredients of a cure" for unemployment. The other two ingredients were investment and more consumption. Keynes regarded investment as "first aid," while he called working less the "ultimate solution." A more thorough and formal presentation of his view appeared in a note Keynes prepared in May 1943 on "The Long-Term Problem of Full Employment. In that note, Keynes projected three phases of post-war economic performance. During the third phase, estimated to commence some ten to fifteen years after the end of the war, "It becomes necessary to encourage wise consumption and discourage saving, –and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."
Tuesday, April 8, 2008
KRUGMAN CATCHES UP TO SANDWICHMAN
by the Sandwichman
Krugman, April 8: "Cheap food, like cheap oil, may be a thing of the past."
Sandwichman, February 18: Every kind of planted crop has increased in price by 30% to 50% over the past few months. This will have a huge impact on food prices.
Krugman, April 8: "Cheap food, like cheap oil, may be a thing of the past."
Sandwichman, February 18: Every kind of planted crop has increased in price by 30% to 50% over the past few months. This will have a huge impact on food prices.
Recession Hits Home
There is an old wisecrack that "If s/he is laid off, it is a slowdown; if you are laid off it is a recession, and if I am laid off it is a depression." In this regard, I am now feeling the recession. While visiting her in the San Francisco Bay area, my oldest daughter, Meagan, a 36-year old single mother with a three year old son, was laid off from her CA-state paid job as a counselor to disturbed teenagers, this following nearly being evicted when her landlord was foreclosed on and was evicted after his subprime mortgage (obtained in 2005) was reset, on top of which her car went blooey while we were there (I have just returned to Virginia). Weird that these days local government jobs are among those most vulnerable in the current downturn, although that sector of government has always been more pro-cyclical than the federal government.
Ironically, besides visiting family members, I was also there to attend a conference at the San Francisco Fed (Society for Nonlinear Dynamics and Econometrics). The redoubtable Jim Hamilton of econbrowser gave a talk (summary figures available at his blog) on state diffusion of recessions. The last two have followed different and interesting patterns. The word on the current one is that while some states are being hit harder, they are all going down simultaneously, no diffusion from state to state, with him saying it hit in last quarter, after a deceleration beginning in second quarter last year. Oh yes, I also heard that at least at the FRBSF they do not use the word, "recession." The preferred term is "adverse economic conditions."
Ironically, besides visiting family members, I was also there to attend a conference at the San Francisco Fed (Society for Nonlinear Dynamics and Econometrics). The redoubtable Jim Hamilton of econbrowser gave a talk (summary figures available at his blog) on state diffusion of recessions. The last two have followed different and interesting patterns. The word on the current one is that while some states are being hit harder, they are all going down simultaneously, no diffusion from state to state, with him saying it hit in last quarter, after a deceleration beginning in second quarter last year. Oh yes, I also heard that at least at the FRBSF they do not use the word, "recession." The preferred term is "adverse economic conditions."
Monday, April 7, 2008
SMOKIN'
by the Sandwichman
In the 1940s, the RJ Reynolds tobacco company conducted an ad campaign featuring the slogan, "More Doctors Smoke Camels than any other Cigarette." I would like to suggest a thought exercise that focuses on the peculiarities and strategems of that slogan. We could call this game "more economists smoke free enterprise than any other paradigm."
What can be learned from playing such a game? First, the importance of distinguishing between number, fact, truth, authority, image, assumption and innuendo. Second, the difficulty of criticizing a discourse that glides heedlessly from one kind of claim to another. The discourse in question isnt "medicine" or "economics" per se -- it just plays one on TV. Finally, I would like to offer the observation that it is precisely the agility of the pseudo-economic discourse in evading such a decisive critique -- rather than any specific error -- that marks economics itself as "unscientific".
In the Camels ad campaign, it was claimed that a nationwide survey of 113,597 doctors asked, "what cigarette do you smoke, Doctor?" The number is audacious -- as if it would not be enough to say "more than 100,000 doctors." Ah, if measurement be the food of science, count on the unrounded sum to be an unquestionable scientific fact indeed. According to Jackler and Proctor at Stanford School of Medicine, though, RJ Reynolds's surveyors handed out cartons of Camels at AMA conventions and then asked recipients what brand of cigarettes they smoked. Based on such a deliberate sample bias, the resulting number doesn't constitute a credible "fact".
But that's beside the point. What if more doctors did indeed smoke Camels? So what? The ad isn't just reporting a concocted fact. It is trading on the popular image of the medical doctor as a scientific, but at the same time, sympathetic and avuncular authority figure to produce the innuendo that if HE smokes Camels (in the iconography of the ads, doctors are almost exclusively male) then it must be GOOD FOR YOU.
The corresponding swindle relating to economics takes place outside of economic theory proper. When economists use theoretical abstractions in constructing their models, such as a perfectly competitive market, they are not necessarily claiming any such thing exists (or ever could exist) in the real world. Apologists for economic privilege, however, like to pretend that establishing free markets is a simple matter of "government getting out of the way." Left unsaid is that such magic inevitably requires that government first construct the very way that it is then supposed to get out of. The only thing in common between the economists' abstraction and the political propagandists' holy grail is the name "free market". Economics doesn't necessarily confuse the two. But all too often economists themselves and the economics profession as a whole honour those who do conflate glib apologetics with economic theory and marginalize those who criticize such obfuscation.
It is as if doctors and the medical profession were to smile benignly on the Camel ads, damnable innuendo and all... which, in effect, they did. According to Jackler and Proctor, the Camel ads appeared regularly in medical journals such as the Journal of the American Medical Association. R.J. Reynolds conducted its bogus surveys from booths at AMA conventions. Presumably, the medical profession didn't strenuosly object to the Camel ad campaign because the ads presented a flattering image of doctors as scientists and humanitarians. In the end, though, it was medical researchers and doctors who established the undeniable link between smoking and cancer. The Stanford Medical School hosts a fascinating and enlightening exhibit, "Not a cough in a carload: images from the tobacco industry campaign to hide the hazards of smoking."
Meanwhile, the economics profession continues to sanction or tolerate images and innuendo about economics that are not only at odds with "the facts" but are patently false, misleading and toxic. When a critic points out some glaring discrepancy of method or assumption, it is always possible to find a counter example. Not all economists, for that matter, "smoke free enterprise". But enough of them do to send up a toxic cloud of confusion and complacency.
Is it accidental that the most enthusiastic "smokers" among economists are often high-profile public personalities? One might even suspect they rise to prominence because they espouse a well-funded ideological position -- poster boys and girls for the "scientific credentials" of their sponsor's political slant on economics. "Doctors smoking Camels" tarnished the integrity of a medical establishment that condoned the fraudulent use of their professional image. "Economists smoking free enterprise" is no less worthy of ridicule.
In the 1940s, the RJ Reynolds tobacco company conducted an ad campaign featuring the slogan, "More Doctors Smoke Camels than any other Cigarette." I would like to suggest a thought exercise that focuses on the peculiarities and strategems of that slogan. We could call this game "more economists smoke free enterprise than any other paradigm."
What can be learned from playing such a game? First, the importance of distinguishing between number, fact, truth, authority, image, assumption and innuendo. Second, the difficulty of criticizing a discourse that glides heedlessly from one kind of claim to another. The discourse in question isnt "medicine" or "economics" per se -- it just plays one on TV. Finally, I would like to offer the observation that it is precisely the agility of the pseudo-economic discourse in evading such a decisive critique -- rather than any specific error -- that marks economics itself as "unscientific".
In the Camels ad campaign, it was claimed that a nationwide survey of 113,597 doctors asked, "what cigarette do you smoke, Doctor?" The number is audacious -- as if it would not be enough to say "more than 100,000 doctors." Ah, if measurement be the food of science, count on the unrounded sum to be an unquestionable scientific fact indeed. According to Jackler and Proctor at Stanford School of Medicine, though, RJ Reynolds's surveyors handed out cartons of Camels at AMA conventions and then asked recipients what brand of cigarettes they smoked. Based on such a deliberate sample bias, the resulting number doesn't constitute a credible "fact".
But that's beside the point. What if more doctors did indeed smoke Camels? So what? The ad isn't just reporting a concocted fact. It is trading on the popular image of the medical doctor as a scientific, but at the same time, sympathetic and avuncular authority figure to produce the innuendo that if HE smokes Camels (in the iconography of the ads, doctors are almost exclusively male) then it must be GOOD FOR YOU.
The corresponding swindle relating to economics takes place outside of economic theory proper. When economists use theoretical abstractions in constructing their models, such as a perfectly competitive market, they are not necessarily claiming any such thing exists (or ever could exist) in the real world. Apologists for economic privilege, however, like to pretend that establishing free markets is a simple matter of "government getting out of the way." Left unsaid is that such magic inevitably requires that government first construct the very way that it is then supposed to get out of. The only thing in common between the economists' abstraction and the political propagandists' holy grail is the name "free market". Economics doesn't necessarily confuse the two. But all too often economists themselves and the economics profession as a whole honour those who do conflate glib apologetics with economic theory and marginalize those who criticize such obfuscation.
It is as if doctors and the medical profession were to smile benignly on the Camel ads, damnable innuendo and all... which, in effect, they did. According to Jackler and Proctor, the Camel ads appeared regularly in medical journals such as the Journal of the American Medical Association. R.J. Reynolds conducted its bogus surveys from booths at AMA conventions. Presumably, the medical profession didn't strenuosly object to the Camel ad campaign because the ads presented a flattering image of doctors as scientists and humanitarians. In the end, though, it was medical researchers and doctors who established the undeniable link between smoking and cancer. The Stanford Medical School hosts a fascinating and enlightening exhibit, "Not a cough in a carload: images from the tobacco industry campaign to hide the hazards of smoking."
Meanwhile, the economics profession continues to sanction or tolerate images and innuendo about economics that are not only at odds with "the facts" but are patently false, misleading and toxic. When a critic points out some glaring discrepancy of method or assumption, it is always possible to find a counter example. Not all economists, for that matter, "smoke free enterprise". But enough of them do to send up a toxic cloud of confusion and complacency.
Is it accidental that the most enthusiastic "smokers" among economists are often high-profile public personalities? One might even suspect they rise to prominence because they espouse a well-funded ideological position -- poster boys and girls for the "scientific credentials" of their sponsor's political slant on economics. "Doctors smoking Camels" tarnished the integrity of a medical establishment that condoned the fraudulent use of their professional image. "Economists smoking free enterprise" is no less worthy of ridicule.
Friday, April 4, 2008
Armed Robbery with a Loaded Fountain Pen
An article today in the front page of the Sacramento Bee's business section quotes a director of a community development fund it works in low income neighborhoods on the subprime crisis: "I want to know how many people are going to jail."
At the same time, Jeffrey Skilling, late of Enron, judging from what I read in the papers, seems to have a shot at getting out of jail.
I do not know much about the risk that JPMorgan Chase is taking on over and above the first billion dollars. But if the Bear Stearns bailout is not a gift to JPMorgan Chase, then it is certainly very charitable towards the people who let money to Bear Stearns. Were they widows and orphans?
Who is going to jail?
At the same time, Jeffrey Skilling, late of Enron, judging from what I read in the papers, seems to have a shot at getting out of jail.
I do not know much about the risk that JPMorgan Chase is taking on over and above the first billion dollars. But if the Bear Stearns bailout is not a gift to JPMorgan Chase, then it is certainly very charitable towards the people who let money to Bear Stearns. Were they widows and orphans?
Who is going to jail?
Thursday, April 3, 2008
Employment Recessions.
Awhile back, there was a lot of controversy about whether or not the U.S. is in a "recession" at present. Officially, we're not (as far as we know) while most economists now seem to think that the current period will be likely to be dubbed a recession when the NBER gets around to it. Most of the non-economists seem to thin we're in one.
One generally-ignored dimension concerns the actual definition of a "recession." The "official" definition of a "recession" comes from the very-mainstream National Bureau of Economic Research's Business Cycle Dating committee. Journalists summarize their (relatively complex) definition by saying that having real GDP fall during two or more quarters in a row defines a recession.
The problem with these definitions -- especially the journalistic one -- is that the emphasis is totally on production sold through the market. That's what GDP is all about, and no more. This might be thought of as a totally capitalist definition of a recession.
Most workers, on the other hand, instead care about the growth of paid employment, i.e., the availability of jobs. So I decided to find "employment recessions" in the U.S. since World War II. As I define these animals, these are quarters where employment figures fall for two or more quarters in a row.
This is like the standard journalistic definition of a recession in terms of ease of calculation. The the NBER one is so hard to calculate. That version also reflects employment measures, I believe. My version also coincides with the common or "oral tradition" idea of a growth recession, in which GDP growth slows but does not turn negative, hurting employment.
I added one adjustment: the fall of employment is measured relative to the trend growth in employment in order to get a sense of the cycle, not the trend. (The trend rate has been falling over the decades, but that's another topic.)
Below, I listed "employment recessions." But let's jump to my conclusions:
1) There are several employment recessions that do not coincide with NBER recessions: in 1951/2, late 1959, late 1962, and early 1986. Somehow these receive much less press than the official ones do.
2) Employment recessions often begin before NBER recessions: in early 1957, late 1979, early 1981, early 1990, late 2000.
3) Employment recessions almost always end after NBER ones. The exception was in 1980. (It's possible that President Carter, who was running for re-election, begged Volcker to cease and desist.) This problem has gotten worse, with the "jobless recoveries" that followed the two Bush recessions that have occurred so far.
4) We're already in an employment recession, starting in the fourth quarter of 2006.
Here's The Complete List. Since 1951, we get the following "employment recessions" listed by year/quarter: dated by start and finish. In each of these quarters employment fell relative to trend growth, either preceded by or followed by another fall in employment relative to the trend. Note: the measures do not indicate the _depth_ of the employment recession, only its length.
1951/3 - 1952/3 -- does not coincide with an NBER recession.
1953/2 - 1954/4 -- coincides with an NBER recession, but ends two quarters after it.
1957/1 - 1958/3 -- begins 2 quarters before the NBER recession, while ending one quarter after it.
1959/3 - 1959/4 -- does not coincide with an NBER recession.
1960/2 - 1961/2 -- coincides with an NBER recession, but ends one quarter after it.
1962/3 - 1963/1 -- does not coincide with an NBER recession.
1969/4 - 1971/3 -- coincides with an NBER recession, but ends three quarters after it.
1973/4 - 1975/2 -- coincides with an NBER recession but starts one quarter after it and ends one quarter after it.
1979/4 - 1980/3 - coincides with an NBER recession but starts one quarter before it.
1981/1 - 1983/1 - starts 2 quarters before the NBER recession and ends 1 quarter after it.
1986/1 - 1986/2 -- does not coincide with an NBER recession.
1990/2 - 1992/4 -- starts 1 quarter before the NBER recession and ends 1 3/4 year after it. This is Bush the Father's famous "jobless recovery."
2000/3 - 2004/1 -- this one starts 2 quarters before the NBER one and ends 2 1/4 years after it. This is Bush the Son's repeat of the "jobless recovery." He outdid his father's example.
2006/4 - present. So far, it does not coincide with an official NBER recession.
Jim Devine
One generally-ignored dimension concerns the actual definition of a "recession." The "official" definition of a "recession" comes from the very-mainstream National Bureau of Economic Research's Business Cycle Dating committee. Journalists summarize their (relatively complex) definition by saying that having real GDP fall during two or more quarters in a row defines a recession.
The problem with these definitions -- especially the journalistic one -- is that the emphasis is totally on production sold through the market. That's what GDP is all about, and no more. This might be thought of as a totally capitalist definition of a recession.
Most workers, on the other hand, instead care about the growth of paid employment, i.e., the availability of jobs. So I decided to find "employment recessions" in the U.S. since World War II. As I define these animals, these are quarters where employment figures fall for two or more quarters in a row.
This is like the standard journalistic definition of a recession in terms of ease of calculation. The the NBER one is so hard to calculate. That version also reflects employment measures, I believe. My version also coincides with the common or "oral tradition" idea of a growth recession, in which GDP growth slows but does not turn negative, hurting employment.
I added one adjustment: the fall of employment is measured relative to the trend growth in employment in order to get a sense of the cycle, not the trend. (The trend rate has been falling over the decades, but that's another topic.)
Below, I listed "employment recessions." But let's jump to my conclusions:
1) There are several employment recessions that do not coincide with NBER recessions: in 1951/2, late 1959, late 1962, and early 1986. Somehow these receive much less press than the official ones do.
2) Employment recessions often begin before NBER recessions: in early 1957, late 1979, early 1981, early 1990, late 2000.
3) Employment recessions almost always end after NBER ones. The exception was in 1980. (It's possible that President Carter, who was running for re-election, begged Volcker to cease and desist.) This problem has gotten worse, with the "jobless recoveries" that followed the two Bush recessions that have occurred so far.
4) We're already in an employment recession, starting in the fourth quarter of 2006.
Here's The Complete List. Since 1951, we get the following "employment recessions" listed by year/quarter: dated by start and finish. In each of these quarters employment fell relative to trend growth, either preceded by or followed by another fall in employment relative to the trend. Note: the measures do not indicate the _depth_ of the employment recession, only its length.
1951/3 - 1952/3 -- does not coincide with an NBER recession.
1953/2 - 1954/4 -- coincides with an NBER recession, but ends two quarters after it.
1957/1 - 1958/3 -- begins 2 quarters before the NBER recession, while ending one quarter after it.
1959/3 - 1959/4 -- does not coincide with an NBER recession.
1960/2 - 1961/2 -- coincides with an NBER recession, but ends one quarter after it.
1962/3 - 1963/1 -- does not coincide with an NBER recession.
1969/4 - 1971/3 -- coincides with an NBER recession, but ends three quarters after it.
1973/4 - 1975/2 -- coincides with an NBER recession but starts one quarter after it and ends one quarter after it.
1979/4 - 1980/3 - coincides with an NBER recession but starts one quarter before it.
1981/1 - 1983/1 - starts 2 quarters before the NBER recession and ends 1 quarter after it.
1986/1 - 1986/2 -- does not coincide with an NBER recession.
1990/2 - 1992/4 -- starts 1 quarter before the NBER recession and ends 1 3/4 year after it. This is Bush the Father's famous "jobless recovery."
2000/3 - 2004/1 -- this one starts 2 quarters before the NBER one and ends 2 1/4 years after it. This is Bush the Son's repeat of the "jobless recovery." He outdid his father's example.
2006/4 - present. So far, it does not coincide with an official NBER recession.
Jim Devine
Tuesday, April 1, 2008
Humorous, but Insightful Take on the Economy
I usually do not appreciate when people send me a video clips. This one was an exception. It takes about 10 seconds before the humor becomes apparent. Please do not get impatient if you watch it, because, besides being humorous it is an interesting commentary on the economy.
Sunday, March 30, 2008
Tiny Margins, Mega Leverage
Two trends have dominated financial markets in recent decades. First, there is an arms race going on in instruments and trading algorithms. Math jocks are going braino-a-braino to devise increasingly sophisticated strategies, to the point where even specialists are unsure how to value portfolios. At the same time, there has been an escalation of leverage; unregulated investment funds are lending to the tune of 30 or more times their equity base. Maybe these developments are related.
The current argument is that over-the-top leveraging is the consequence of a regulatory breakdown, and there is certainly truth to the extent that the failure of oversight has enabled investment banks and hedge funds to do whatever they want — but why did they want to extend themselves so far?
Here is one possibility: the new math-intensive strategies are chasing tiny margins. The trading programs are designed to perceive opportunities for arbitrage a nanosecond before anyone else, taking advantage of the slightest misalignment of related prices. We have also witnessed ever more elaborate strategies involving complex tradeoffs between risk and return to create composite positions whose alpha is perceived to be a shade higher in relation to its beta.
The profit margins on these strategies are minuscule, but if everything goes as programmed, predictable. This means that they can be turned into respectable earnings only through intense leverage. By investing in positions at the rate of 3000% of capital, you turn 1% annualized margins (which correspond to much smaller margins on any given trade) into 30%. And the geniuses who devise these opaque instruments tell you that the risk is small relative to the return.
What the risk jockeys always seem to miss is that estimates of portfolio risk depend on covariances among the individual elements, and these in turn are determined by the structural properties of the system in question. And no one can know what they are, because the system is too complex, there are too few data points, and the structure keeps changing. So the models work, trade after trade, until there is an unforeseen systemic event, after which all hell breaks loose.
Then the high degree of leverage, which was necessary to make the strategy pay sufficient dividends, magnifies the risk instead of the return.
If this analysis is correct, it suggests that putting a ceiling on leverage may also slow down the drive toward unfathomable financial complexity. That would be a good thing, and not just for us dummies.
The current argument is that over-the-top leveraging is the consequence of a regulatory breakdown, and there is certainly truth to the extent that the failure of oversight has enabled investment banks and hedge funds to do whatever they want — but why did they want to extend themselves so far?
Here is one possibility: the new math-intensive strategies are chasing tiny margins. The trading programs are designed to perceive opportunities for arbitrage a nanosecond before anyone else, taking advantage of the slightest misalignment of related prices. We have also witnessed ever more elaborate strategies involving complex tradeoffs between risk and return to create composite positions whose alpha is perceived to be a shade higher in relation to its beta.
The profit margins on these strategies are minuscule, but if everything goes as programmed, predictable. This means that they can be turned into respectable earnings only through intense leverage. By investing in positions at the rate of 3000% of capital, you turn 1% annualized margins (which correspond to much smaller margins on any given trade) into 30%. And the geniuses who devise these opaque instruments tell you that the risk is small relative to the return.
What the risk jockeys always seem to miss is that estimates of portfolio risk depend on covariances among the individual elements, and these in turn are determined by the structural properties of the system in question. And no one can know what they are, because the system is too complex, there are too few data points, and the structure keeps changing. So the models work, trade after trade, until there is an unforeseen systemic event, after which all hell breaks loose.
Then the high degree of leverage, which was necessary to make the strategy pay sufficient dividends, magnifies the risk instead of the return.
If this analysis is correct, it suggests that putting a ceiling on leverage may also slow down the drive toward unfathomable financial complexity. That would be a good thing, and not just for us dummies.
Friday, March 28, 2008
Bush says "Normalcy" Returns to Iraq
Using that famous neologism of Warren G. Harding, President Bush has declared that "normalcy" has returned to Iraq. Indeed, he is right. The recent period of low conflict and violence, claimed to be due to the surge by many, has now reverted to the more "normal" pattern of greater conflict and violence that we have seen over the last five years. The question arises: why on earth is the US supporting this attack by the al-Maliki government on the followers of Moqtada al-Sadr, whose long-in-place truce has been credited by most with being a major factor in the lowered level of violence?
Juan Cole claims it is that ragamuffin madman Cheney again, whispering in al-Maliki's ear that since the Iraqis have agreed to have serious provincial eletions this fall so that the Sunnis of violent Diyala Province can get rid of their Shi'i government, al-Maliki should take the Sadrists down in Basra so that they do not take over the government there, Iraq's second largest city, and its main export point for oil. Control of oil revenues are clearly a key in this. Of course the part of this that is a big lie has been the claim that the Sadrists are allies of Iran rather than al-Maliki and his ally, al-Hakim. In fact, it is al-Hakim, leader of Iraq's largest party, whose Badr Corps militia has reputedly been the largest recipient of Iranian military aid, and who spent most of the Saddam years in Tehran, whereas al-Sadr, the nationalist, never was in Tehran ever. But, he opposes US troops being in Iraq. So, the US must have lots of troops in Iraq so that we can help defeat those who do not want us to have troops in Iraq, and so that the truly close allies of Iran can remain in control, especially of all the oil revenues from the exports out of Basra.
Juan Cole claims it is that ragamuffin madman Cheney again, whispering in al-Maliki's ear that since the Iraqis have agreed to have serious provincial eletions this fall so that the Sunnis of violent Diyala Province can get rid of their Shi'i government, al-Maliki should take the Sadrists down in Basra so that they do not take over the government there, Iraq's second largest city, and its main export point for oil. Control of oil revenues are clearly a key in this. Of course the part of this that is a big lie has been the claim that the Sadrists are allies of Iran rather than al-Maliki and his ally, al-Hakim. In fact, it is al-Hakim, leader of Iraq's largest party, whose Badr Corps militia has reputedly been the largest recipient of Iranian military aid, and who spent most of the Saddam years in Tehran, whereas al-Sadr, the nationalist, never was in Tehran ever. But, he opposes US troops being in Iraq. So, the US must have lots of troops in Iraq so that we can help defeat those who do not want us to have troops in Iraq, and so that the truly close allies of Iran can remain in control, especially of all the oil revenues from the exports out of Basra.
Thursday, March 27, 2008
My New Ambition
I have been teaching for almost 40 years at a modest, but comfortable salary. I have been thinking that I should figure out a way to lose a few billion dollars so that I can get rewarded with a few million for my efforts.
If anybody wants to contribute to my new career, please send me your checks ASAP. Get in on the ground floor.
If anybody wants to contribute to my new career, please send me your checks ASAP. Get in on the ground floor.
Wednesday, March 26, 2008
I Was Right About Iraq
Given the flurry of commentary on the anniversary of our invasion of Iraq and the reaching of the 4000-dead-US-soldiers milestone by people who were wrong about Iraq, my egomania pushes me to point out how right I was. I was not blogging then, but on the day that Tikrit fell, the end of any semblance of the Saddam regime and just when the first looting began in Baghdad, a point more than any other when it looked like the US had "won," I wrote a column that was published about a week later in our very conservative local paper, the Harrisonburg Daily News-Record. I made six forecasts, three "positive," three "negative." All have proven to be correct. I did not forecast the nature of the future Iraqi government, nor did I forecast that there would be an insurgency nor how serious it would be. My forecasts, and brief commentary.
The "positives"
1) Saddam would no longer violate anybody's human rights (I did not foresee that US troops would be engaging in torture subsequently).
2) US troops in Saudi Arabia to oversee the no-fly zones could be removed, thereby removing one of Osama bin Laden's leading propaganda tools (more than offset by the length and severity of our occupation of Iraq).
3) That whatever regime would come to power in Iraq, the ending of economic sanctions would be a positive (more than offset by the negative impact of the insurgency on the Iraqi economy).
The "negatives:
1) Women's rights would be reduced (Laura Bush likes to say they are enhanced, but women must wear veils and stay at home in a majority of Iraq, although not in the Kurdish-ruled areas; there they may be better off, my only possible mistake here).
2) Christians would be persecuted (about half the Christian population of Iraq, some of which has been there for nearly 2000 years, has left the country).
3) The invasion would serve as a recruiting tool for al Qaeda, in my mind the most important and overwhelming of all these. Indeed, the fact that there was no al Qaeda in Iraq before the invasion but it is now the US's worst enemy there proves this. Indeed, the only reason they have for existing is our presence there. If we pulled our troops out, they would be reduced to near zero very soon thereafter, another forecast from me!
The "positives"
1) Saddam would no longer violate anybody's human rights (I did not foresee that US troops would be engaging in torture subsequently).
2) US troops in Saudi Arabia to oversee the no-fly zones could be removed, thereby removing one of Osama bin Laden's leading propaganda tools (more than offset by the length and severity of our occupation of Iraq).
3) That whatever regime would come to power in Iraq, the ending of economic sanctions would be a positive (more than offset by the negative impact of the insurgency on the Iraqi economy).
The "negatives:
1) Women's rights would be reduced (Laura Bush likes to say they are enhanced, but women must wear veils and stay at home in a majority of Iraq, although not in the Kurdish-ruled areas; there they may be better off, my only possible mistake here).
2) Christians would be persecuted (about half the Christian population of Iraq, some of which has been there for nearly 2000 years, has left the country).
3) The invasion would serve as a recruiting tool for al Qaeda, in my mind the most important and overwhelming of all these. Indeed, the fact that there was no al Qaeda in Iraq before the invasion but it is now the US's worst enemy there proves this. Indeed, the only reason they have for existing is our presence there. If we pulled our troops out, they would be reduced to near zero very soon thereafter, another forecast from me!
Tuesday, March 25, 2008
Social Security Looking in Better Shape
The Social Security Trustees released their annual report today. Even though Bush has appointed people like Andrew Biggs of Cato, a confirmed privatizer and hysterian, to be Deputy Director during a Congressional recess, the current report moves to a somewhat more reasonable and less hysterical position. It is available at
http://www.ssa.gov/OACT/TR/TR08/tr08.pdf.
The inimitable and careful Bruce Webb has pointed out to me personally that even though they are still projecting by their intermediate projections program exhaustion in 2041, the consequences and longer run gaps are now reduced. So, the projected 75-year deficit is now to be 1.70 percent of taxable payroll rather than 1.95%, a decline of 0.25% and total actuarial deficit over 75 years is now supposed to be $4.3 trillion rather than $4.7 trillion, down $400 billion. Also, if the system were to go "bankrupt" in 2041, the payments would be cut to 78% of then existing receipts rather than 75% (this number was 71% back when Bush gave his doom scenario in his SOTU speech in 2005 when he made his push to "reform" SS). So, bit by bit, the reality that social security is really not in such bad shape is creeping in.
http://www.ssa.gov/OACT/TR/TR08/tr08.pdf.
The inimitable and careful Bruce Webb has pointed out to me personally that even though they are still projecting by their intermediate projections program exhaustion in 2041, the consequences and longer run gaps are now reduced. So, the projected 75-year deficit is now to be 1.70 percent of taxable payroll rather than 1.95%, a decline of 0.25% and total actuarial deficit over 75 years is now supposed to be $4.3 trillion rather than $4.7 trillion, down $400 billion. Also, if the system were to go "bankrupt" in 2041, the payments would be cut to 78% of then existing receipts rather than 75% (this number was 71% back when Bush gave his doom scenario in his SOTU speech in 2005 when he made his push to "reform" SS). So, bit by bit, the reality that social security is really not in such bad shape is creeping in.
Monday, March 24, 2008
Capital on the Runway
Readers of the latest missive from Brad Setser may not realize the full implications of his numbers, so we will do the math here. Brad crunches the latest Treasury International Capital (TIC) survey from our friends at the US Treasury Department, adds some other sources, and comes up with the estimate that central banks and sovereign funds pumped over $100B back into the US financial system during the month of January. He worries about the apparent shift away from agencies — our public creditors are reluctant to prop up our crumbling housing sector — but I worry about the implication for private capital flows.
The most recent estimate for last year’s current account deficit is around $740B. To make things simple, assume it remains the same this year. (Recession at home will push it down; recession abroad, if it begins to happen, and oil prices, if they remain higher, will push it up.) If the January rate of official finance continues, it would stand at more than $1200B for the year. The difference, $460B would represent net private capital outflows from the US. If this isn’t capital flight, it’s at least a pretty substantial exodus. My instincts tell me that a full-bore capital flight is the big risk lurking in the shadows. What is the cutoff point between where we are today and a dollar crisis? The answer is, a rate of private outflow that central banks are unable or unwilling to offset. And how much is that?
We are conducting a global experiment right now to find out.
The most recent estimate for last year’s current account deficit is around $740B. To make things simple, assume it remains the same this year. (Recession at home will push it down; recession abroad, if it begins to happen, and oil prices, if they remain higher, will push it up.) If the January rate of official finance continues, it would stand at more than $1200B for the year. The difference, $460B would represent net private capital outflows from the US. If this isn’t capital flight, it’s at least a pretty substantial exodus. My instincts tell me that a full-bore capital flight is the big risk lurking in the shadows. What is the cutoff point between where we are today and a dollar crisis? The answer is, a rate of private outflow that central banks are unable or unwilling to offset. And how much is that?
We are conducting a global experiment right now to find out.
Subscribe to:
Posts (Atom)