Anti-trust a la Bush

The second paragraph is the killer. I wonder what made the West Virginia case so egregious that the government had to step in.

Lichtblau, Eric. 2008. “Antitrust Document Exposes Rift.” New York Times (8 September): p. C 1.

The Justice Department laid out a broad policy on antitrust enforcement on Monday that drew an unusually sharp rebuke from three federal trade commissioners, who said it would protect monopolies from prosecution.

A 215-page report from the Justice Department, coming after nearly a year of public hearings, was originally meant to lay out a governmentwide approach to combating anticompetitive business practices. Instead, it exposed a rift between the Justice Department and the Federal Trade Commission over whether the government was protecting consumers or big businesses.

In nearly eight years under the Bush administration, the Justice Department has brought one case against a business on anticompetitive grounds, seeking to block the purchase of a West Virginia newspaper by a competitor.

Lawrence Summers on Fiscal Policy During This Recession & McCain v. Obama

On Saturday, I speculated on what Lawrence Summers might say in light of the dismal employment news:

Summers strikes me as a long-term deficit hawk for the same pro-growth reasons that I am. Something to do with increasing national savings – which of course the Reagan-Bush43-McCain wing of the Republican Party seems to think has it all backwards. We deficit hawks tend to favor countercyclical monetary policy that lowers interest rates to encourage investment (and yes net exports via dollar devaluation) when aggregate demand is weak. But the Federal Reserve has played that lever and some of us are concerned that it alone will not be enough. So as the politicians want to pander to the public with promises of both more spending and tax cuts too, let’s try to figure out which set of fiscal policies can do the best job of giving timely, targeted, and effective short-term fiscal stimulus and at the same time tell Wall Street that we are serious about long-term fiscal responsibility. This policy prescription used to be called Rubinomics and I submit that it worked well for the Clinton Administration. But then Summers was one of his excellent economic advisors – to which President Clinton did listen to carefully.

Well – when Larry speaks, I often just listen:

Former U.S. Treasury Secretary Lawrence Summers Tuesday said a second fiscal stimulus program is “the right response” to the current turmoil facing the U.S. economy but the plan shouldn’t raise projected deficits beyond a year or two. “Beyond this horizon it is essential that any new spending or tax cutting be offset by measures that reduce projected deficits,” said Summers, a Harvard University professor who has advised Democratic presidential candidate Barack Obama. Testifying before the House Budget Committee at an afternoon hearing, Summers said that any new stimulus plan should be temporary and targeted and also matched by actions that make the program budget-neutral over a five- or 10-year horizon. “I believe the balance of risks suggest a compelling case for a significant fiscal stimulus program that increases the deficit in the short run” but not over the medium to longer term, he said. The program may be most beneficial if it includes new measures for food stamps, unemployment insurance and other policies aimed at supporting low-income families, said Summers. He also argued in favor of new infrastructure investment as well as changes in Medicaid reimbursement rules and new funding to help low-income residents pay their heating bills.

Like I said! But let’s see if any of the Presidential candidates are listening:

McCain wants tax cuts – lots of them. Some of them are temporary tax cuts (gasoline tax rebates) which a lot of economists would argue have little bang for the back. But McCain is also advocating making George W. Bush’s tax cuts permanent. Whoops – that’s the complete opposite of what Rubinomics would call for. It would reduce national savings and long-term economic growth and could even hurt forward looking investors types such as those folks on Wall Street. The McCain recipe is a lot like the Reagan and Bush43 recipes and the evidence is that these recipes work poorly. Obama is calling for an acceleration of public investment projects, which could give a large bang for the buck and perhaps more timely bang for the buck. But I’m not ready to say President Obama would be a repeat of what President Clinton did back in 1993. Candidate Obama wants to tell all but the very rich they get a tax cut. Then again candidate Clinton made that promise back in 1992. But at least candidate Obama is proposing less fiscal irresponsibility than candidate McCain and is willing to say some folks will have to pay more in taxes. Candidate Obama is also surrounding himself with economic advisors who are actual economists. McCain’s idea for economic advisors include Carly Fiorina and Phil Gramm.

Talk about lipstick on a pig!

D. H. Lawrence with Penelope Cruz Thrown In

My apologies for going middlebrow, but that's my take on the new Woody Allen movie, “Vicky Christina Barcelona”. PC almost pulls it out. Since this is an economics blog, I’d like to ask, has anyone else noticed that the money just seems to be there in Woodyland? People have jobs mainly as a source of identity, but in fact they just pass Go every now and then, and their bank accounts are recharged so they can enjoy the comfortable life without worrying about how much it costs. Only in this magical world would a woman’s choice between a young Wall St. go-getter and a “bohemian” artist have no financial implications.

The Fed and Fear of Becoming Japan

I just got around to reading the Aug. 23 The Economists with its Economics Focus article on "The Lost Decade" (more than that now), comparing the US and Japanese housing bubbles. Turns out our bubble has been a lot worse than theirs. Between 1985 and 1991, housing prices nationally in Japan rose only 50%, whereas in the US between 2000 and 2006 they rose 90%. Furthermore, even after the recent declines in the US market, national housing prices are still above the peak level reached in early 1991 in Japan in terms of percent above the starting point, which does not bode well for the future. While housing prices stabilized in major Japanese cities a few years ago, they continue to gradually decline nationally, as they have since 1991, providing a major downward drag on the Japanese economy.

So, the Fed is afraid of this, and Bernanke has encouraged the Fannie/Freddie bailout, partly with "advice" from both the Chinese and Japanese, who just happen to hold a lot of paper from those Agencies. But, in fact, this fear has been influencing the Fed for quite some time. In the period of 2002-2004 the stimulative policies of the Fed, which cynics might say were designed to help Bush get reelected, were justified on the basis of avoiding getting into a Japanese style deflation, which fear was what triggered Bernanke to make his famous public remarks about dropping money out of helicopters (an image taken originally from Milton Friedman, who did not approve of such an approach). Indeed, Alan Greenspan noted the problem of the threat of a possible deflation in his discussion of monetary policy during that period in his AER paper (Alan Greenspan, "Risk and Uncertainty in Monetary Policy," American Economic Review, Papers and Proceedings, May 2004, pp. 33-40). Of course the ultimate irony here is that this stimulative policy almost certainly further goosed the US housing bubble, whose unraveling is now causing such havoc in the financial markets, so that a policy to avoid a crisis has brought about a crisis.

LIPSTICK ON PIG

by the Sandwichman

So what's the fuss? Senator Obama called a spade a spade.

Housing Collapse Hits The Answer

Allen Iverson owns a really nice house in Villanova, Pennsylvania but is trying to sell it for $1 million less than he paid for it:

Unbeknownst to me, Denver Nuggets guard Allen Iverson has been looking to sell his 14,000 square foot home in Villanova, Pennsylvania for over a year now. (A.I. usually calls me about such matters. I thought I had his financial ear.)According to the Wall Street Journal's Private Properties column, Iverson has dropped the price to a "desperation deal" of $3.999 million — a million less than he paid for it in 2003.

I used to run past this neighborhood and it is spectacular. I also happen to be a fan of The Answer. OK, he makes incredible money playing basketball but a $1 million capital loss is got to hurt.

Where is Biblical Inerrancy When We Need it?

In general, I’m not reassured that the Republicans have put a Christian fundamentalist on their national ticket. Sarah Palin holds beliefs about such matters as creationism and God’s will (Jesus pays close attention to natural gas pipelines) that make me cringe. But I would suppress all that if she would make the connection between biblical teachings (Leviticus, chapter 25, various verses) and disorder in financial markets.



The passages I’m thinking of describe a jubilee which is to take place on the fiftieth year; all debts are foregiven, property (particularly in humans, as was common back then) redistributed, and liberty proclaimed. From a narrow economic point of view, periodic dissolution of debt claims has the virtue of avoiding the sort of overly leveraged, and therefore highly fragile, financial structure that is a recurrent threat to prosperity. This is the one “thou shalt” that we really should.

Incidentally, I think that in this, as in other matters, we should prefer a loose reading of scripture. If the jubilee were entirely predictable in its fifty year rotation, the credit mechanism would collapse as the big event approached: who would lend if there were a certain date on which a universal default was scheduled? But maybe Einstein was wrong and God really does throw dice. In that case, we could interpret Leviticus as advising us to establish a stochastic jubilee, such that in each year there would be a 2% chance of its occurrence. This could be done by picking an envelope out of a drum on nationwide TV. (Imagine the ratings: you could take in a lot of revenue just by selling the advertising.) The downside is that an extra 2% risk premium would be attached to all loans, but we could learn to live with it.

So why is it that those who proclaim their belief in every word of the bible conveniently forget its most far-reaching economic proposal?

KISS MY FANNIE

by the Sandwichman

Too big to fail? Not really. The government takeover of the two mortgage giants signifies that Fannie and Freddie had already failed. The wager now is that government regulators, with access to presumably "unlimited" financial resources, will (in the future) be able to better manage the rubble. As always, the invisible hand guiding the free market looks suspiciously like the State.

Conservatives Question Palin’s Fiscal Conservatism

Cato’s Chris Edwards focuses on the tax side:

On tax policy, Alaska governor Sarah Palin has a rather uninspiring, albeit brief, record. The following is some information gleaned from State Tax Notes.
Palin supported and signed into law a $1.5 billion tax increase on oil companies in the form of higher severance taxes. One rule of thumb is that higher taxes cause less investment. Sure enough, State Tax Notes reported (January 7): “After ACES was passed, ConocoPhillips, Alaska’s most active oil exploration company and one of the top three producers, announced it was canceling plans to build a diesel fuel refinery at the Kuparuk oil field. ConocoPhillips blamed the cancellation on passage of ACES [the new tax]. The refinery would have allowed the company to produce low-sulfur diesel fuel onsite for its vehicles and other uses on the North Slope, rather than haul the fuel there from existing refineries.” There are good reasons for an oil-rich state to tax oil production, but a fiscal conservative would usually use any tax increase to reduce taxes elsewhere. Perhaps I’m missing something, but I see no evidence that Palin offered any major tax cuts. She did propose sending $1.2 billion of state oil revenues to individuals and utility companies in the form of monthly payments to reduce energy bills, but that sounds like welfare to me, not tax cuts.
Palin has offered a few narrow or minor tax breaks, including:

A tax credit for film production in the state, offering about $20 million per year in breaks.

A cut in an annual business license fee from $100 to $25 (the legislature went half way to $50).

A one-year suspension of the state fuel tax to save taxpayers about $40 million.
A repeal of tire taxes to save taxpayers $2 million.

A tax credit for commercial salmon harvesting to save taxpayers about $2 million.

That’s about it.

Andrew Sullivan says Palin is a Bush-Cheney fiscal conservative:

low taxes, unprecedented new spending, utter incompetence, endemic cronyism and massive debt.

And Sullivan has the facts to back this up.

What You Can Learn From the Newspapers

Thursday's Wall Street Journal taught me that Sarah Palin is not a rigid fundamentalist. "She drew the ire from the religious right by shelving calls for new abortion limits, when she worried it would distract from her bipartisan deal to push through a new gas pipeline." And that's comforting, isn't it?

And the Labor Department does not have to follow the law in protecting corporate whistleblowers, when the whistleblower works in a subsidiary. That makes sense, doesn't it.

Of course, the common theme is that business is the true religion in America.

The Real Threat From China?

The international economy is supposed to be a bright spot for US business. The New York Times today mentioned that the falling value of investments the United States has the Chinese central bank strapped for cash. The article does not mention the possibility that the bank might slack off its purchasers of US paper. Does anyone have any thoughts about how sensitive US interest rates might be to declining demand by the central bank? Even more important, how long can the unhealthy codependence of the US and Chinese economies last?

Against the Day

I feel like a kid reporting, but with Labor Day passed I finally finished reading my big fiction book of the summer, Thomas Pynchon's _Against the Day_. I have long been a fan of his work (although I thought _Vineland_ was lousy), ever since I read his most famous work, _Gravity's Rainbow_ back in the mid-70s. This is his best since then, possibly better, and closest to it in themes. GR took place at the end of WW II with themes of technology and war. AtD starts at the Chicago World's Fair in 1893 and ends shortly after the end of WW I, with him clearly seeing WW I as what led to WW II. I think the day he is against is June 28, 1914, the day the Archduke Ferdinand was assassinated in Sarajevo, setting off WW I, which he makes clear was a catastrophic even in world history and civilization. His theme of technology is driven deeper by a much more profound investigation of the intellectual roots of relativity theory and other ideas in physics that would underly the various horrors of the 20th century, with long disquisitions on the themes of light and time.

His political/economic stance is much clearer than in earlier books, with several of his major characters coming out of a family of anarchists from the western US at the end of the 19th century. He is very much concerned with class struggle issues, but frames them in terms of anarchism, making only the briefest of mentions of Lenin or Bolshevism, and unfavorably. There is also more character development in this novel, his longest at 1084 pages, and I suspect that he may have reacted against his critics on this matter, with many writing about him, and there even being an academic journal devoted to his works. But this book is a profound tour de force that I highly recommend, with much that resonates with our recent and current situations in terms of the deeper trends of world history and politics.

Profits vs. Technical Education

A few months ago, Computerword published an interesting article that might through some light on the ongoing debate about "H-1B visas, offshore outsourcing and the debate over whether an IT labor shortage even exists."

The idea is that efforts to cut costs for technology workers deflate students enthusiasm to train for such training. The article is also interesting because it breaks with the usual practice of blaming the prospective employees rather than the corporate employers.

Tennant, Don. 2008. "Pro or Parasite?" Computerworld (14 April): p. 8.
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=316555

"There are a lot of CIOs [Chief Information Officers] around who dismiss the idea of hiring graduates fresh out of college. I know, because I've spoken with many of them .... But it seems like an awfully shortsighted approach to skills management."

"Of all the issues we cover, none seems more volatile or emotional than the subject of IT skills and labor management, encompassing as it does issues like H-1B visas, offshore outsourcing and the debate over whether an IT labor shortage even exists. During a panel discussion on this topic at our Premier 100 IT Leaders Conference last month, we polled the audience to see whether attendees believed there is such a shortage. Forty-six percent said yes, 43% said no, and 11% said they weren't sure. I wasn't surprised to see the results so evenly split."

"The lack of consensus extends to the question of whether the U.S. education system is producing enough graduates in technology-related fields. We've all read about the concern that the U.S. is losing its competitive edge because China, India and other countries are educating far more scientists and engineers than we are. But there's plenty of debate over whether that concern is legitimate."

"For example, last November, Harold Salzman of the Urban Institute testified before Congress that research conducted in collaboration with Case Western Reserve University and Georgetown University found no shortage of STEM (science, technology, engineering and mathematics) graduates in the U.S. "The available data indicate that the United States' education system produces a supply of qualified STEM graduates in much greater numbers than jobs available," Salzman testified. "If there are shortages, it is most likely a demand-side problem of STEM career opportunities that are less attractive than career opportunities in other fields." What needs to be factored into the equation, however, is that a hefty percentage of those graduates are foreign nationals."

"According to Salzman's report, in 2005, 38% of computer science and 42% of computer engineering graduates in master's degree programs were non-U.S. citizens. To the extent that the benefit of the knowledge gained by those foreign students lies outside of the U.S., it's clear that there's still a lot of work to be done to encourage young Americans to advance U.S. competitiveness by pursuing degrees in STEM disciplines."

"What's equally clear is that if the message being sent to our young people is that companies will be reluctant to hire them when they graduate, they'll steer clear of technology, the pool of homegrown talent will dry up, and the question of whether there's an IT labor shortage will be far less debatable."

McCain and Lieberman: Is This a Christian Nation After All?

News reports have it that Joe Lieberman was McCain’s top choice for VP, and that McCain went for Plan B (or was it Plan P?) because of opposition from the Christian right. I should preface what I’m about to say by pointing out that Lieberman is an orthodox Jew. In his branch of the faith, not only are women not allowed to be rabbis, they can’t sit alongside men in prayer, nor do they count when adding up bodies to find out if a minyan is present. To put it mildly, I am troubled by this.

But that is not why he was stricken from the list. No doubt, if you ask the fundamentalists who threatened to walk, they would say it was because of his views on abortion and similar issues. Nevertheless, can you name a single Jewish politician of national prominence in either party who could have passed their test? I’ve tried, and I can’t. Religious Jews have their obsessions, but they are different obsessions. So no matter how you slice it, this is de facto antisemitism. The Republican Party remains in the grip of fanatics who believe this is a Christian nation, and the rest of us are just guests, welcome or otherwise.

Happy Labor Day!

Happy Labor Day! for those of you in the United States, Canada, or Australia, where I understand the first Monday of September is an official holiday to celebrate working people and their efforts and status. I had long been under the assumption that this date was a pacifying alternative created in the US to distract workers from the more socialistic and radical May Day version that is celebrated in all the rest of the world that has such a day (not all countries do, e.g. Saudi Arabia).

In fact, the US version predates the May Day version, although not by much. Whereas I had long presumed the US version came out of the relatively conservative AF of L, in fact it was started by the much more radical Knights of Labor, with the first march celebrating it taking place on Monday, September 5, 1882, in New York City, with a carpenters sub-unit of the K of L being the main organizers, with this being repeated in 1884. In 1887, Colorado became the first state to make the first Monday of September an official holiday called "Labor Day," with this being adopted at the national level in the US in 1894, although certain individual states held off.

May Day was to memorialize the Haymarket massacre in Chicago, which happened on May 4, 1886. May Day was declared an international labor festival in 1889 in London by the Second International, with May Day having deep roots in Britain with its positon in the Celtic calendar opposite All Saint's Day, with Candlemas and Lammas as the quarter points. I am not sure which nation first had May Day as an official national holiday, but I suspect it was the Soviet Union after the Bolshevik Revolution.