Is China Punishing The US for Google and Exchange Rate Bashing?

Maybe a little bit, but probably not much. The spike in interest rates on ten year US bonds accompanying a "weak" sale last week from 3.67% to 3.91% has the WSJ and numerous commentators freaking out about US national debt crisis and collapse and also noting that China bought little to nothing, leading some to speculate that China is punishing the US either for Google standing up to them or to the US for Obama pressuring them to appreciate the yuan/renmimbi, with Krugman and others howling for a 25% import tariff on their goods to make them do so. Jim Hamilton at econbrowser provides a good summary of much of this with some excellent comments.

Anyway, there are several reasons not to panic and even to think that while the Chinese are clearly annoyed, their weak buying is probably not due to some massive vendetta/collective punishment. One fact is that last month the Chinese actually ran a trade deficit, suggesting that their currency may not be all that undervalued after all, even if their bilateral surplus with the US remains large. This situation would mean that they are probably buying few foreign securities at all as they do not have the current account inflow to do so. Even if their currency is still undervalued, their high growth rate compared to other countries suggests one would expect their imports to be rising more rapidly than their exports.

Another aspect of this was pointed out by a commenter at econbrowser named Tom, who noted that the Fed has just turned a policy corner towards a more restrictive stance, having just brought to a final end its policy of propping up the housing market with MBS purchases. Many of us had been pointing for some time to March 23-25 as a point when there might be a spike in interest rates as this policy finally came to an end. So, the spike has happened, and we should probably be glad that it has not been worse, especially given the weak buying by the Chinese due to the change in their balance of payments situation, as this could have led to a renewed collapse of the US housing market and a fall into a definite double dip of the recession.

New Frontiers of Corporate Synergy

The buyout shops are purchasing hospitals, no doubt in a charitable effort to make health care more available. Cerberus Capital Management went one step further striking a deal to acquire Caritas Christi Health Care, a large Massachusetts hospital chain. To ensure that the hospital chain will have an opportunity to treat more people, Cerberus also owns Freedom Group Inc., one of the world’s largest makers of firearms and ammunition.

Way to go, capitalism!

Constant Capital and the Crisis in Contemporary Capitalism

Echoes from the Late Nineteenth Century

Introduction: Constant Capital and Crises

An understanding of constant capital is an overlooked, but necessary component of crisis theory. This paper uses the experience of the 19th century U.S. economy illustrate the relationship between constant capital and economic crises. The rapid technological advances of the time led to a lethal combination for capital. Investment in constant capital suffered rapid devalorization, while growing productivity saturated markets, creating what was then known as The Great Depression.

Constant Capital and Labor, Living and Dead

Read complete paper

http://michaelperelman.files.wordpress.com/2010/03/constan.pdf

Make it an Even Ten

After much reflection, I think I can add two more books to my "most influential" list, bringing me to my quota.

Mathematical Optimization and Economic Theory, Michael Intiligator. This fantastically lucid book taught me micro in grad school, helping me see (although this is nowhere mentioned in the book itself) that the math embodies a precise social theory. (Or, to be more exact, a pre-social theory.)

Atlantic Crossings: Social Politics in a Progressive Age, Daniel Rodgers. This is spectacularly well-written, but its main impact has been to alter my thinking about "reform" by seeing familiar issues in broad historical perspective. Also, the lives of reformers themselves often seem to trace a similar arc.

Fascism-Naziism-Socialism-Communism Triumphs In America!!! Prepare To Move To Guatemala!!!

I have such a deep respect for that profound scholar, Glenn Beck, and have been so convinced by the anti-tax arguments of his allies, the Tea Party Movement, who are obviously correct that Obama is planning to raise our taxes, since, heck, he cut them last year, and Robert Barro has taught us that tax cuts must be followed by tax increases. In any case, Beck and crew have warned us that passage of health care reform in the US will constitute a victory by a ruling cabal of fascist-nazi-socialist-communists, and now this has happened! Clearly, every red-blooded American should prepare to leave the country to pursue a free enterprise system in health care!

Fortunately, I have studied the data, and Guatemala is the answer! Public spending on health care is barely above 1% and not likely to rise! Hallalujah! And, we foreigners can figure to hog the available health care facilities, which certainly have plenty of excess capacity, given that only about 40% of the population uses hospitals! Or alternatively, we can all move to Guinea, where witch doctors are more widely used in the private market than any public sector health care! Long live the free market in health care!!!!

10 Books

Far and away the most amazing book I've ever read is Proust's *Remembrance of Things Past* which is also on Barkley's list.

I also would put 100 years of Solitude on my list, along with Peter. The other eight are then:

Stanley Elkin, The Franchiser or George Mills
Kierkegaard, Either/Or
Dickens, David Copperfield or Bleak House or Dombey and Son
Anything and Everything by Wodehouse, with the Blandings Castle novels firemost
Marx, Capital
Charles Taylor, Sources of the Self
Hannah Arendt, The Human Condition
Smith, The Theory of Moral Sentiments

Ten Most Influential Books, With Some Blanks

Try as I might, I couldn't come up with a list of ten books that had been highly influential for me. It's odd: I do read a lot, but I think I have a lot of resistance to being influenced. Here's what I have:

During high school (an impressionable time):
Rhinoceros, Eugène Ionesco
Mo Tzu: Basic Writings, Burton Watson (trans.)

Late teens, early 20s:
Technics and Civilization, Lewis Mumford
Presentation of Self in Everyday Life, Erving Goffman
Communitas, Paul and Perceval Goodman

Time of wandering:
100 Years of Solitude, Gabriel García Márquez

Since becoming an economist:
Rise and Fall of Freedom of Contract, P. S. Atiyah
John Dewey and American Democracy, Robert Westbrook

It's interesting that I couldn't think of a single economics book that left an imprint. What have I been missing?

Educational Chutzpah

The Wall Street Journal, always on the lookout for good humor, outdid itself today with an essay by Chester E. Finn Jr., advocating keeping schools open on Saturday. The author acknowledges that strapped districts are shortening the school week to four days. Others are considering eliminating the 12th grade.

Presumably, the idea would be for teachers to increase their days of work in return for reductions in salary. Sadly, the problem is a teachers’ union, which is also responsible for the bad weather during the winter.

In the words of the author, “This issue brings out the teacher unions, too, demanding more pay for extra hours, hence fatter school-system budgets in a lean fiscal time. Little wonder that taxpayers are legitimately wary.”

And who says that the Wall Street Journal does not have a good sense of humor?

Finn, Chester E. Jr. 2010. “The Case for Saturday School.” Wall Street Journal (20 March): p. W 1.

Economics as a Moral Science?

I am quickly dashing off the text for lecture for the Campus Peace Institute. What I have is a bit rough, but I would appreciate any feedback.

Thanks.

Click here:

http://michaelperelman.files.wordpress.com/2010/03/peace.pdf

Ten Influential Books I Have Read

Tyler Cowen over at Marginal Revolution has started a game of people listing the ten most influential books that they have read, which has since been picked up by a large number of folks. At first I thought this was kind of silly, but I have decided to join in and provide a list. This is in rough chronological order of when I either read or initially encountered them, although unlike some others, I am not going to provide any accompanying explanatory verbiage. Let them just be.

So, now, some days later, have decided to add some commentary.

1. The Lord of the Rings, J.R.R. Tolkien
Read first when I was 12 in hardbook when nobody knew about it. Blew me away and still does. My all time fave.
2. 1984, George Orwell
I was at the peak of my libertarian phase when I read this (age 14), but I am still deeply struck by its vision of tyranny based on double speak and all that.
3. The Worldly Philosophers, Robert Heilbroner
Not the greatest book on economics, but I read it at the time that I switched into economics, and it played a role. Later I would read many of the classics, but I would say that for all the simplifications, Heilbroner's takes generally held up pretty well on the earlier economists.
4. Collected Poems, Wallace Stevens
I write poetry, and I could list some others, but Stevens has a certain perfection and profundity. I just heard earlier this evening that Hemingway beat him up out of jealousy because he knew Stevens was a genuine genius.
5. Joseph and His Brothers, Thomas Mann
Buddenbrooks and The Magic Mountain get read more and get more attention, but this longest book of Mann's is more profound in my view. It was where I really became aware of how the western monotheisms took so deeply of the preceding paganism, and it also deeply altered my view of the role of Jews in history.
6. Some Cambridge Controversies in the Theory of Capital, Geoffrey C. Harcourt
This was the book that first threw me into realizing that orthodox economic theory had serious problems. Some of my earliest publications were inspired by it.
7. Gravity's Rainbow, Thomas Pynchon
Deeply altered my view of what happened in the first part of the 20th century and and the interconnections between technology and various intellectual disciplines. I remain a big fan of Pynchon.
8. Remembrance of Things Past, Marcel Proust
Tyler Cowen praised this one for its "interiority." It has that, but its depiction of the subjective aspect of time as well as of the many layerings of social hypocrisy and obsession is also outstanding, as well as the sheer quality of the writing itself.
9. Structural Stability and Morphogenesis: An Outline of a Theory of Models, Rene Thom
This is the book that first laid out catastrophe theory, which has long since interested me. However, this is also a multidisciplinary book of philosophy and not merely of mathematics, obscure in many ways and disturbing.
10. Chaos: Making a New Science, James Gleick
This is a pop-schlop book ultimately, but it did put together the pieces of what was going on in chaos theory quite well. I had been aware, but this helped me focus on what was going on in this topic, yet another of my ongoing obsessions.

China's Economic Nationalism?

Today's Wall Street Journal expresses shock that China is resorting to economic nationalism, which is supposed to be the exclusive right of the U.S. After all, China's economy seems to be performing better than the U.S. -- at least until a possible real estate bubble bursts. In addition, China does seem to be reining in its expansionary monetary policy, something the U.S. did not do as its bubble grew. Anyway, here are my extracts from the relevant articles:

Browne, Andrew and Jason Dean. 2010. "Business Sours on China: Foreign Executives Say Beijing Creates Fresh Barriers; Broadsides, Patent Rules." Wall Street Journal (17 March): p. A 1.

Foreign businesses say their relationship with China is starting to sour, as tougher government policies and intensifying domestic competition combine to make one of the world's most important markets less friendly to multinationals.

Interviews with executives, lawyers, and consultants with long experience in China point to developments they say are making it much harder for many foreign companies to succeed. They say the changes suggest Beijing is reassessing China's long-standing emphasis on opening its economy to foreign business -- epitomized by the changes it made to join the World Trade Organization in 2001 -- and tilting toward promoting dominant state companies.

In the latest broadside against foreigners, authorities in a wealthy province near Shanghai Tuesday assailed the quality of luxury clothing brands from the West, including Hermès, Tommy Hilfiger and Versace.

Technology executives say they are highly concerned about government procurement rules issued late last year that would favor local suppliers who have "indigenous innovation." The rules, if implemented, could limit foreign access to tens of billions of dollars in contracts for computers, telecommunications gear, office equipment and other goods.

Patent rules imposed Feb. 1 threaten to increase costs in China for foreign innovators in industries such as pharmaceuticals, and let authorities force foreign drug companies to license production to local companies at state-set prices.

Executives in several industries say the liberalization spurred by China's WTO entry is stalling. Foreign makers of wind turbines and solar panels say they are being shut out of big renewable-energy projects. Regulatory barriers effectively cap participation in insurance: Foreign companies had just 4.7% of China's life-insurance market as of June, and 1% of its property and casualty market, according to PricewaterhouseCoopers.

Canaves, Sky. 2010. "China Slams Luxury Goods' Quality." Wall Street Journal (17 March): p. B. 2.

In a statement posted on its Web site, the Zhejiang Administration of Industry and Commerce said that "International designer clothes, blindly worshipped by Chinese consumers and enjoying 'super national treatment' in the country, have once again proven unsuitable for China".

According to the Zhejiang notice, 48 out of 85 samples of imported clothing from 30 international brands failed to meet Chinese product quality standards. The brands also included Versace, Dolce & Gabbana and Zara. The authorities say that they have impounded all of the clothes with the same model numbers as the samples that failed to meet the standards, but the rest of the companies' products aren't affected. It was unclear if any fines would be levied. The harsh tone of the attack appeared to be out of proportion to the actual infractions: half of the complaints were over usage labels, including laundry instructions that failed to meet Chinese requirements. Nevertheless, the statement was carried widely by China's official media. While the immediate financial impact of the sanctions against the luxury brands is likely to be limited, the negative publicity could be damaging. Foreign brands sell at a huge premium to local brands, justified in part by the perception of quality.

Will Dodd's Proposed Reforms Reduce The Power Of the Regional Feds?

So, in the office I post on Obama's picks for the Fed and comment on the district/regional bank presidents, only to come home and find a front page story in WaPo on Senator Dodd's proposal to reduce the power of the regional banks and their presidents. Apparently he wants to take away their power to regulate banks in their districts, although the power of the New York Fed and a body to be set up at the Board of Governors, although not under its control, would take over this supervisory role. Also, the New York Fed president would become a presidential appointee. I saw nothing altering the role of the regional bank presidents on the FOMC, where all of them report on conditions in their regions during the meetings, and five of them vote on policy.

Actually I am not impressed by this proposal. The argument of their defenders that they will have better knowledge of their regions if they supervise their local banks makes sense to me. Also, they are the ones that actually operate the discount windows that lend to the banks in their regions. Again, they will know better about this lending if they know what is going on with those banks. This proposal looks just plain silly to me, frankly.

Will Obama's Fed Picks Change The Fed?

The retirement of Vice Chairman Donald Kohn and Obama's decision to replace him with Janet Yellen, as well as to appoint Sarah Bloom Raskin and Peter Diamond to vacancies on the Board of Governors raises the question of whether this means a shift in attitudes or decisionmaking at the Fed. The answer is probably not too much, mostly because Yellen is already involved in FOMC meetings as San Francisco Fed president, while the othet two appointees lack experience with monetary economics, although Raskin, a lawyer by training, is currently Commissioner of Financial Regulation in Maryland, and Peter Diamond is a distinguished MIT economist, although an expert on social security and fiscal policy rather than monetary theory or policy. Yellen is viewed by most as "dove" in terms of favoring fighting unemployment more than inflation, although Mark Thoma has linked to Lawrence Meyer claiming that at least on one occasion in the mid-1990s when she was on the Board, Yellen was hawkish.

Some observers have argued that the Board needs beefing up by "real economists" to offset the supposedly hawkish set of district bank presidents, many of them distinguished Ph.D. monetary economists with strong views and large egos, who may be dominating the FOMC. In contrast with the Board of Governors who are appointed by presidents with approval by the Senate for 14 year terms (which none ever finish anymore), district bank presidents are appointed by Boards of Directors of the district banks, with the approval of the Board of Governors, and often represent local economic interests as well as the sometimes peculiar views of the specific district banks, with some known for particular views. Thus, the St. Louis and Richmond Feds have long been viewed as bastion of old-fashioned monetarism, while the Minneapolis Fed (with its connections to the University of Minnesota) is viewed as a fountainhead of new classical economics.

I shall list all the current governors and district bank presidents below with some information about each, while noting that indeed Kohn was senior to all, with a University of Michigan Ph.D. and starting at the Kansas City Fed in 1970 before going to Washington where he became Greenspan's right hand man in many high level staff positions before joining the Board of Governors and becoming Vice Chairman. Yellen served on the staff in Washington in 1977-78, as well as the Board of Governors in 1994-97, before becoming SF Fed president in 2004, a definite insider with a distinguished academic record (and Nobel Prize winning husband), if not as much of one as Kohn. BTW, it should be noted that she may not accept the appointment as it would involve a pay cut of about $200,000 per year.

Board of Governors (continuing):

Ben Bernanke, Chairman, econ PhD MIT 1979, distinguished publication record,
Bd of Govs, 2002-05, Chairman, 2006-

Kevin Warsh, J.D. Harvard, 1995, Bd of Govs, 2006-

Elizabeth Duke, MBA, Old Dominion (year?), Bd of Govs, 2008-
came up through Virginia banking system, Chair Bd of Directors, ABA, 2004-06

Daniel Tarullo, J.D. University of Michigan, 1977, Bd of Govs, 2009-

District Bank Presidents (continuing, not listing Yellen at San Francisco Fed):

Boston: Eric Rosengren, econ PhD, U. of Wisconsin, 1986, at Boston Fed since 1985, president since 2007

New York: William Dudley, (first among equals and permanently on FOMC, which includes five district bank presidents at any time), econ PhD, UC-Berkeley, 1982, at NY Fed since 2007, president since 2009, formerly at Goldman Sachs

Philadelphia: Charles Plosser, econ Phd, U. of Chicago, 1976, strong new classical orientation and distinguished publication record, formerly associated with strongly monetarist Shadow Open Market Committee, president since 2006

Cleveland: Sandra Pianalto, econ MA George Washington U., (year?), at Cleveland since 1983, president since 2003

Richmond: Jeffrey Lacker, econ PhD, U. of Wisconsin, 1984, at Richmond since 1989, president since 2004. Despite having strongly Keynesian major prof, Donald Hester, Lacker seems to have gone native at the Richmond Fed with a strongly hawkish reputation.

Atlanta: Dennis Lockhart, econ and foreign policy MA, Johns Hopkins, 1971. At Citibank/Citigroup, 1971-88. At Atlanta since becoming president, 2007.

Chicago: Charles Evans, econ PhD, Carnegie-Mellon (year?), distinguished publication record, at Chicago since 1991, president since 2007.

St. Louis: James Bullard, econ PhD, Indiana, 1990. distinguished publication record and interested in agent based modeling and complex dynamics, currently serving as adjunct prof at Washington U., and as coeditor of the Journal of Economic Dynamics and Control. At St. Louis since 1990, president since 2008.

Minneapolis: Narayana Kotchelakota, econ PhD U. of Chicago, 1987, formerly at U. of Minnesota and strong new classical with distinguished publication record. At Minneapolis since becoming president, 2009.

Kansas City: Thomas Hoenig, econ PhD Iowa State (year?), at KC Fed since 1973, making him senior person of this group in Fed, president since 1991, also senior at that level.

Dallas: Richard Fisher, highest degree unlisted. Background in private banking starting in 1975 at Brown, Harrisman, later a diplomat, trade rep for NAFTA negotiations and also at Kissinger Associates. At Dallas as president since 2005.

The smile of collusion

A quote from Jean Baudrillard under one of my early paintings. How eloquently he puts my thoughts into words.

"This false distance is present everywhere: in spy films, in Godard, in modern advertising, which uses it continually as a cultural allusion. It is not really clear in the end whether this 'cool' smile is the smile of humour or that of commercial complicity. This is also the case with pop, and its smile ultimately encapsulates all its ambiguity: it is not the smile of critical distance, but the smile of collusion"

— Jean Baudrillard (The Consumer Society: Myths and Structures)

Manufacturing Discontent

I was asked to write something up about my book, Manufacturing Discontent. I thought that I would share it with you. Any comments would be be appreciated. It begins as:

Of all my books, Manufacturing Discontent may seem to have the least links with Marxism. After I published The Invention of Capitalism: Classical Political Economy and the Secret History of Primitive Accumulation, some people argued that the subject was purely historical and had no contemporary relevance. Of course, the seizure of property continues throughout the world, even in the United States, where government can take property through the law of eminent domain and then turn it over to private interests.

Read the entire commentary at:
http://michaelperelman.files.wordpress.com/2010/03/manufacturing.pdf