"Let them eat iPad." That was the cry Friday after William Dudley, head of the Federal Reserve Bank of New York, acknowledged to an audience in Queens, N.Y., that food prices had gone up before adding that some prices are lower. "Today you can buy an iPad 2 that costs the same as an iPad 1 that's twice as powerful."
Barley, Richard. 2011. "Comedy Fit." Wall Street Journal (12-13 March): p. B 18
http://online.wsj.com/article/SB10001424052748703555404576194993426238806.html?mod=ITP_businessandfinance_8
Sunday, March 13, 2011
Friday, March 11, 2011
The Attack on Unions in Selig Perlman's Wisconsin
The Wisconsin attack on unions is sadly ironic, given the progressive tradition of the state. One of the progressives who whom I have not seen mentioned was Selig Perlman (1888-1959). He was an important economist at the University of Wisconsin and teacher of the son of Robert La Follette, who was, like his father a governor of the state. Later, I had the privilege of knowing his son Mark, I wonderful man with an amazing breadth of economic knowledge and experience. Putting information together from Mark and my father, our families came from nearby each other. I always addressed him as Cousin Mark.
In an undergraduate class, we read Perlman's book, A Theory of the Labor Movement. I remember my teachers' explanation of the book more than the book itself, which I have not read in the last 50 years. Perlman was a former Marxist, who saw the unions as a bulwark against communism. I don't know whether he influenced later scholars' ideas that, by giving workers a voice, unions dampened their revolutionary spirit. I suspect that his analysis had some influence on Jay Lovestone's CIA-sponsored project to encourage (capitalist-friendly) trade unionism around the world.
Obviously, Perlman was not radical, but he still was sympathetic to the working class. Now that the Soviet Union is gone, unions no longer serve such a purpose. Instead, they are treated as a parasitic force that eats into the profit rate. Hopefully, this nonsense will cause a strong enough reaction to ensure that nothing like this happens again.
In an undergraduate class, we read Perlman's book, A Theory of the Labor Movement. I remember my teachers' explanation of the book more than the book itself, which I have not read in the last 50 years. Perlman was a former Marxist, who saw the unions as a bulwark against communism. I don't know whether he influenced later scholars' ideas that, by giving workers a voice, unions dampened their revolutionary spirit. I suspect that his analysis had some influence on Jay Lovestone's CIA-sponsored project to encourage (capitalist-friendly) trade unionism around the world.
Obviously, Perlman was not radical, but he still was sympathetic to the working class. Now that the Soviet Union is gone, unions no longer serve such a purpose. Instead, they are treated as a parasitic force that eats into the profit rate. Hopefully, this nonsense will cause a strong enough reaction to ensure that nothing like this happens again.
Now's the Time
I have been an Obamophile from the get-go and I worked hard for him in both the primary and the general election. I have not been disappointed with him, on the contrary. But I do not understand why he is sitting on his hands while Gaddafi massacres his people. We need a no-fly zone immediately - it may well be too late.
The Ricardian Equivalence Bubble
Suddenly it’s everywhere. Justin Yifu Lin (the chief economist at the World Bank), Tyler Cowen, Paul Krugman, Nick Rowe, our own PGL: hot debate about how Ricardian equivalence applies to the current economic situation. There’s just one minor problem: Ricardian equivalence is an absurd idea, with not a shred of evidence or logic to support it.
Behind the imposing moniker dreamed up by Robert Barro, RE simply says that government debt must eventually be paid down to zero. If the government borrows $1B this year, it must run a surplus of $1B some time in the future. If spending is constant, this means taxes have to go up.
I pointed out the vacuity of this idea in a previous post, so I won’t repeat myself. The question of the day is, why should anyone give RE more than a moment’s attention? In particular, why would smart economists with state-of-the-art training be debating the fine points of what RE would mean if it were true?
The only answer I can give is that the theory can be decked out with lots of math (overlapping generations ratex models of the behavioral response to knowledge of future taxes), enhancing the reputations of all involved. The fact that RE simply assumes a nonexistent and impossible state of affairs plays no role.
That, in a nutshell, is what’s wrong with economics.
Behind the imposing moniker dreamed up by Robert Barro, RE simply says that government debt must eventually be paid down to zero. If the government borrows $1B this year, it must run a surplus of $1B some time in the future. If spending is constant, this means taxes have to go up.
I pointed out the vacuity of this idea in a previous post, so I won’t repeat myself. The question of the day is, why should anyone give RE more than a moment’s attention? In particular, why would smart economists with state-of-the-art training be debating the fine points of what RE would mean if it were true?
The only answer I can give is that the theory can be decked out with lots of math (overlapping generations ratex models of the behavioral response to knowledge of future taxes), enhancing the reputations of all involved. The fact that RE simply assumes a nonexistent and impossible state of affairs plays no role.
That, in a nutshell, is what’s wrong with economics.
Thursday, March 10, 2011
Michael Perelman at the Left Forum
I will be on a panel: The Struggle Against Mainstream Economic Ideology
H. Panel Session 4-Saturday 5:00 p.m. - 6:50 p.m
Michael Meeropol
Doug Henwood
Howard Sherman
Michael Meeropol
Michael Perelman
37 E321
I would enjoy meeting some of you whom I know only via the Internet
H. Panel Session 4-Saturday 5:00 p.m. - 6:50 p.m
Michael Meeropol
Doug Henwood
Howard Sherman
Michael Meeropol
Michael Perelman
37 E321
I would enjoy meeting some of you whom I know only via the Internet
Is The Arab Uprising A Revolution?
There is not a definite answer to this as it depends on how one defines a revolution. However, one distinction I keep seeing being made is between a civil war and a revolution, with numerous commentators discussing whether the situation in Libya is more a revolution or a civil war. Hard fact is that most serious revolutions involved periods that were also civil wars: France, Russia, and China for starters.
I think a useful place to start, if not necessarily to end up, is to consider the view of that old revolutionary, Karl Marx. For him it involved the uprising of an oppressed class against a ruling class, these defined in terms of control of the means of production. A full-scale revolution involved a change of the mode of production in his terminology, along with the replacement of one ruling class with another. The archetypal model for Marx was the French Revolution, in which the bourgeoisie replaced the landed aristocracy, and capitalism replaced feudalism, although there was Thermidor and reaction, and Napoleon declaring himself Emperor and naming new aristocrats, with the Bourbon Restoration following. So, maybe it was not so successful after all, even if in fact Napoleon went around Europe smashing feudal institutions all over the place and did create the modern nation state of France. As it is, we may be stuck with Chou En-Lai's reply to Henry Kissinger regarding the outcome of the French Revolution, "Too soon to tell."
What is going on in the Arab world looks to me most like what came in Europe in 1848, an international uprising with some similarities across nations as well as differences, although in the short run a failure, if not in the longer run. In some countries the ruler is a monarch, but so far none of those have been overthrown. Tunisia and Egypt were essentially military dictatorships, overthwrown by would-be democrats, although we need to wait and see what will happen, with some ugly anti-women and anti-Christian demonstrations in Egypt. As for Libya, recent developments suggest that Qaddafi may not fall after all. Too soon to tell.
I think a useful place to start, if not necessarily to end up, is to consider the view of that old revolutionary, Karl Marx. For him it involved the uprising of an oppressed class against a ruling class, these defined in terms of control of the means of production. A full-scale revolution involved a change of the mode of production in his terminology, along with the replacement of one ruling class with another. The archetypal model for Marx was the French Revolution, in which the bourgeoisie replaced the landed aristocracy, and capitalism replaced feudalism, although there was Thermidor and reaction, and Napoleon declaring himself Emperor and naming new aristocrats, with the Bourbon Restoration following. So, maybe it was not so successful after all, even if in fact Napoleon went around Europe smashing feudal institutions all over the place and did create the modern nation state of France. As it is, we may be stuck with Chou En-Lai's reply to Henry Kissinger regarding the outcome of the French Revolution, "Too soon to tell."
What is going on in the Arab world looks to me most like what came in Europe in 1848, an international uprising with some similarities across nations as well as differences, although in the short run a failure, if not in the longer run. In some countries the ruler is a monarch, but so far none of those have been overthrown. Tunisia and Egypt were essentially military dictatorships, overthwrown by would-be democrats, although we need to wait and see what will happen, with some ugly anti-women and anti-Christian demonstrations in Egypt. As for Libya, recent developments suggest that Qaddafi may not fall after all. Too soon to tell.
Critique of Public Investment Based on Another Misapplication of Ricardian Equivalence
Antonio Fatás rightfully blasts the following from Justin Yifu Lin:
Antonio notes:
Let me add one other important element to this critique of this supposed critique of Keynesian policies from the Chief Economist of the World Bank. Ricardian Equivalence might hold that a permanent increase in government purchases would lead to an increase in permanent taxes, which would cause private consumption to fall by an equal amount. But even if a temporary increase in government investment were squandered say on building new pyramids or another damn baseball park for a team like the Yankees (with all due apologies to my neighbors who may be Yankee fans), standard lifecycle models of consumptions (e.g., Ricardian Equivalence) do not predict a fully offsetting reduction in consumption.
But how can the Ricardian trap be avoided, i.e. an outcome where the government stimulus fails to boost aggregate demand because economic agents expect future tax increases to pay for larger deficits and thereby increase savings? To avoid the Ricardian trap, it is important to go beyond conventional Keynesian stimulus of “digging a hole and paving a hole” by investing in projects which increase future productivity."
Antonio notes:
No one can disagree with the statement that if the government can choose between different spending projects, they should select the one with the highest return (in terms of productivity and income). But we need to understand that the advise for the government to invest in productive investment applies at all times (good and bad). What is different when there is spare capacity is that "pure demand" policies can bring the economy closer to potential in a shorter period of time. By doing so they will be increasing the overall output and income of the country. And this additional income is the source of potential increases in private spending and tax revenues. This is the intuition behind the Keynesian recipe for times of high unemployment, which is consistent with the concerns of Justin Yifu Lin.
Let me add one other important element to this critique of this supposed critique of Keynesian policies from the Chief Economist of the World Bank. Ricardian Equivalence might hold that a permanent increase in government purchases would lead to an increase in permanent taxes, which would cause private consumption to fall by an equal amount. But even if a temporary increase in government investment were squandered say on building new pyramids or another damn baseball park for a team like the Yankees (with all due apologies to my neighbors who may be Yankee fans), standard lifecycle models of consumptions (e.g., Ricardian Equivalence) do not predict a fully offsetting reduction in consumption.
Wednesday, March 9, 2011
Compassionate Capitalism
One must admire the extent of compassion expressed by the captains of capitalism. Some people unfairly snickered when George Bush declared himself a compassionate conservative, but he is a passionate advocate of business and his description may have been accurate.
Despite all the talk about greed being the fuel that drives capitalism, profits are virtually irrelevant. As an act of philanthropy, corporations scatter much of their profits in less developed areas, such as the Grand Cayman Islands and Bermuda.
As further evidence, I read today that the Bank of America is reluctant to lower the value of its own loans out of compassion for the people who stayed up-to-date with their payments. After all, one of the motives for subprime loans was to meet the desires for people who wanted enjoy homeownership.
Similarly, business opposes minimum wages out of compassion for workers who might lose their jobs. For the same reason, business reluctantly accepts tax breaks only because it allows them to help unfortunate workers who might find themselves without a boss. The same motives explain why business fights so heroically against regulation.
Cutting welfare or publicly provided health care does a service to the poor almost certainly as a university education. Finding themselves without a social safety net, people receive an education, allowing them to navigate the complexities of the marketplace, assuming that they survive the experience. Should such people meet their maker, their demise will represent a charitable gift to the poor-oppressed taxpayers, who already shoulder excessive burdens.
Taxpayers, in fact, are the most admired agents in capitalism. If corporate leaders were more egotistical, they would be paying more taxes. As an act of modesty, they refrain from showing off in that way, allowing others to win the glory of paying taxes.
Despite all the talk about greed being the fuel that drives capitalism, profits are virtually irrelevant. As an act of philanthropy, corporations scatter much of their profits in less developed areas, such as the Grand Cayman Islands and Bermuda.
As further evidence, I read today that the Bank of America is reluctant to lower the value of its own loans out of compassion for the people who stayed up-to-date with their payments. After all, one of the motives for subprime loans was to meet the desires for people who wanted enjoy homeownership.
Similarly, business opposes minimum wages out of compassion for workers who might lose their jobs. For the same reason, business reluctantly accepts tax breaks only because it allows them to help unfortunate workers who might find themselves without a boss. The same motives explain why business fights so heroically against regulation.
Cutting welfare or publicly provided health care does a service to the poor almost certainly as a university education. Finding themselves without a social safety net, people receive an education, allowing them to navigate the complexities of the marketplace, assuming that they survive the experience. Should such people meet their maker, their demise will represent a charitable gift to the poor-oppressed taxpayers, who already shoulder excessive burdens.
Taxpayers, in fact, are the most admired agents in capitalism. If corporate leaders were more egotistical, they would be paying more taxes. As an act of modesty, they refrain from showing off in that way, allowing others to win the glory of paying taxes.
The High-Yield Equity Risk Premium Puzzle: Yet Another Market Anomaly?
On p. 18 of the Monday, March 7 Financial Times in an article entitled, "Time to rethink as bonds' golden age comes to an end" Tony Jackson refers to a curiously obscure recent finding in the most recent Credit Suisse yearbook. I shall simply quote from the article, starting with the second sentence of paragraph 8 (I have not been able to track down this part of the Credit Suisse report):
"...there is good evidence that investors do not in fact require better odds on riskier securities, but the reverse. The source is that same Credit Suisse yearbook produced by three London Business School academics who are themselves firm believers in the ERP [Equity Risk Premium] hypothesis.
In the long run, it seems total returns from high-yielding stocks have been higher than on low-yielding or non-yielding ones. That has been true for almost all the 21 countries covered in the study. And high-yielders have also been less risky, on conventional measures such as volatility and beta. How are we to explain this?
According to other work cited in the study, it is not that investors are bad at picking high-growth stocks. In fact, they are rather good at it; but they pay far more than the growth is worth. This matches another finding, that returns from high-growth economies - such as emerging markets - are in the long run no better than the low growth ones."
Jackson goes on to note accurately that this finding violates the rational market (or efficient market) version of the ERP, an apparent anomaly like such things as the basic equity premium puzzle or the home equity premium puzzle, none of which have been satisfactorily explained by standard economic theory, although various behavioral theories appear to do so.
I do not have an explanation for this apparently newly discovered puzzle, although regular readers here will not be all that surprised that the financial markets appear to exhibit yet further failures of the standard efficiency models. In any case, I have googled it and found no label for this phenomenon. So, in parallel with the so-called equity risk premium puzzle (that people get higher returns from investing in stocks over bonds than justified by their risk), I neologistically dub this here as the "HIGH-YIELD EQUITY RISK PREMIUM PUZZLE," that stocks with high yields (dividend per price) give higher returns than explainable by their relatively low risk. Do with this information as you see fit, :-).
"...there is good evidence that investors do not in fact require better odds on riskier securities, but the reverse. The source is that same Credit Suisse yearbook produced by three London Business School academics who are themselves firm believers in the ERP [Equity Risk Premium] hypothesis.
In the long run, it seems total returns from high-yielding stocks have been higher than on low-yielding or non-yielding ones. That has been true for almost all the 21 countries covered in the study. And high-yielders have also been less risky, on conventional measures such as volatility and beta. How are we to explain this?
According to other work cited in the study, it is not that investors are bad at picking high-growth stocks. In fact, they are rather good at it; but they pay far more than the growth is worth. This matches another finding, that returns from high-growth economies - such as emerging markets - are in the long run no better than the low growth ones."
Jackson goes on to note accurately that this finding violates the rational market (or efficient market) version of the ERP, an apparent anomaly like such things as the basic equity premium puzzle or the home equity premium puzzle, none of which have been satisfactorily explained by standard economic theory, although various behavioral theories appear to do so.
I do not have an explanation for this apparently newly discovered puzzle, although regular readers here will not be all that surprised that the financial markets appear to exhibit yet further failures of the standard efficiency models. In any case, I have googled it and found no label for this phenomenon. So, in parallel with the so-called equity risk premium puzzle (that people get higher returns from investing in stocks over bonds than justified by their risk), I neologistically dub this here as the "HIGH-YIELD EQUITY RISK PREMIUM PUZZLE," that stocks with high yields (dividend per price) give higher returns than explainable by their relatively low risk. Do with this information as you see fit, :-).
McConnell is Partially Right About Government Employment
David Weigel listens to Senator McConnell so we don’t have to:
"Unemployment among government workers is about 4.5 percent," said McConnell. "Most of those government workers work for state and local government. The federal government over the last two years has added 100,000 employees. The only industry in America that's not sacrificing in this current downturn is government employees. I can't tell you some federal worker won't be affected by reducing government spending, but we have largely insulated the federal government from this recession."
I looked at the government employment data provided by the Bureau of Labor Statistics and it is true that most of those working for the government work for state and local government. As our table shows, total government employment during February 2011 was 22.217 million (down from 22.582 million as of January 2009) whereas Federal employment was only 2.856 million (up from 2.792 million as of January 2009). Federal employment grew by only 64,000 which was more than offset by the fall in state government employment. Local government employment fell by 352,000 and total government employment fell by 365,000. Not exactly consistent with the message that the Senator was trying to convey.
Saturday, March 5, 2011
Economic Illiteracy: The Tyler Cowen Conundrum
Tyler Cowen, from what I can gather, is everyone’s favorite George Mason libertarian. His colleagues may be considered beyond redemption, but TC himself is provocative, interesting, worth a look. He throws in references to history and culture. He has a sense of humor. No doubt he is a nice guy and uncommonly smart. In spite of all that, shouldn’t it matter that he doesn’t understand the first thing about economics?
His column in today’s New York Times is a doozy. The subject is “fiscal illusion”, and here’s his example:
What is lacking here is not a subtle grasp of cutting edge theory, but the sort of elementary knowledge my students are asked to learn in the first few weeks of introductory macro.
Except in unusual circumstances, government debt is not paid off. To pay off such a debt would mean running fiscal surpluses equal to deficits. No government anywhere does this. Our grandchildren will not be taxed to pay off the fiscal debt we are accruing today, any more than we are taxed to pay off the debt our grandparents ran up during WWII. Every country in the world has public debt, and there will never come a “year of reckoning” when the whole world has to start running budget surpluses to pay it off.
And suppose we decided to jack up our taxes like TC says we must, and we pay down the whole thing—what then? We would have no treasury bonds out there for people to stuff into their portfolios. The only assets you could buy would be the risky stuff: you know, stocks, commercial loans, mortgage-backed securities. People would be pleading with governments to please, please run deficits again so we can have at least a few low-yielding but safe assets.
You might be tempted to say at this point, isn’t there a limit to how much public debt we can ring up? The answer is a definite yes. We need to monitor the fiscal space available to our economy and avoid getting in over our head. There is a lot of economic analysis dedicated to figuring out what these limits are and how to detect them before it’s too late. The New York Times could perform a public service by publishing thoughtful pieces by economists that discuss these questions in an informed manner.
Alas, that has nothing to do with the column at hand. TC is not making an argument about fiscal space or debt sustainability. He is saying that our treasury bonds are illusory because we will have to be taxed in the future to remove them from circulation. We are not talking about shades of opinion here, but the difference between having a basic idea of how economies work and flat-out ignorance.
Sorry: someone has to say this.
His column in today’s New York Times is a doozy. The subject is “fiscal illusion”, and here’s his example:
Say that you have $20,000 in Treasury bills. You probably believe that you own $20,000 in wealth. This will encourage you to spend and come up with ambitious plans. Yet someone — quite possibly you — will be taxed in the future to pay off the government debt. The $20,000 may be needed in order to do that.
The illusion is this: A government bond represents both a current asset and a future liability, yet for most people, those future tax payments feel less concrete and less real than the dollars they’re holding in a money market account.
What is lacking here is not a subtle grasp of cutting edge theory, but the sort of elementary knowledge my students are asked to learn in the first few weeks of introductory macro.
Except in unusual circumstances, government debt is not paid off. To pay off such a debt would mean running fiscal surpluses equal to deficits. No government anywhere does this. Our grandchildren will not be taxed to pay off the fiscal debt we are accruing today, any more than we are taxed to pay off the debt our grandparents ran up during WWII. Every country in the world has public debt, and there will never come a “year of reckoning” when the whole world has to start running budget surpluses to pay it off.
And suppose we decided to jack up our taxes like TC says we must, and we pay down the whole thing—what then? We would have no treasury bonds out there for people to stuff into their portfolios. The only assets you could buy would be the risky stuff: you know, stocks, commercial loans, mortgage-backed securities. People would be pleading with governments to please, please run deficits again so we can have at least a few low-yielding but safe assets.
You might be tempted to say at this point, isn’t there a limit to how much public debt we can ring up? The answer is a definite yes. We need to monitor the fiscal space available to our economy and avoid getting in over our head. There is a lot of economic analysis dedicated to figuring out what these limits are and how to detect them before it’s too late. The New York Times could perform a public service by publishing thoughtful pieces by economists that discuss these questions in an informed manner.
Alas, that has nothing to do with the column at hand. TC is not making an argument about fiscal space or debt sustainability. He is saying that our treasury bonds are illusory because we will have to be taxed in the future to remove them from circulation. We are not talking about shades of opinion here, but the difference between having a basic idea of how economies work and flat-out ignorance.
Sorry: someone has to say this.
Thursday, March 3, 2011
Update On Oil And The Arab Uprising
So, Qaddafi apparently has lost in his effort to retake the major oil head and refinery at Brega against the rebels against his regime, meaning that they control about 80% of Libya's oil, with the refinery particularly crucial according to the generally reliable Juan Cole at http://www.juancole.com . Needless to say, the uncertainties about oil supplies, particularly since the uprising in Libya began, have helped push up the price of oil, past $100 per barrel on both West Texas Intermediate and the roughly $13 more expensive Brent crude, which is the price most of the world outside the US pays (this gap an oddity only around since December), although the general trend with the world economy growing while world oil production has not risen at all for the last half decade is clearly going to be for prices to rise over the foreseeable future, even if there is a downward correction when these uprisings settle down.
While Libya is a major oil exporter, and fellow OPEC member Bahrain continues to have major demonstrations by the Shi'i majority against the Sunni monarchy, it continues to be the case that generally major oil exporting Arab nations are having fewer and less severe uprisings than non-oil exporters. The main latter ones without uprisings continue to be Morocco and Syria, both of which have had some minor demonstrations, but apparently remain largely calm.
However, some other major oil exporters have either experienced demonstrations or are very nervous about the possibility of there being some. Much attention has focused on the big one, Saudi Arabia, where Shi'a are about 17% of the population and concentrated in the oil producing Eastern Province and have long been oppressed by the Sunni majority. There have been calls for reforms, although no demos yet. King Abdullah has responded with a $36 billion plan to spread around a bunch more money. Key blog on the Kingdom is John Burgess's Crossroads Arabia at http://xrdarabia.org . According to his links, probably Abdullah's move will work, and the majority Sunni population remains largely loyal to the royal family.
Another less-publicized but somewhat similar situation has arisen in the United Arab Emirates. There the problems are more with expatriate workers (as in Kuwait also), who make up a substantial portion of the labor force. The UAE rulers, who also have a lot of money, at least in Abu Dhabi (Dubai is banrkupt and kept afloat by the Abu Dhabi folks), are imitating the Saudis and have announced a major money handout. One can follow events there through John Chilton's The Emirates Economist blog at http://emirateseconomist.blogspot.com .
Finally, the latest Arab oil exporter to have demonstrations, fairly serious actually, has been Oman at the southeast corner of the Arabian peninsula. Unlike the previous two cases, they do not have nearly as much oil or money, but the traditions there have also been to be much more tolerant of dissnt. Part of the issue there is regional, with most of the unhappiness in the western areas of Dhofar near Yemen (which continues to be perhaps second to Libya in terms of the seriousness of its current uprising), an area much poorer than Muscat in the east where the oil is. There is a potential for greater trouble, as Dhofar rose up in the 1980s militarily and could do so again. However, the Omanis belong to the Ibadi sect of Islam that is neither Sunni nor Shi'i. having split off even prior to the division between those two. The Ibadis seem to be more tolerant and easy-going, in contrast to their more hardline Sunni neighbors (although in Yemen part of the issue is dominant Sunnis against rebellious Zaydi Shi'is in the northern mountains), and ruling Sultan Qaboos seems to be making conciliatory moves towards the demonstraters. One can follow events in Oman at Dhofari Gucci's blog at http://dhofarigucci.blogspot.com .
While Libya is a major oil exporter, and fellow OPEC member Bahrain continues to have major demonstrations by the Shi'i majority against the Sunni monarchy, it continues to be the case that generally major oil exporting Arab nations are having fewer and less severe uprisings than non-oil exporters. The main latter ones without uprisings continue to be Morocco and Syria, both of which have had some minor demonstrations, but apparently remain largely calm.
However, some other major oil exporters have either experienced demonstrations or are very nervous about the possibility of there being some. Much attention has focused on the big one, Saudi Arabia, where Shi'a are about 17% of the population and concentrated in the oil producing Eastern Province and have long been oppressed by the Sunni majority. There have been calls for reforms, although no demos yet. King Abdullah has responded with a $36 billion plan to spread around a bunch more money. Key blog on the Kingdom is John Burgess's Crossroads Arabia at http://xrdarabia.org . According to his links, probably Abdullah's move will work, and the majority Sunni population remains largely loyal to the royal family.
Another less-publicized but somewhat similar situation has arisen in the United Arab Emirates. There the problems are more with expatriate workers (as in Kuwait also), who make up a substantial portion of the labor force. The UAE rulers, who also have a lot of money, at least in Abu Dhabi (Dubai is banrkupt and kept afloat by the Abu Dhabi folks), are imitating the Saudis and have announced a major money handout. One can follow events there through John Chilton's The Emirates Economist blog at http://emirateseconomist.blogspot.com .
Finally, the latest Arab oil exporter to have demonstrations, fairly serious actually, has been Oman at the southeast corner of the Arabian peninsula. Unlike the previous two cases, they do not have nearly as much oil or money, but the traditions there have also been to be much more tolerant of dissnt. Part of the issue there is regional, with most of the unhappiness in the western areas of Dhofar near Yemen (which continues to be perhaps second to Libya in terms of the seriousness of its current uprising), an area much poorer than Muscat in the east where the oil is. There is a potential for greater trouble, as Dhofar rose up in the 1980s militarily and could do so again. However, the Omanis belong to the Ibadi sect of Islam that is neither Sunni nor Shi'i. having split off even prior to the division between those two. The Ibadis seem to be more tolerant and easy-going, in contrast to their more hardline Sunni neighbors (although in Yemen part of the issue is dominant Sunnis against rebellious Zaydi Shi'is in the northern mountains), and ruling Sultan Qaboos seems to be making conciliatory moves towards the demonstraters. One can follow events in Oman at Dhofari Gucci's blog at http://dhofarigucci.blogspot.com .
Monday, February 28, 2011
David Brooks - Misinformed Cheerleading for Mitch Daniels
David Brooks hearts the governor of Indiana:
I was alerted to this fluff piece by Dean Baker who had a neat chart on how this last sentence is just factually incorrect. BLS provides its own neat charts on how employment has fallen and the path of the unemployment rate in Indiana. Where David Brooks got the idea that employment in Indiana has boomed under the tenure of Mitch Daniels is not clear.
Dean also reminded us of the tenure of Mitch Daniels as OMB director. But hey – George Bush was his boss back then. As far as paying down the Indiana debt – I wonder how much of this was from the front loading of receipts from the sale of toll roads:
This is not long-term deficit reduction if the sale price is less than the present value of the lost future tax revenues. But I guess teaching finance to David Brooks will have to wait until he learns to read simple graphs from the Bureau of Labor Statistics.
Since 2004, the 49 other states in the nation increased their debt levels by an average of 40 percent. Indiana has paid down its debt by 40 percent. Indiana received its first Triple-A bond rating in 2008, and now it is one of only nine states to have the highest rating from all three rating agencies. At the same time, the business climate has improved significantly. Infrastructure spending is at record levels. The state has added jobs at twice the national average.
I was alerted to this fluff piece by Dean Baker who had a neat chart on how this last sentence is just factually incorrect. BLS provides its own neat charts on how employment has fallen and the path of the unemployment rate in Indiana. Where David Brooks got the idea that employment in Indiana has boomed under the tenure of Mitch Daniels is not clear.
Dean also reminded us of the tenure of Mitch Daniels as OMB director. But hey – George Bush was his boss back then. As far as paying down the Indiana debt – I wonder how much of this was from the front loading of receipts from the sale of toll roads:
Leasing or selling a public asset is a classic one-shot—a short-term measure that bolsters the balance sheet today but that can't be repeated … As a result, our tax revenues wind up in Beijing—as interest payments. At the state level, Indiana is relying on foreign companies to lease public infrastructure like toll roads. And under these arrangements, tolls—taxes people pay for driving—are being paid to foreign shareholders of foreign companies.
This is not long-term deficit reduction if the sale price is less than the present value of the lost future tax revenues. But I guess teaching finance to David Brooks will have to wait until he learns to read simple graphs from the Bureau of Labor Statistics.
What Krugman Did Not Say At The Easterns
The Eastern Economic Association held its annual meeting in New York this past weekend, and on Friday Paul Krugman delivered the presidential address to an overflow crowd on "The Profession and the Crisis." Although most of it he has written or said before, it was well put and generally well received. Among his points were that economists failed to forecast the crisis and were particularly remiss in failing to note the housing bubble, that poor policy analyses were given with much bad advice as the crisis unfolded, and that that the profession exhibited massive ignorance of both economic history (particularly regarding the Great Depression) as well as of the history of economic thought (particularly that of Keynes) before and even during the crisis.
There were two main items he left out, one brought up by a questioner, one not brought up at all. The first involved the role of income distribution. Krugman sort of fumbled this, going on at some length about how Princeton will have a conference on this very soon without saying who would participate or what they might say. He went on also about how this was not like in the GD, with underconsumption not playing a role, although he did think it interesting that peaks of inequality immediately preceded this crisis and the GD. He finally admitted that inequality might have had something to do with the financial part of the housing mortgage problems.
The unmentioned issue was corruption. Now, with Elizabeth Warren being appointed over strong opposition within the administration, something on this matter might be done. However, that little has been done may reflect how many people from Goldman Sachs have been (and still are) involved in both the last and current administrations at top economic policy making levels. I note that people who have emphasized this issue have included former regulator, Bill Black (the initial whisteblower on the Keating Five S&L scandal), and Jamie Galbraith. Of course, Minsky and Kindleberger both emphasized that corruption and scams are a common side accompaniment of most speculative bubbles.
There were two main items he left out, one brought up by a questioner, one not brought up at all. The first involved the role of income distribution. Krugman sort of fumbled this, going on at some length about how Princeton will have a conference on this very soon without saying who would participate or what they might say. He went on also about how this was not like in the GD, with underconsumption not playing a role, although he did think it interesting that peaks of inequality immediately preceded this crisis and the GD. He finally admitted that inequality might have had something to do with the financial part of the housing mortgage problems.
The unmentioned issue was corruption. Now, with Elizabeth Warren being appointed over strong opposition within the administration, something on this matter might be done. However, that little has been done may reflect how many people from Goldman Sachs have been (and still are) involved in both the last and current administrations at top economic policy making levels. I note that people who have emphasized this issue have included former regulator, Bill Black (the initial whisteblower on the Keating Five S&L scandal), and Jamie Galbraith. Of course, Minsky and Kindleberger both emphasized that corruption and scams are a common side accompaniment of most speculative bubbles.
merit pay
One of the knocks on collective bargaining is that employers should be able to pay people what they are worth. An interesting example of this phenomenon came in the realm of professional football. In January 2011, Pro Bowl cornerback Nnamdi Asomugha's contract was voided because his contract included a little-known clause allowed the team to void his contract if he didn't achieve his not-likely-to-be-earned incentives in 2010 -- and he didn't. One reason for his failure to earn his incentives was that he was so effective that quarterbacks would not to pass to someone near him. Consequently, he did not have any interceptions.
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