economics
mikethemadbiologist | February 5, 2009You know things are going wrong when a Congresswoman urges her constituents (and others) to squat in their homes, even when the bank can foreclose on them:
It's safe to say that the current system isn't working. Some borrowers were stupid, and others just greedy, but these loans should have never been made. And when banks made them, they should have held onto the paperwork (the irony is that bundling loans into big piles of shit helped create this mess, and now banks are unable to trace the actual loans due to said bundling). Ian Walsh:
Banks have been abusing the privileges they received…
mikethemadbiologist | February 3, 2009I think the creationist controversy sheds a lot of light on the conservative movement as a whole. So, in the comments of this post by Brad DeLong that wondered how in the hell anyone still seriously argues on behalf of the Treasury View in economics, I remarked that it reminded me of creationists:
....in biology, for example, the profession itself does not lend credence to creationism. The fundamentals, as opposed to the cutting edge (or arguments about the relative importance of various phenomena), are not in question. These are political controversies, not scientific ones. That is,…
mikethemadbiologist | February 2, 2009By now, you might have heard about the growing outrage that bankers at banks receiving bailout money are drawing bonuses. It's reached the point where Sen. Claire McCaskill has proposed capping bankers' income at a salary equivalent to that of the president of the U.S. I didn't really have much to add about how ridiculous the arguments for paying the bankers bonuses when their firms have been nationalized (if, nothing else, most employees, who through no fault of their own, working in dying businesses are getting laid off--that is, no salary at all). But a quotes from a NY Times article…
purepedantry | January 29, 2009Here's an idea I had never heard about. The government could use an alternative currency that loses value over time to encourage spending. You would spend it like it was burning a hole in your pocket. Apparently there is historical precedent:
Based on the theories of Silvio Gesell, a German "quasi-economist", one such currency, the wära, was used to revitalise Schwanenkirchen, a Bavarian coalmining village, in 1931. "No one who received wära wished to hold [them], the workers, store-keepers, wholesalers and manufacturers all strove to get rid of them as quickly as possible, for any…
mikethemadbiologist | January 28, 2009Seriously. The political tactics are virtually identical. From The Krugman (italics mine):
As the debate over President Obama's economic stimulus plan gets under way, one thing is certain: many of the plan's opponents aren't arguing in good faith. Conservatives really, really don't want to see a second New Deal, and they certainly don't want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.
Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already…
mikethemadbiologist | January 8, 2009This weekend, I was going to blog about framing the tax cuts as the 'Pornography Stimulus Plan', since the last tax cut rebate benefited few sectors other than the pornography industry. It would be similar to the Republican term for the estate tax--'the death' tax.
And then Larry Flynt arrived and screwed everything up:
Another major American industry is asking for assistance as the global financial crisis continues: Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis said Wednesday they will request that Congress allocate $5 billion for a bailout of the adult entertainment…
mikethemadbiologist | January 5, 2009Nothing could be a greater waste of taxpayer dollars than the proposal floated by the Obama administration to give every household another tax rebate (supposedly $500). In fact, it's probably one of the few things that conservative economist Bruce Bartlett and I would agree on. Last March I wrote:
I agree: most won't spend, unless they have to (and any whose income is that bad needs long-term financial help--$600 isn't going to cut it). While I disagree with Bartlett's suggestion to help Fannie Mae buy up some of the bad loans, he is right that it won't do much in the way of stimulus. What…
mikethemadbiologist | January 3, 2009Regular readers know I've been beating this drum since the inception of this blog, but the Krugman says it well:
The fault, however, lies not in Republicans' stars but in themselves. Forty years ago the G.O.P. decided, in effect, to make itself the party of racial backlash. And everything that has happened in recent years, from the choice of Mr. Bush as the party's champion, to the Bush administration's pervasive incompetence, to the party's shrinking base, is a consequence of that decision.
If the Bush administration became a byword for policy bungles, for government by the unqualified, well…
purepedantry | January 2, 2009In an article reviewing the success of the Euro, the WSJ attributes at least some of the finiancial instability of recent months to currency volatility between the US and Europe.
The Euro has had numerous benefits:
Travel was made easier, as was trade and investment. Interest rates fell. Prices for labor and goods were suddenly transparent across the bloc, increasing competition. As important, the creation of a single European Central Bank (ECB) has better insulated monetary policy from political manipulation. Politicians could no longer attempt to inflate their way out of their employment…
purepedantry | January 1, 2009Nobel laureates on the board bring in the bacon when it is time to capitalize a firm:
WHAT is a Nobel prize really worth? The market values it at $34m, according to a new NBER paper by Matthew Higgins, Paula Stephan and Jerry Thursby. They studied the biotech industry during the 1990s. The industry, in the early part of the decade, was relatively new. The lack of market experience meant there existed few ways to determine the value of fledgling start-ups. Firms had to signal their value and some did so by affiliating with Nobel laureates. The firms advertised the affiliation heavily in their…
mikethemadbiologist | December 31, 2008By way of Edward Glaeser's post (via ScienceBlogling Jonah) about the relative stability of housing prices in the New York City area, I was looking at the S&P/Case-Shiller Seasonally Adjusted Home Price Values (I really need new hobbies...). The really odd thing I noticed is that in the metro areas that had huge crashes (greater than twenty percent of the maximal value), there was a huge spike in home prices from 2005-2006 (and which sometimes started in mid-2004), while, in metro areas that haven't crashed, there was no 2005-2006 spike. So what the hell happened in 2005?
Consider…
mikethemadbiologist | December 27, 2008By lowering its benchmark interest rate virtually to zerohttp://www.motherjones.com/kevin-drum/2008/12/median_wages.html, the Federal Reserve has eliminated monetary policy as a financial tool to aid the economy. Good riddance, because this was never a financial crisis.
What led to the whole crisis was the stagnation of wages combined with rising income inequality: people who didn't have a lot of money were competing for housing in an overinflated market (government policies to effectively make loans cheaper didn't help either).
Wage stagnation is also maintaining the crisis. Who will loan…
purepedantry | December 26, 2008A economist at Yale, Robert Shiller, compiled an index of housing prices since 1890 in an attempt to determine what caused the housing bubble (click to enlarge):
The figure is from here. (Hat-tip: Cafe Hayek)
I post this figure because I think it dispels a couple of delusions I hear people quoting about the housing bubble.
1) There have been several housing bubbles in the past followed by corrections. They were just not as big as this one.
2) Look at the year for the beginning of the meteoric rise in housing prices. 1997. Bush didn't create this alone. He likely participated in it and…
purepedantry | December 26, 2008Barry Gewen from the NYTimes Paper Cuts blog on the reimergence of John Kenneth Galbraith:
Friedman has no good explanation for "too big to fail," but it's at the heart of Galbraith's 1967 best seller, "The New Industrial State." Galbraith's basic argument is that there is an inevitability to economic development, that capital and technological requirements lead inescapably to the emergence of large, bureaucratic, oligopolistic firms. These firms have a high degree of control over prices and markets, and they don't seek the profit maximization the orthodox economists talk about, but stability…
amillikan | December 21, 2008A group of economists and scientists are pointing to science to fix the "broken" American economy, positing that the crisis was caused by shortcomings in economic theory that scientific methods could potentially fix. But ScienceBlogger Jake Young is skeptical that this "Economic Manhattan Project" would be anything more than disastrous. "Why do we assume that scientists riding in like the cavalry will save the day?" he asks on Pure Pedantry.
purepedantry | December 18, 2008I doubt it...but more on that in a second.
There is a fascinating argument going over at Edge.org about whether science can save the economy. The authors suggest that the scientific techniques being applied to the natural sciences should be applied to establish a new consensus about how the economy works:
In the near-term, Eric Weinstein has spoken about an "economic Manhattan project". This means getting a group of good scientists together, some who know a lot about economics and finance, and others, who have proved themselves in other areas of science but bring fresh minds and perspectives…
ddobbs | December 13, 2008Amid much good reporting on the current economic mess has been some weird vicarious excitement -- the sort of giddy buzz of kids watching a disaster and simultaneously not realizing that it's real and hoping it gets worse. You see this in the many stories about the Great Depression, the implication being that we're facing something similar here. A lot of writers seem almost eager to see what such a thing looks like. Is this a longing to be Part of History? Don't know. But I was glad to see I'm not the only one bothered by this.
From Virginia Postrel:
If anyone should fear a Depression, it…
stoat | December 10, 2008Via Steinn, who got it from CR, this delightful story of how people are now so scared of losing unknown amounts of money they are prepared to sign up to a certain but small absolute loss (and thats neglecting inflation).
They should buy our shares, like I did earlier this week, and they actually went up! Mind you I don't think we could absorb $57B input.
More lower down... At least three Treasury money-market funds run by JPMorgan Chase & Co., Evergreen Investments and Allegiant Asset Management recently stopped taking outside cash, according to Web site notices and regulatory filings.…
ddobbs | December 10, 2008I frankly don't know what the right call is on bailing out Detroit. On one hand, smart people are saying that not doing so could dangerously deepen the recession. On the other, if business idiocy had a three-strikes policy, these companies would be doing life. While going to school in Ohio car country in the late 1970s, I got a glimpse of the pain that area felt when the industry collapsed because it failed to adjust to a world that wanted smaller, better cars; tremendous unemployment rates, lots of idle people, most of them decent as hell, wishing they had something constructive to do. It…
purepedantry | December 9, 2008If you are like me, you are pretty disgusted with the idea of bailing out the Detroit Big 3. In reference to that disgust, I was struck by this post at Think Markets channeling one of my favorite economists -- Frederic Bastiat.
Bastiat wrote an essay called "What is Seen and What is Not Seen" reminding economists to consider the consequences of particular policies in terms of opportunity costs. All economic decisions divert resources from one thing to another. It is a fine thing to say making cars is important, but it ignores what is not seen -- who will be put out of work by the…