Thursday, June 4, 2009

"The NBA Finals tonight man!"

I love LeBron James, and a part of me wishes he were playing tonight against Kobe Bryant, in a super-matchup. But he's not. Instead, we have just Kobe. I wonder if that makes the finals less of an event. Will the NBA's television ratings, which have been very good in these playoffs, continue growing or slump now that Kobe Bryant is the single, only headliner? Will people tune in or out?

I get the feeling people don't like Kobe. Kobe doesn't inspire style like Lebron does (for example, LeBron's straight-billed NY Yankee hat look). Nor does he market himself as deftly as LeBron. See: recent, stupid, fabricated, propaganda film by Spike Lee on Kobe. Whose bright idea was that? But Kobe is a straight killer, a virtuoso, on the court. He is a supremely talented and well-honed genius of an athlete who will do anything to come out on top in a basketball game. And yet -- he often doesn't come out on top. He's lost, in fact, the last two times he has made the finals, in 2004 and then again last year. If my memory is right, between those was an embarrassing seventh-game loss to Phoenix. You can imagine these facts just eating at him, which makes him exactly the kind of performer who makes tuning in worth it: Kobe brings to the game an unending desire to give a spectacular, winning performance. His whole life is geared to gaining victory tonight, and then to gaining three more victories over the next two weeks. His level of concentration, focus, and determination to be the best basketball player he can possibly be is almost unreal. I mean, try living like him for a week or a month: choose one far off almost impossible thing -- one thing you want to be the very, very best at in the entire world -- and gear every minute of every intense day toward accomplishing it. You'll be Kobe Bryant for as long as you can pull it off. I love the admittedly very flawed man, and hope his team wins tonight. I hope he wins tonight, and I hope he then goes and wins those three other precious games that will give him the championship he wants, and deserves.

Wednesday, May 20, 2009

Is the dollar sacred?

With all the money being printed by the government, and the fact that the dollar's foreign financiers appear -- appear -- to be losing at least some interest in maintaining their dollar investments, and the fact that America's debt is over $10 trillion (10 TRILLION!), and every year we keep growing deficits, and America's leaders on Wall Street and in Washington (including Barack Obama) seem to be more interested in re-inflating the economy in the short term in terms of bubbles rather than doing the hard work to increase the real-world productivity of our economy -- all this continues to lead me to think there's a chance for massive currency change both in the world and in the US. A chance for massive change along the lines of the end of the dollar-dominated world, and maybe just maybe the end of the dollar itself.

How would people respond to an event like this? For example, would the disappearance of the dollar be seen by Americans as an affront to their traditional way of life? Would we cling to the dollar for cultural reasons well past the time the dollar is in our economic interests? Will the dollar come to symbolically represent 'the American way of life that we must preserve'? At its moment of truth, will there be something particularly sacred about the way Americans think about the dollar that could preserve it? Or will we say, fine, let's move on?

What I recently read that was really good

The Death of Kings, an essay by Nick Paumgarten in the May 18th New Yorker.

To read it online requires subscription at the website. Click on the picture to view the first two pages and read the first few paragraphs.

I read it this past weekend. It made me laugh out loud at least once, kept me riveted, and gave me a number of insights I wouldn't otherwise have access to. One of the best accounts of the current financial crisis from the points of view of the people themselves. The reader is introduced to a lot of interesting behind-the-scenes players, people who deliberately stay out of the public eye. And the author does all this reporting while writing with an interesting prose style.

Hopefully they'll lift the subscription requirement, because I recommend anyone read it.

Tuesday, May 19, 2009

Today's Financial Times: Brazil and China re-thinking their dollar strategies

From today's FT:

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil's central bank and aides to Luiz Inácio Lula da Silva, Brazil's president. The move follows recent Chinese challenges to the status of the dollar as the world's leading international currency.

Read the online article here, or click on the picture.

'The Limits of Control' A Movie

I don't watch that many movies, but I recently watched one after a description of the movie posted outside the theater caught my eye.

'The Limits of Control' is a film by Jim Jarmusch that is currently playing at the Uptown in Minneapolis, MN. Is it good? Let me put it this way. You might like the movie if (a) you think reality is a completely fleeting and imagined experience and like movies that tell you that over and over, (b) you have a healthy liking for the writer Frederich Nietzsche, or (c) you can get entertained by being prodded to wonder questions like, What good are the ethics of our day if they contribute to the least ethical actions we can imagine?

In the end, the movie itself wasn't as good as the language describing it. Save time, just read this synopsis:

Plus, I wonder if the answer the movie gives to all its questions isn't cliche by now. I mean, the moral-less world in which we live is the theme of just about every movie nowadays, right? Tell me if I'm wrong. I don't watch that many movies.

Monday, May 18, 2009

President Obama at Notre Dame

. . . .

Every one of you should be proud of what you have achieved at this institution. One hundred and sixty-three classes of Notre Dame graduates have sat where you sit today. Some were here during years that simply rolled into the next without much notice or fanfare — periods of relative peace and prosperity that required little by way of sacrifice or struggle.

You, however, are not getting off that easy. You have a different deal. Your class has come of age at a moment of great consequence for our nation and for the world — a rare inflection point in history where the size and scope of the challenges before us require that we remake our world to renew its promise; that we align our deepest values and commitments to the demands of a new age. It's a privilege and a responsibility afforded to few generations — and a task that youre now called to fulfill.

This generation, your generation is the one that must find a path back to prosperity and decide how we respond to a global economy that left millions behind even before the most recent crisis hit — an economy where greed and short-term thinking were too often rewarded at the expense of fairness, and diligence, and an honest day's work.

Your generation must decide how to save God's creation from a changing climate that threatens to destroy it. Your generation must seek peace at a time when there are those who will stop at nothing to do us harm, and when weapons in the hands of a few can destroy the many. And we must find a way to reconcile our ever-shrinking world with its ever-growing diversity — diversity of thought, diversity of culture, and diversity of belief.

In short, we must find a way to live together as one human family.

. . . .

The question, then — the question then is how do we work through these conflicts? Is it possible for us to join hands in common effort? As citizens of a vibrant and varied democracy, how do we engage in vigorous debate? How does each of us remain firm in our principles, and fight for what we consider right, without, as Father John said, demonizing those with just as strongly held convictions on the other side?

And of course, nowhere do these questions come up more powerfully than on the issue of abortion.

As I considered the controversy surrounding my visit here, I was reminded of an encounter I had during my Senate campaign, one that I describe in a book I wrote called "The Audacity of Hope." A few days after I won the Democratic nomination, I received an e-mail from a doctor who told me that while he voted for me in the Illinois primary, he had a serious concern that might prevent him from voting for me in the general election. He described himself as a Christian who was strongly pro-life — but that was not what was preventing him potentially from voting for me.

What bothered the doctor was an entry that my campaign staff had posted on my Web site — an entry that said I would fight "right-wing ideologues who want to take away a woman's right to choose." The doctor said he had assumed I was a reasonable person, he supported my policy initiatives to help the poor and to lift up our educational system, but that if I truly believed that every pro-life individual was simply an ideologue who wanted to inflict suffering on women, then I was not very reasonable. He wrote, "I do not ask at this point that you oppose abortion, only that you speak about this issue in fair-minded words." Fair-minded words.

After I read the doctor's letter, I wrote back to him and I thanked him. And I didn't change my underlying position, but I did tell my staff to change the words on my Web site. And I said a prayer that night that I might extend the same presumption of good faith to others that the doctor had extended to me. Because when we do that — when we open up our hearts and our minds to those who may not think precisely like we do or believe precisely what we believe — that's when we discover at least the possibility of common ground.

. . . .

Read the whole speech here.

Friday, May 15, 2009

How does China think?

What is China's stance toward the world? What does it plan to do? What kind of a world actor is it, will it be, does it want to be? What are its intellectual orientations toward its social and natural environments? All these questions basically boil down to wondering what China thinks about itself in relation to the world around it. History as it appears to be, I think China's mindset is the most fundamental question facing US intelligence.

In today's NY Times, Paul Krugman gives us his insight into China's mindset. And the sense Krugman portrays is that China considers itself an economic power with certain economic entitlements that outweigh world initiatives:

[T]he rate at which greenhouse gas emissions are rising is matching or exceeding the worst-case scenarios.

And the growth of emissions from China — already the world’s largest producer of carbon dioxide — is one main reason for this new pessimism.

. . . .

So what is to be done about the China problem?

Nothing, say the Chinese. Each time I raised the issue during my visit, I was met with outraged declarations that it was unfair to expect China to limit its use of fossil fuels. After all, they declared, the West faced no similar constraints during its development; while China may be the world’s largest source of carbon-dioxide emissions, its per-capita emissions are still far below American levels; and anyway, the great bulk of the global warming that has already happened is due not to China but to the past carbon emissions of today’s wealthy nations.

So China is modeling itself after post-1980 America???

Thursday, May 14, 2009

Nouriel Roubini on the future of money

Nouriel Roubini, in today's New York Times:

The 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.

Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time.

. . . .

Sunday, May 10, 2009

The quality of money

I hear people around me worrying about the quantity of money the government is printing. I not only hear the talk, I worry about it too. But the real question is about the quality of that money. Are we printing credible dollars? Will people, organizations, nations still want to invest in our money? That is to say, will the people who have financed our economy the past few decades want to continue to do so? Do they perceive the dollar as a quality, credible investment?

If people around the world and in our country, poor and rich alike, continue to see (or begin to see again) the dollar as a credible currency to earn and invest in, and thereby enrich who ever holds it, then our government can print all the money it wants. We can print money, in other words, unless and until there's no one who wants it. The social demand for money is a significant, necessary basis of money.

One problem: The quality of American money has for a really long time been assumed by those who study it to be credible. As a result, right now, compared to the number of social scientists who study the quantity of money, which is many, there are incredibly few who study the quality of it: whether or not American money is credible just hasn't been a burning question.

Until now. I suspect things will now begin to change. Qualitative approaches to all things economic -- like money and marketing -- should begin to take off, as a result of current events (meaning the financial collapse and the question of America's economic credibility and how to re-store it). The interesting questions are how swiftly the intellectual adaptation will take place, who will drive it and benefit, and how.

Tuesday, April 21, 2009

What we can do with 3 trillion dollars

President Obama's proposed budget is 3.6 trillion dollars. I just did a quick calculation. For 3 trillion dollars, the US government could institutionalize a guaranteed national income of 20,000 dollars a year for 150 million American families and individuals. A guaranteed national income would improve general welfare, as proponents often suggest. But to me the reason the idea is compelling is that it could potentially help solve a few tricky issues having to do with the functioning of the system, including how to maintain the high levels of consumption/spending needed to keep our economy growing and businesses succeeding. Right now, because of the liquidity crisis, a lot of the spending power we grew accustomed to over the last decade is non-existent. Sending 3 trillion dollars directly to families and people would help in terms of poverty and inequality, yes, but it could also provide a base of consumption that business -- and the system -- need.

As you might guess then, I sometimes think there is a case for a guaranteed national income. There is a problem though: the idea is socialistic, and the belief that socialism is a system that leads to social stagnation, while perhaps just a theory, holds a lot of sway over a lot of Americans, and yes, including me.

But I don't think this assumption we hold to about socialism should hold sway. At our feet is so much economic destruction, now is a perfect time to shed previous ideologies and to plan and create new institutions. Besides, some new form of organization will replace what just withered away. It'll be interesting to see what, and how imaginative it is. How much did we take our future in our own hands or did we just let history sweep over us in a cloud of outdated habits.

One of my favorite writers is Dara Moskowitz Grumdahl

One of my favoroite writers is Dara Moskowitz Grumdahl, a food writer here in Minneapolis. She used to write for the free weekly City Pages. That's where I got to reading her for the first time. Now she's at Minnesota Monthly. Recently, I've been especially taken by things she's had to say. While she ostensibly focuses on restaurants and food, her mind seems just as tuned to the context around the things people eat. For instance, I've noticed that for a few months now she has been intent on relating restaurants and dining to the financial collapse, which she just calls the 'credit crunch.' What does it mean to run a restaurant, or dine in a restaurant, or write about a restaurant, during the time of this second depression? Questions like this seem to motivate her writing. Here's a sample of what I mean. Check her out.

If you like to spend about $12 or $14 for an entrée, rejoice! The credit crunch has brought value back to a city near you. In St. Paul, the new value restaurant is Pop!! (The two exclamation points are theirs, not mine. Pop!!’s sister restaurant in northeast Minneapolis has only one exclamation point; it is Pop! Before this parenthesis runs out, let me enter into the permanent record that exclamation points are one thing, but this critic will frown on any restaurants opening with emoticons in their names.)

Where was I? Oh yes. The new value restaurant in Minneapolis is Rinata; Rinata’s sister-restauarant is Al Vento, the noted budget-Italian spot near Lake Nokomis. Why do all the new notable restaurants have older sister restaurants? I think because that’s where their proprietors worked out the kinks.

. . . .

Rinata, for instance, could go in an encyclopedia to illustrate the concept of “perfect neighborhood Italian restaurant.” . . . . And you’ll get out the door for roughly the price of six Big Macs. A bargain.

Why do I bring up Big Macs? Economists use something called the Big Mac Index to value global currencies against one another. The idea being that all Big Macs should cost about the same, but if one costs $8 in Norway, $3.50 in the United States, and $2 in South Africa, the Norwegian currency is overvalued and the South African currency undervalued. I’d say a really indulgent dinner at Rinata runs about six Big Macs, but you could get out the door for two or three Big Macs, which makes it perfect restaurant for the current moment: Tasty, unpretentious, affordable.

. . . .

They say if life gives you lemons, make lemonade. Now I see that if life gives Minneapolis and St. Paul a credit crunch, Minneapolis and St. Paul give us stylish, cheap date restaurants that rank well on the Big Mac Index. Who says there’s no romance in a recession?

Wednesday, April 15, 2009

National credit-worthiness

Data-images from Krishna Guha's report in yesterday's FT Times.

I hear it said sometimes that national boundaries mean less today than they used to. The word 'globalization' is thrown around. We have come to the end of 'national soveriegnty.' Nations now are all 'in it together.' 'Interdependent.'

I don't doubt the people who say these things are right, and that globalization is significant. But we all still live in nations, whether we like it or not.

In fact, I think Americans are right now facing a major problem that sits squarely at the feet of us as a nation: As a people our collective debt/wealth, taken together, is worth far, far less than it was sitting at 21 months ago (see the middle data-image above). Some of us are doing fine anyway. Some of us aren't. There are major differences among us. But together, no matter where you are, your life is affected by the dramatic depression in the value of American debt. Financing like we've enjoyed the past decade just isn't available right now, and companies as well as households are forced to cut back in this world without such easy money.

Have you heard the phrase 'toxic assets'? That our banks hold toxic assets is the crux of the current financial crisis. So what is a toxic asset? Toxic assets mean debt nobody will purchase.

I have to say, I find that so remarkable, that our debt is near worthless. The most followed economist of the last fifty years -- Milton Friedman -- figured he'd never see the day the collective debt of private Americans couldn't find a market. And here we are, living through precisely that, getting to look at it with our own eyes. But Mr. Friedman was right: he didn't live to see it. He passed on in 2006, bless his soul, a full year ahead of the meltdown that began in August 2007.

So, anyway, I assume economic growth is the goal. How then do we achieve it? The situation we have is the following, and it's not pretty. Either we quickly re-store our national credit-worthiness to past levels and beyond, trying to maintain the system we have enjoyed so much in which the world stockpiles dollars and finances American debt. Or we use political power to create a new system that is, like the previous one, built toward our interests.

Put another way, the question is, have we hit the peak of diminishing returns of the old system? Should we scrap it? Oh, but then we can't forget: Are we intellectually smart enough to create a robust and prosperous new system? And I guess we even need to ask: Are we that politically powerful any longer? After Iraq, and with the rise of China, ignoring this question seems untenable.

It might just be me, but it seems to be the case that, for the first time since WWII, economic growth in America has a highly uncertain future. If so, that means, cautiously speaking, that we are entering an entirely new kind of America from that which anybody under the age of 60 has ever experienced.

Monday, April 13, 2009

James Fallows betting on China

Idle factories, moored container ships, widespread bankruptcies, massive migration back to the hinterlands, strangely clean air—the signs of depression are everywhere in China. Because it makes so many of the goods the world isn’t buying now, China stands to be worse hit than the rest of the world —just as America was during the Depression, when it was the world’s sweatshop. But like America then, China will use tough times to design innovative products that will get it the high profits and the high-value jobs Americans kept to themselves for decades. And that is very bad news for the United States, unless it uses tough times to reinvent itself, too.

. . . .

China faces big problems, and its modern history has been marked by the unforeseen. Perhaps we will look back at the spectacle and choreography of the Beijing Olympics opening ceremonies as the last time the world thought there was no limit to what China could achieve. But I am betting the other way.

This article suggests Mr. Fallows -- America's preeminent journalist covering China -- thinks that country's future is (a) promising, and (b) not that good a thing for America, unless America makes major changes to its mode of operation to keep up. This is the least confident I've found Mr. Fallows on the subject of China-US.

Sunday, April 12, 2009

What in the world is liquidity?

For some reason every time I start my computer this page drops down as one of the most recent websites I've visited. It's a NY Times article from May 2nd, 2008. The headline is

Fed takes steps to add liquidity

Besides the confounding fact that it won't go away, this headline is significant for the remarkably ignorant use of the word 'liquidity.' Somehow, many people use the term liquidity when what they really mean is money. The suggestion is that by adding money, which is what the Fed technically does, they are by definition adding liquidity. So, as the Times headline shows, the money comes to get reported as liquidity.

The problem is, not all money is liquid money. That is, not all money is easy to get and trustworthy to lend. Under certain conditions money can be like that, but not always. So, yes, the Fed can just 'add' money, but no, it can't just 'add' liquidity. Not unilaterally anyway. Liquidity is created in time and context and requires on-the-level institutions and willing players. Plural. People interacting. More specifically, liquidity needs people interacting within an acceptably stable and understandable field of organized regulations. Credible and confident people, in other words, working within socially accepted parameters.

We don't have these conditions right now, and we will lack these kinds of people, at least in the near term, no matter what the Fed does. The question is whether high levels of liquidity can possibly return in the medium- and long-terms. If so, than we would do well to get our house in order and, through a little fiscal discipline, restore our seemingly natural state of credit-worthiness. If, on the other hand, conditions being as they might be, a return of liquidity simply isn't in the cards, we will need a whole new system of wealth-creation. In this case, economic growth will depend again on actually being productive.

In a way, what I am saying is a lot is riding on what we come to know about liquidity. Headlines like this, which tell me we can't even define our words let alone gain a semblance of control over them, make me less confident.

Tuesday, April 7, 2009

George Soros on the future of the dollar

Of course I know exactly what the dollar is going to do but I am not at liberty to tell you....

Click this link and listen to his comments. Was he joking when he said he knows "exactly what the dollar is going to do"? Was he serious -- does he really know something? If so, how could he know this? If not, why does he give a lame joke as an excuse for not knowing something and not wanting to just say that?

I have to say, in the video, the comment does not sound like a joke. But how could it not be?

Is the future of the dollar some kind of certainty the likes of Mr. Soros know but won't say?

Monday, March 30, 2009

Joakim Noah on basketball players' business habits

Joakim Noah, power forward/center for the Chicago Bulls:

People say, "How come NBA players lose all their money?" It's because we're making money like a 40-year old businessman would make. If a 40-year old businessman made money like us, he's very successful. Right? But at 40 years old, you're established, you have a family, you don't have people pressing you for money, you know what I'm saying? We're 23. Single. A lot of people are single. A lot of people come from areas where they don't have the means, and don't understand the whole money situation. They don't understand that when it says $1.5 million, half of that goes to taxes, and the house, and the agent. I mean, it goes.

Obama politically maneuvers on the question of socialism

[T]oday I'm announcing that my administration will offer GM and Chrysler a limited additional period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional taxpayer dollars. During this period they must produce plans that would give the American people confidence in their long-term prospects for success.

Now, what we're asking for is difficult. It will require hard choices by companies. It will require unions and workers who have already made extraordinarily painful concessions to do more. It'll require creditors to recognize that they can't hold out for the prospect of endless government bailouts.

That last sentence got me. "The prospect of endless government bailouts"? President Obama knows endless government bailouts of large-scale organizations have been the US government's plan for over a year now, with one big exception (Lehman) that proved the rule. Furthermore, a government-led bailout should be the plan. To me, the way for America to have a weak recovery out of this recession, relative to the rest of the world, is to destroy our credit-worthiness by reneging on all our debt. The credibility of our economic power is on the line. Our private organizations are so over-leveraged and un-productive that they can't get themselves out of debt. It's up to the government to fund and re-structure them. The question will be, what will the government create out of all this responsibility?

Anyway, I like it better when political leaders square with the public and make the case on its merits. Especially in this case, when the argument for government responsibility is so compelling. I understand his reticence. The general belief that 'government intervention is bad' has appeared to exist for decades now, and may still hold sway. But maybe not. Nobody knows. Conditions have changed. But there is uncertainty about the general beliefs, so the President plays it safe. My hunch though? He's playing it too safe. He has the credibility right now to take over institutions and create them anew. Does he recognize this? Does he have the confidence he can successfully walk the country through that door?

Read all of the President's remarks on the auto companies here.

Sunday, March 29, 2009

Schiller on a 'theory of the mind'

Robert Schiller is the current economist who, among economists, as far as I can tell, is the most committed to uncovering the social-psychological bases of the current financial crisis. Here he is, writing in the NY Times:

[F]orecasts based on a theory of mind are subject to egregious error. They cannot accurately predict the future. But the uncomfortable truth has to be that such forecasts need to be respected alongside econometric forecasts, which cannot reliably predict the future, either.

Tuesday, March 17, 2009

The financial crisis in two dimensions

There are lots of ways to think about any problem. One way of thinking about the current financial crisis is to conceive it across two dimensions -- the national and the global.

Dimension one, the national level, has to do with the relations among our country's national and regional banks and the Federal Reserve. The problem here is that, even as the Fed prints more and more money, national and regional banks are lending less money between themselves and to individual consumers. They are holding on to capital, citing a paucity of acceptable borrowers. So dimension one has to do with individual firms and their lack of trust in one another, as well as in the American consumer. The key actions are the printing and lending of money, more specifically, the expansion or the contraction of printing and lending.

The international issue runs along dimension two. Here the US position in the global economy structures thinking. In this dimension, minds are tuned to the situation the country as a whole faces in terms of the global flow of wealth and economic power. Considerations have to do with the credit-worthiness of the Treasury, the value of US debt, and the capacity of the American consumer. Is American debt perceived, around the world, as generally valuable? Is the American consumer burned-out or on a short-term hiatus? The problem here is that, as a result of the collapse, the nation's collective debt could appear less attractive in the eyes of our foreign lenders, and the American consumer could be less dependable as well.

The actions the US government has taken to fix the first problem -- actions like the massive expansion of the country's monetary base as well as the risky holdings taken on by the Federal Reserve balance sheet -- are, I believe, legit, that is, designed to solve a particular problem. Namely, to solve dimension one. The goal is to print enough new money to provide the capital needed to make lending among our nation's banks acceptable again. However, I think this monetary expansion, taken on to fix problem one, potentially exacerbates problem two, the international issue.

What do I mean? Take this Bloomberg report. It discusses the FOMC meeting today and tomorrow, portraying a general belief among analysts ("Fed watchers") that fixing the liquidity crisis requires intensifying an already hyper-aggressive expansion of the money supply and of Federal Reserve assets.

The Federal Open Market Committee, gathering today and tomorrow in Washington, needs to redouble its efforts after the central bank’s balance sheet shrank 17 percent from a $2.3 trillion December peak, Fed watchers said.

. . . .

“It takes massive balance-sheet expansion to generate significant easing in financial conditions,” said Andrew Tilton, an economist at Goldman Sachs Group Inc. in New York who used to work at the Treasury. “More needs to be done.”

Here's my issue: what impact will this type of monetary expansion have on the way foreign investors interpret their investment in US debt? Will it make the dollar look over-burdened, risky, less attractive? That's a question to which, to my sense, nobody but the foreign actors themselves has a real good answer. And they probably have a thousand questions of their own.

The point is that we might have to, at some point, consider that these two dimensions -- increasing the money supply so dramatically while trying to retain credit-worthiness in the eyes of foreigners -- might not share the same solution, and may even have contradictory solutions. And then we might have to make a serious decision about which dimension to prioritize.

In anticipation of such a case, the fundamental question we might want to begin pondering could be something like this: Do we inflate the dollar and use monetary-induced economic growth to weaken the value of our debt (and risk turning off future foreign investment)? Or do we strengthen the dollar and contract the economy, so that upon stabilization we can become credit-worthy again and take on more debt (and risk heading into an all-out depression that would last a few more years)?

My guess: We are first going to engage in money and welfare expansion, so as to avoid an all-out depression. Then we will transition to what will be a fairly taxing regime of fiscal responsibility: new taxes, new regulations, higher interest rates. Former Fed chairman Paul Volcker -- the noted fiscal disciplinarian -- waits in the wings of the Obama administration. I continue to think he's there for a reason. But I think Volcker will stay tucked away until President Obama sees a firm ground for future economic growth emerge from his stimulus and budget programs.

Monday, March 16, 2009

Systemic thinking

I see that Citigroup's stock value is up a hefty percentage today (though the number remains remarkably low -- around 2.24). This fact brings to my mind the following question: Is the government doing the right thing in propping up Citigroup so that it will survive?

Actually, I think it's better if I ask it this way: Is the government correct to think of certain organizations as vital to the survival of the system?

Or backing up even further, what 'system' is the government thinking about? What are the structural outlines of this system? The economists in the administration, as well as those many with blogs who argue so forcefully -- what basis do they use to think about systems?

To me this is a central question. The dominant view of economic thinking is to see social organization (e.g. 'the market') as consisting just about solely as a simple aggregate of individuals with more or less uniform rationalities. Assuming this gives economists significant privileges -- like the ability to sometimes predict future behavior from past behavior, for example. However, the notion that social organization is more than the sum of its individual parts is, to this point, still, like it or not, a central tenet of sociological, not economic thought.

Or let me put it this way. It is sociology, more specifically, social theory, in any case not economics, that provides the conceptual tools to make sense of social systems.

That's why I find myself wondering who the economists are relying on to make decisions with regard to a system. Are they reading social theory? I wonder, because I doubt we can succeed in re-constructing our economy as well as we are actually capable of re-constructing it, without a solid theoretical conception of the 'system' we are trying to re-construct.

Thursday, March 12, 2009

Bloomberg with a curious headline on Madoff

When I checked at 10:50 this morning, this was the headline in big, bold letters:


Bernard Madoff admitted he was the mastermind behind the largest Ponzi scheme ever, an historic fraud that swindled investors out of as much as $65 billion and made him the symbol of investor distrust in a global recession.

My problem is with that last part. Does Bloomberg know that Madoff is 'the symbol of investor distrust'? No way. Bloomberg can't possibly know that Madoff matters as a meaningful 'symbol' of trust and distrust: present conditions have the general beliefs of investors (not to mention of the public more broadly) up in the air. We can speculate, but the events are so fresh and old understandings are so quickly getting undermined by experience that to claim to know what people are thinking in relation to this financial collapse is at best misleading.

There is another reason we should avoid wild announcements. The question of generalized trust is no small issue. If Madoff is a significant symbol, then his pleading guilty and going to jail could lead to some improvement in public trust of economic institutions. In this account, in the end the right guy(s) get caught, so the credibility of the system can be restored without having to undergo major overhaul. This amounts to a best-case scenario. But if in the minds of people Madoff's only a face in a larger systemic story, then the reconstruction of economic credibility might require more deeply-felt, structural changes. A lot of power and control, and wealth, is on the line as we construct what will come to symbolize the things we think we know.

In any case, for whatever reason, Bloomberg steps over the line of credible journalism here. There is no way the people there know what this headline says they know. The reconstruction of economic thought is only begun.

My suggestion for Bloomberg? Hire a sociologist steeped in social theory to study the question of investor sentiment using methods geared for the needs of every-day journalism. Then they'll have a firmer basis to make claims about the general beliefs of people.


At around 11:20 the headline appears slightly changed:


Bernard Madoff was jailed after admitting he masterminded the largest Ponzi scheme in history, an epic swindle that may have reached $65 billion and made him the symbol of investor distrust in a global recession.

The number of billionaires sharply contracts

Forbes reports that the number of billionaires has dropped by 30 percent in a year, from 1,125 a year ago to 793 who can right now make the claim.

Retail sales down by 9.5 percent on the year

From Calculated Risk.

Excluding autos, retail sales grew by 0.7 percent on the month.

Still, the year-over-year number is remarkable. We are watching a major change. How intense will the change ultimately be? Who knows. The important thing, in fact, that we don't know. Do we consume as readily in the years to come as in the era just passed? Will we merely go back to the still very-high, pre-bubble rates of consumption? Or are we in the middle of a more historic contraction of spending? And what do we consume? These are open questions like no time I can see in the last thirty years. It will be fun to watch and document how these questions come to get answered.

Big setback for GE in a sign of the times

General Electric's credit-worthiness officially marked lower. From Bloomberg:

General Electric Co. and its finance arm lost the AAA rating that they’ve held from Standard & Poor’s since 1956 as a global recession sapped earnings and exposed potential risks.

The downgrade to AA+ with a “stable” outlook affects long-term debt, S&P_ analysts said in a statement today.

The loss of the AAA -- a sign that a company is among a handful of the world’s safest and strongest -- is a setback for Chief Executive Officer Jeffrey Immelt, who said as recently as January that GE generates enough earnings to justify keeping both the rating and the annual dividend. A month later he reduced the shareholder payout for the first time since 1938 in a move to save about $9 billion a year.

Standard & Poor’s in December said GE had a 1-in-3 chance of losing its top AAA designation within two years, and S&P kept GE’s “negative” outlook after the dividend reduction. Moody’s put GE on review in January and, after the dividend cut, said it would keep studying GE’s debt for a possible lower rating than its top-level Aaa.

The company has come under attack from some investors and analysts for a lack of transparency at GE Capital, the finance arm. Investors are concerned that the unit, already facing rising credit-card delinquencies and $4 billion in unrealized property losses, will require more capital than GE anticipates.

GE’s shares traded below $6 on March 4, the lowest since December 1991, while credit-default swaps that investors buy as protection against possible default surged.

Tuesday, March 10, 2009

Paul Krugman = Malcolm X

When I was in college I read a whole lot on Malcolm X. Much of it was about his complex relationship with, perhaps more accurately, to Martin Luther King, Jr (to my knowledge they met only once). I more than once came across a particular historical account in which Martin Luther King's successes were nonetheless seen to owe a significant debt to Malcolm. The point these writers made is that Malcolm X was so damn crazy he made MLK look, by comparison, much more acceptable in the eyes of established elites and skeptical publics.

I can't verify if it's a valid historical account, but I think of the notion lately when I read the economist Paul Krugman and his criticisms of President Obama. If MLK had Malcolm X, Obama seems to have Krugman, whose existence in the pages of the New York Times forcefully arguing for more, more, more demand-side redistributions of wealth -- not to mention his loud advocacy of temporary nationalizing four or five of the country's largest banks -- gives Obama a very public guy about whom the president can say to his conservative critics: If you think what I am demanding is unreasonable, you should recognize that Krugman's the alternative. Be glad you got me because I ain't like that.

VP Biden on Afghanistan

From Bloomberg:

Biden Sees Possible Conversion of 70% of Taliban in Afghanistan

Vice President Joe Biden said at least 70 percent of Taliban guerrillas in Afghanistan are mercenaries who could be persuaded to lay down their arms, stepping up U.S. calls for outreach to “moderate” elements of the insurgency.

Biden said the same tactics used in Anbar province in Iraq, where radical Sunni Muslims were co-opted by American financial support, could work in Afghanistan as part of President Barack Obama’s strategy for winning the war raging since 2001.

“Five percent of the Taliban is incorrigible, not susceptible to anything other than being defeated,” Biden told a press conference at North Atlantic Treaty Organization headquarters in Brussels today. “Another 25 percent or so are not quite sure, in my view, of the intensity of their commitment to the insurgency. Roughly 70 percent are involved because of the money.”

Because of the money. That makes sense. But I have to ask: what do these men do once we give them the money? Do they become our allies? Or are we buying off enemies who intend to remain enemies?

More good news! Consumer credit grew in January

Look at the data here. A few months ago I spent some time pouring over these consumer credit data. I came away thinking they stood out as a very useful macroeconomic indicator of the direction of the economy. I'll get a data-image up soon, and a sense of what I mean.

Is the Federal Reserve providing a basis of stabilization? Alternative title: Can Citigroup make it?

US Federal Reserve assets

Maybe it's the scent of good news in the air, but I am thinking today about the institutional basis of a financial stabilization. Or let me put it this way: I wonder what kinds of institutions it will take to restore a steady flow of credit to Americans and American organizations. So, anyway, did I say good news? Here's some, I think: Citigroup stock value is up somewhere around 20 percent. More specifically, the bank is claiming to be profitable again:

Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose as much as 27 percent and helped spur gains for finance company stocks.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

Citigroup has logged five quarters of losses totaling more than $37.5 billion since it posted a $2.1 billion profit in the third quarter of 2007. Once the world’s biggest bank by market value, it fell below $1 in New York trading last week for the first time as investors lost confidence that the shares can recover after losses and a government rescue.

“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit, 52, said in the memo, adding that the price doesn’t reflect the New York-based bank’s capital strength and earnings potential. The company had $19 billion of revenue in January and February excluding writedowns that have already been disclosed, Pandit said.

Can Citigroup make it? On its own, I would say no: my sense is Citi has destroyed its social capital, its credibility. I mean, should we even consider trusting the CEO's earnings statements? It's hard for thinking minds to believe and have faith in Citigroup.

But maybe Citigroup can survive with the help of others. As the above chart lays out, the American government is now the direct lender of first resort to Wall Street -- as well as a Citigroup shareholder. This fact will matter in the coming months as the government could advance some much-needed credit-worthiness to Wall Street, most of all, Citi. I can envision a scenario in which the expansion of the Fed's balance sheet proves to be the basis of Wall Street's survival -- lending to these troubled banks not just credit, but credibility as socially beneficial capitalist institutions with solid long-term plans. So yes, I think Citigroup could survive. The US government got in the game and in doing so, I think it could ultimately restore the credit-worthiness of our private organizations.

Bernanke's words suggest 'too big to fail' is now accepted knowledge

Here is Federal Reserve chairman Bernanke, from a speech given to the Council on Foreign Relations, March 10. He is talking about the relationship of the largest banks to the stability of the entire system, and the 'imperative' to save these large-scale institutions, lest we face significant systemic ruin.

In a crisis, the authorities have strong incentives to prevent the failure of a large, highly interconnected financial firm, because of the risks such a failure would pose to the financial system and the broader economy. However, the belief of market participants that a particular firm is considered too big to fail has many undesirable effects. For instance, it reduces market discipline and encourages excessive risk-taking by the firm. It also provides an artificial incentive for firms to grow, in order to be perceived as too big to fail. And it creates an unlevel playing field with smaller firms, which may not be regarded as having implicit government support. Moreover, government rescues of too-big-to-fail firms can be costly to taxpayers, as we have seen recently. Indeed, in the present crisis, the too-big-to-fail issue has emerged as an enormous problem.

In the midst of this crisis, given the highly fragile state of financial markets and the global economy, government assistance to avoid the failures of major financial institutions has been necessary to avoid a further serious destabilization of the financial system, and our commitment to avoiding such a failure remains firm. Looking to the future, however, it is imperative that policymakers address this issue by better supervising systemically critical firms to prevent excessive risk-taking and by strengthening the resilience of the financial system to minimize the consequences when a large firm must be unwound.

Achieving more effective supervision of large and complex financial firms will require a number of actions. First, supervisors need to move vigorously--as we are already doing--to address the weaknesses at major financial institutions in capital adequacy, liquidity management, and risk management that have been revealed by the crisis. In particular, policymakers must insist that the large financial firms that they supervise be capable of monitoring and managing their risks in a timely manner and on an enterprise-wide basis. In that regard, the Federal Reserve has been looking carefully at risk-management practices at systemically important institutions to identify best practices, assess firms' performance, and require improvement where deficiencies are identified.3 Any firm whose failure would pose a systemic risk must receive especially close supervisory oversight of its risk-taking, risk management, and financial condition, and be held to high capital and liquidity standards.4 In light of the global reach and diversified operations of many large financial firms, international supervisors of banks, securities firms, and other financial institutions must collaborate and cooperate on these efforts.

Second, we must ensure a robust framework--both in law and practice--for consolidated supervision of all systemically important financial firms organized as holding companies. The consolidated supervisors must have clear authority to monitor and address safety and soundness concerns in all parts of the organization, not just the holding company. Broad-based application of the principle of consolidated supervision would also serve to eliminate gaps in oversight that would otherwise allow risk-taking to migrate from more-regulated to less-regulated sectors.

Third, looking beyond the current crisis, the United States also needs improved tools to allow the orderly resolution of a systemically important nonbank financial firm, including a mechanism to cover the costs of the resolution. In most cases, federal bankruptcy laws provide an appropriate framework for the resolution of nonbank financial institutions. However, this framework does not sufficiently protect the public's strong interest in ensuring the orderly resolution of nondepository financial institutions when a failure would pose substantial systemic risks. Improved resolution procedures for these firms would help reduce the too-big-to-fail problem by narrowing the range of circumstances that might be expected to prompt government intervention to keep the firm operating.

Developing appropriate resolution procedures for potentially systemic financial firms, including bank holding companies, is a complex and challenging task. Models do exist, though, including the process currently in place under the Federal Deposit Insurance Act (FDIA) for dealing with failing insured depository institutions and the framework established for Fannie Mae and Freddie Mac under the Housing and Economic Recovery Act of 2008. Both models allow a government agency to take control of a failing institution's operations and management, act as conservator or receiver for the institution, and establish a "bridge" institution to facilitate an orderly sale or liquidation of the firm. The authority to "bridge" a failing institution through a receivership to a new entity reduces the potential for market disruption while limiting moral hazard and mitigating any adverse impact of government intervention on market discipline.

The new resolution regime would need to be carefully crafted. For example, clear guidelines must define which firms could be subject to the alternative regime and the process for invoking that regime, analogous perhaps to the procedures for invoking the so-called systemic risk exception under the FDIA. In addition, given the global operations of many large and complex financial firms and the complex regulatory structures under which they operate, any new regime must be structured to work as seamlessly as possible with other domestic or foreign insolvency regimes that might apply to one or more parts of the consolidated organization.

Monday, March 9, 2009

Another word on Paul Krugman

Earlier I wrote a post and was kinda hard on Paul Krugman, saying his columns and blog posts are at heart political rather than scholarly exercises. I hold to that.

But I'll say, I do admire Mr. Krugman's ability to make forceful arguments extrapolating from data. Even when I disagree with him, and even if his arguments often appear to have mainly political ends, I must say he is as good as there is at articulating economic data in an interesting, useful, accessible way.

An example, from his column of today:

President Obama’s plan to stimulate the economy was “massive,” “giant,” “enormous.” So the American people were told, especially by TV news, during the run-up to the stimulus vote. Watching the news, you might have thought that the only question was whether the plan was too big, too ambitious.

Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries — and suggest that the Obama administration’s economic policies are already falling behind the curve.

To see how bad the numbers are, consider this: The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.

On one hand this argument is weak -- even in its entirety, it falls short of adequately acknowledging the political and cultural realities of the moment. It wasn't easy for Obama to get the stimulus he did. There are a lot of powerful headwinds against massive government spending of the sort that Obama just pushed through. More money for national defense? Easy. Demand-side redistribution of wealth through institutions of health, energy, and education? Not so easy.

But on the other hand, Mr. Krugman has a point -- as large as the stimulus was it might not fully meet the challenge of the contraction, at least not as soon as we might like. And he finds a perfect data-point to show it: The 8.1 percent unemployment that was supposed by the Obama administration to be the year's average is going to be passed by the end of March. This fact helps make the argument for much, much more stimulus somewhat compelling.

Obama and Krugman are interesting rivals. They seem to have an on-going debate that I will try to document.

A very public president: Obama on what he reads, with a comment on Paul Krug . . . er, blogs

From the 35-minute interview he gave to the NY Times, here:

Q: Sir, we’re landing here, but what are you reading these days? What kind of newspapers do you read, do you read the clips, do you read actual papers, do you watch television?

A: Other than The New York Times?

Q: Other than The New York Times. Do you read Web sites? What Web sites do you look at?

A: I read most of the big national papers.

Q. Do you read them in clips or do you read them in the paper?

A. No, I read the paper. I like the feel of a newspaper. I read most of the weekly newsmagazines. I may not read them from cover to cover but I’ll thumb through them. You know, I spend most of my time these days reading a lot of briefings.

Q: And television? Do you watch? Web sites?

A: I don’t watch much television, I confess.

Q: And Web sites?

Q: No blogs?

A: I rarely read blogs.

. . .

. . . part of the reason we don’t spend a lot of time looking at blogs is because if you haven’t looked at it very carefully then you may be under the impression that somehow there’s a clean answer one way or another – well, you just nationalize all the banks, or you just leave them alone and they’ll be fine, or this or that or the other. The truth is this is a very complex set of problems and bad decisions can result in huge taxpayer expenditures and poor results.

Let me speculate that Obama's extended comment on blogs could be intended for the Times columnist and Princeton economist, Paul Krugman. Mr. Krugman is a very powerful voice on the 'left.' But his widely read column and blog could be seen as somewhat flawed analytical exercises, from the perspective Obama is coming from. In his column and his blog, Mr. Krugman seems preoccupied with arguing for bank nationalization as a theory rather than laying out the complexities. He does not provide what readers need: a discussion of what the unintended consequences of all the alternatives could be, in the conditions as they exist today.

Don't get me wrong, Mr. Krugman is a great writer, and a forceful arguer. My final sense of his columns and blog, however, is that in these two public spaces he is more movement man than scholar.

Anyway, on a last note, the President's reading habits are another example of Obama's close relationship with the American public sphere. He is a product of it, and he stays in touch with it through to today.

Friday, March 6, 2009

U-6 unemployment rate spikes sharply in February

Data image: U-6 rate, 1994-Feb 2009* Source.

It is now at 14.8 percent, up from 13.9 percent in January. The U-6 is the broadest statistical representation of the labor market and, specifically, of under-employment and unemployment.

Here are the recent U-6 data:

Feb 2008: 9.0

Oct 2008: 12.0

Nov 2008: 12.6

Dec 2008: 13.5

Jan 2009: 13.9

Feb 2009: 14.8


1. U-6 measures "Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers"

2. "Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule."

Thursday, March 5, 2009


“It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets,” said Timothy F. Geithner, the Treasury secretary, quoted here.

One of the under-analyzed words relating to the current economic problems is 'imperative.' It is being said that certain economic actions are 'imperative,' like continually saving AIG, and others are not, as when Lehman was allowed to fail. For a while it seemed reversing the housing downturn was not imperative, now we hear it is. How did this decision come about? Where did this notion of the imperative come from?

I have little doubt that, in a general sense, some parts of our economy are more important than other parts. My question is in the details. Do we have a good theoretical framework for actually knowing what is imperative and what is not? And imperative to what? To whom? For example, the government beliefs that led them to let Lehman fail, as of today, look dubious, according to, in any case, the very 'systemic risk' test the government is supposedly using to make its decisions. In other words, in hindsight, saving Lehman looks like it had been imperative, by the government's own approach, but the government let it fail anway. Are we making other similar mistakes?

I guess what I want to ask is: Who are the economists who have studied the concept of 'the imperative'? What knowledge is Sec. Geithner relying on?

Or let me put it this way: Where in all the theories of capitalism is there given such central importance to the notion of the imperative? I see the concept in functionalist sociology like that of Parsons and Habermas. But where else? You can't tell me the Secretary is reading Parsons, or Habermas. Maybe he should be. Who are the economists working on a theoretical conception of the imperative? Who does Geithner talk to and about, and who and what does he read, that is, when he's not making asinine tv on CNBC?

My hunch is that today's officials have no theoretical framework. They go case by case.

The GOP's Rush Limbaugh problem

“If you’re a talk radio host and you have five million who listen and there are 50 million who hate you, you make a nice living. If you’re a Republican party, you’re marginalized.” David Frum, quoted here.

At the moment the GOP is beset by an internal contradiction. On one hand are the interests of the organization as a whole. On the other hand are the interests of the separate parts. The problem is, these interests go in differing directions.

At present, the party's interests rest on adapting to meet new conditions: the bubble has burst regarding recent political and economic beliefs about things like war, tax cuts, and economic policy. The Republican Party needs to adapt to changed times.

But the Republican congress and media members -- the parts -- want to ride out the same facade and keep their jobs just a little bit longer. I mean, Rush Limbaugh can't tomorrow on his radio show say, you know all those things I said about Democrats over the years? They aren't really that bad. He can't do this, because his show would lose its reason for existence. The Republican Congress strikes me as in much the same predicament. In other words, they are what they are -- and for the time being, these men and women are employed, even slightly relevant. I can't help but find their self-preserving actions reasonable, in this sense.

But these ego-centered actions on the part of the individuals come at a time when the growth and stability of the party, as a whole, face specific external challenges. It is clear to anyone with eyes we need new approaches to domestic and international policies. In large part, organizational power will come from meeting head-on these new realities, not by grasping to disproven ideologies and picked-over code words (i.e., propaganda).

If the goal of the organization is to out-live any of its current parts, even Mr. Limbaugh, then the men and women who have been given riches and power and cultural satisfaction from this party ought to think about how to go about giving a little bit back. Straightening the whole operation out, smoothing things over, leaving something behind rather than taking and taking till there's nothing left.

Citigroup below $1

Bloomberg reports:

Citigroup Inc. dropped below $1 in New York trading for the first time, the latest sign that stock investors are losing confidence in a company that was once the world’s biggest bank by market value.

The stock fell to 99 cents at 11:22 a.m. on the New York Stock Exchange, marking an 85 percent decline this year and giving the company a market value of $5.5 billion. At its peak in late 2006, Citigroup stock was worth $55.70, giving the company a market value of $277.2 billion.

Monday, March 2, 2009

Like the economy itself, the NBA is contracting

If only slightly.


So maybe the summer of 2010 doesn't turn out to be one big game of musical chairs after all. Maybe LeBron James stays in Cleveland, Dwyane Wade in Miami, Chris Bosh in Toronto and very few NBA players wind up sending out change-of-address notices.

That's because the summer of 2009 might be the day -- or the offseason -- the music starts to die. Or at least goes into a vegetative state.

While most of the Saturday night fireworks during All-Star Weekend in Phoenix came from the explosive legs of Superman-clearing Nate Robinson, the real buzz came from the Man of Steely Resolve, David Stern. The commissioner, in his midseason address, acknowledged that the salary cap is expected to decrease next season. Estimates have the number dropping from $2- to $3-million or so, from the current $58.6 million, due to the continuing slump in the overall economy.

"Teams know exactly what's happening," Stern said. "They know what their finances are and they also know that the cap is coming down. If you don't have a lot of high-revenue growth over the next couple of years, there may be a slowdown. But teams know the rules and can assess their own situations."

Since the salary cap was born in 1984, there was only one other time -- the summer of 2002 -- when it decreased. Even taking that into account, the cap has increased by an average of roughly $2 million per season. In addition, the luxury tax threshold -- currently at just over $71 million -- will likely fall under $70 million next season.

Wednesday, February 25, 2009

More from President Obama

I am hearing criticism of the President that his speech last night was short on 'details.' That's fine. It was. But I think the criticism misses the point. America can't actually claim to know its details right now. Until we see the consequences of Iraq, and find the actual market value of our troubled assets, the details of our economy and our political strength are in question. What Obama really has to say is about ideas: old ideas are dead and tried; new ideas are necessary and responsible.

For example, watching last night and now reading the transcript of his speech, I was struck by the extent he lectured America's political elites for their behavior the past few decades. Especially here:

Now, if we're honest with ourselves, we'll admit that for too long we have not always met these responsibilities, as a government or as a people. I say this not to lay blame or to look backwards, but because it is only by understanding how we arrived at this moment that we'll be able to lift ourselves out of this predicament.

The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank.

We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before.

The cost of health care eats up more and more of our savings each year, yet we keep delaying reform.

Our children will compete for jobs in a global economy that too many of our schools do not prepare them for.

And though all of these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.

In other words, we have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election.

A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations...


Regulations -- regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn't afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.

Well, that day of reckoning has arrived, and the time to take charge of our future is here.

Now is the time to act boldly and wisely, to not only revive this economy, but to build a new foundation for lasting prosperity.

--If I hear him right, his 'better' ideas are comprehensive reform of the way we burn energy, the way we take care of our health, and the way we educate.

--The GOP is in some trouble. It is steadily becoming accepted knowledge that, as Obama points out, these are, at the very least, the best ideas coming out of Washington in quite some time. And these ideas directly contradict the anti-planning ethos of the Republican Party.

--I look forward to his budget, which I believe is released on Thursday.

Monday, February 23, 2009

More from the 'Financial Responsibility Summit': President Obama's remarks

My administration came into office one month ago in the depths of an economic crisis unlike any that we've seen in generations. And we recognize that we needed to act boldly and decisively and quickly and that's precisely what we did. Within our first 30 days in office, we passed the most sweeping economic recovery package in history, to create or save 3.5 million new jobs, provide relief to struggling families, and lay the foundation for long-term growth and prosperity.

. . . .

Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration or the next generation.

We are paying the price for these deficits right now. In 2008 alone, we paid $250 billion in interest on our debt: One in every 10 taxpayer dollars. That is more than three times what we spend on education that year; more than seven times what we spent on V.A. health care.

. . . .

We'll start by being honest with ourselves about the magnitude of our deficits. . . .

. . . the budget I will introduce later this week will look ahead 10 years, and will include a full and honest accounting of the money we plan to spend and the deficits we will likely incur.


We're not going to be able to fall back into the same old habits, and make the same inexcusable mistakes, the repeated failure to act as our economy spiraled deeper into crisis.

All nice sentiment, but he did not mention once the actual means of stabilizing the national economy: greater tax revenue, higher interest rates, and fewer imports. He talks about cutting unnecessary programs and 'pay as you go' legislation, but those aren't the problem, and he knows it. That said, it's difficult for the public to be an insider to President Obama's real thoughts. It's hard to have access to the real truth as elites see it; their public language always feels pressure to conform to accepted narratives. I thought his remarks today, as technically imprecise as they were, exacerbated this problem and further divided the President from his audience.

The whole of his remarks begin here.

Vice President Biden introducing economist Mark Zandi at today's 'financial responsibility' summit

Our first speaker today will be Dr. Mark Zandi. Dr. Zandi is the chief economist and co-founder of Moody's Economic -- excuse me, Moody's -- where he directs the company's research and consulting activities. He's one of the best big picture guys in the business. His most recent book, "Financial Shock," was widely praised for its lucid explanation of the housing bust. What's less well known about Mark is that he donated the royalties from that book to a fund to invest in low-wealth neighborhoods. He's also an economic adviser to John McCain's campaign. And I'm glad he's -- he's here with us today.

. . . . p> And as I understand it, we're going to -- I'm now turning the program over to -- to Mark, if I'm not mistaken.

Mark, welcome.


MR. ZANDI: Thank you for that very kind introduction. It was greatly appreciated, and the opportunity to speak this afternoon at this important meeting, to address the nation's daunting long-term fiscal challenges.

I'll make two broad points in my remarks.

First, the Obama administration has inherited the worst fiscal situation in the nation's modern economic history.

Read the whole transcript here.

Remember Phil Gramm?

He was the one this most recent summer who called the current mess a "mental recession" and said that Americans are a "nation of whiners." He was a big part of Candidate McCain's economic team. Then he said those things and was seemingly banished. Well, here he is writing an op-ed for the WSJ. I found this interesting:

The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis.

I point out this passage because there is a real consistency of worldview between it and his 'mental recession' comments. The consistency lies in Gramm's emphasis on psychology as a driving force of economic outcomes. A 'mental recession' is nothing other than an event that plays out in peoples' heads (in a socialized way). And now he contends that,

the reforms implemented by Congress will be profoundly affected by what people believe . . .

Three responses. (1) Say what you want about Mr. Gramm, he is trying to use cutting-edge economic theory that questions rather than assumes the nature of human behavior. (2) It strikes me as odd that a man as aware as he of the psychological underpinnings of economic processes would be so blind to how others would think about being called 'whiners.' And (3), Gramm's virulently political strand included, like it or not economic theory is changing to meet new realities. Even free-marketeer Phil Gramm is a sociologist.

Friday, February 20, 2009

Obama and the GOP

Yesterday I linked to a defense of President Obama's commitment to bipartisanship. The problem with the idea of bipartisanship is this: the best bill is the best bill, regardless of who supports it. Let's be technical and thoughtful about this, not political.

As a philosophy, that argument is probably right. However, it is in reality untenable. The stimulus bill, in fact the whole economic crisis, has both political causes and political consequences. Politics have already played a part in it, and will continue to do so. The very way we go about imagining the 'best bill' is shaped by political motivations.

Beyond that, this whole question of bipartisanship is particularly interesting because of the way Obama is approaching it. It seems, due to his own motivations and his own reasons, President Obama wants to pressure the Republican congress into major changes with its mode of operation, or face obliteration. He is not nearly as accommodating to GOP norms as the Clintons were, and seem to still be. Am I missing something when I think this?

Obama is basically saying, GOP, lose your tired ideologies, join the mainstream, and get to work -- or continue your trend toward irrelevance. Be more like the rest of us, or, while you sit out governance, we will continue to pass massive spending bills.

However, the current Republicans know they can't go back to their constituents and say, you know all those things we've told you the past fifteen years? That Democrats hang with terrorists? That they are baby-killers and want to raise all your taxes? Yeah, really, these Democrats are all right. It is reasonable of them to conclude they can't say that, not after the demonization of recent times.

So instead of joining Obama, they continue to go along with their old charade, because they assume, at the very least, they'll continue to get re-elected to office by their conservative districts or states. They just won't have any legitimacy to do anything once in Washington.

My point is, the GOP seriously needs a new plan.

Thursday, February 19, 2009


The New Yorker's Hendrik Hertzberg defends President Obama's commitment to 'bipartisanship':

Fifty years ago, the civil-rights movement understood that nonviolence can be an effective weapon even if—or especially if—the other side refuses to follow suit. Obama has a similarly tough-minded understanding of the political uses of bipartisanship, which, even if it fails as a tactic for compromise, can succeed as a tonal strategy: once the other side makes itself appear intransigently, destructively partisan, the game is half won. Obama is learning to throw the ball harder. But it’s not Rovian hardball he’s playing. More like Gandhian hardball.

Wednesday, February 18, 2009

Three strong pillars of economics knowledge

It is more popular today than I can remember to say something like the state of economics knowledge is in crisis. But this statement does not ring entirely true. There are at least three forms of economics knowledge that are still growing, vibrant, increasingly helpful at explaining experience.

These are --

1. Institutional economics

2. Behavioral economics

3. Economic sociology

(1) A contraction of jobs and (2) a financial meltdown

--Yesterday I linked to an economist's article in the Wall Street Journal arguing that President Obama is using scare tactics when he says we are in the worst economic crisis since 1929-1933.

The article's argument was unconvincing. One problem was that, with little touch, the economist compared unemployment statistics across historical eras. He observed, for example, that today's unemployment rate of 7.6 does not approach the 1930's rates in the twenties. Nominally true. It seems obvious, however, that unemployment statistics, like all data, are put together in social contexts, and these contexts differ across history. In other words, the numbers can't possibly mean today what they meant back then. Different procedures, different motivations, different political pressures, different media environment, different public-relation norms. Without dealing with these differences, or at least acknowledging them, a comparison across social eras can throw analysis down the wrong path.

I suspect it did with this particular economist. Taking just one example, the economist did not cite the U-6 unemployment number, which might be more tenable as a comparison to the 1930's number, and which today is up to 13.9. Also, he made no mention that job losses are growing in intensity just about every month, suggesting that the worst is still to come.

--So, as I've said before, in contrast to this economist, the data of the moment suggest to me we are living through a historic contraction of wealth we haven't seen since precisely the years President Obama cites.

--And it's not just jobs. For example, take stock market data. Some people scoff at these data. I eat them up. To me, the financial markets and the value of the Dow and the S&P are crude but meaningful representations of the wealth of our private organizations.

Mr. Schiller suggested Nov 1 1981 to Nov 2 1982 was as bad as, maybe he was even arguing worse than, today's contraction. But it's hard to make that argument if you believe at all in the data of financial markets.

November 1981 - November 1982:

Dow: Up 16.0 percent

November 2 1981


November 1 1982


In sum: Starting from Nov 2 1981, the Dow was off on August 12 by 10.4 percent, but rallied to be up by 16.0 percent on Nov 1 1982.

December 2007 - February 2009

Dow: Down: 43.25 percent

December 3 2007


February 17, 2009


In sum: The current contraction includes a 43 percent drop in the wealth of America's most prominent economic organizations.

--So what explains these different data?

One difference might have to do with the reasons for the contraction. In the eighties we cut jobs and raised interest rates to fight inflation. Today, we are contracting as our companies are forced to mark down the value of their assets. All their debt is less valuable today than it was in the period leading up to the contraction. This time, we appear to be marking down wealth, not to fight inflation and protect our wealth, but because we aren't as wealthy as previously conceived.

What we have today is a contraction of jobs and a financial meltdown over which we are able to exert very little control.

Tuesday, February 17, 2009

Comparing jobs/employment data across generations

Economics professor Bradley Schiller:

[O]ur current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.

This was reflected in unemployment rates. The latest survey pegs U.S. unemployment at 7.6%. That's more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can't equate 7.6% unemployment with the Great Depression.

My problem with this argument is this: you can compare jobs/employment numbers across generations, but I would not do it as loosely as this economist does, without giving some context. There is a question about what the official unemployment rate measures, or more specifically, what it fails to measure. For example, the economist above doesn't cite the current U-6 number, which at 13.9% is almost twice the official unemployment rate. It is possible that something close to this number is a better comparison with 1930s data. If so, the picture looks totally different than Mr. Schiller concludes. He should at least acknowledge this.

He accuses President Obama of using language to ratchet up the fear, and he may be right. But the way he uses data leaves little room for his own explanation to be credibile.

Executive pay caps and 'incentives'

--Moments ago a personality on CNBC, who, judging by his statements, considers himself a faithful adherent to free-market economic theory, argued that recent executive pay packages had nothing to do with the crisis we are in. Right or wrong, this statement is remarkable as a blatant contradiction of free-market economic theory, which sets as one of its most important tenets that incentives matter.

If the enormous pay incentives weren't motivating behavior and leading to the growth of 2002-2007, how would economic theory explain their existence? This way: The pay either stimulated behavior, or was a significant inefficiency in the market. So the pay is culpable in the crisis, or, if it isn't, it needs to be changed anyway.

In sum, here was one of the faithful, god bless him, trying to argue in favor of the free-market, and it took undercutting one of the main pillars of free-market thinking to do so.

--The study of economics faces a moment of crisis. This moment is in stark contrast to the few smooth decades for economic theory that got us here. As this body of knowledge works itself out, we should remember that the goal should be to improve our understanding of incentives, not all of a sudden pretend they don't matter. Our current age includes a whole lot of money, and, at least theoretically, a whole lot of incentive as a result.

--It strikes me as a good research project to put together a picture of the social institutions that shape 'incentives.' What the hell are they? Where do they come from? How do they get us to do things? How do they change? A couple sociologists (at least one who studies politics economics, and another who is versed in stats and economic sociology) could sort out the question of incentives.

--Here are a few of the institutions that I'd begin with:

1. The Federal Reserve and Treasury

Actions: Print money and make debt, expand the money supply, in sum, make money exceptionally available, create an incentive?

2. The government

Actions: Use rhetoric like 'small government,' push for tax cuts and shape ideology, cut taxes and manipulate fiscal outcomes, create incentive?

3. Family, education, and media

Actions: house opinions and create the public sphere of ideas, entrench communicative habits and create knowledge, market truths, create an environment conducive to consumption, create an incentive?

4. Social-psychology

Actions: Individuals interpret environment and develop conception of self-interests, a broader socialized mind develops in concert with public sphere of ideas in which individuals participate, individuals in return internalize and/or reject the incentives that are communicated, a social mind of rough consensus and certain deviation emerge around the notion of money as an accepted stimulant of behavior

Bill Clinton calls the GOP's actions 'automatic'

“Those guys are on automatic,” Clinton said during an interview on CNN’s “American Morning.” “They have a — you know, you punch a button and they give you the answer they give you.”

His use of the description 'automatic' is interesting because it strikes me as a spot-on description of what the Republicans propose -- a market system in which tax cuts are the answer to everything. Except for their three Northeast senators, the entire GOP congress voted against the stimulus plan as 'big government.' In rejecting the plan, they used the same logic they've used since the early 1990s. The GOP wants to preclude economic planning of any sort, and put all their eggs in cutting taxes. When something happens, regardless of the conditions, the answer is the same -- lower taxes.

Anything different than that viewpoint is 'socialism.'

Now, I like tax cuts and believe they have a place in good economic policy. But a hypothesis of mine is that Americans are starting, slowly, to see that a theory with such dedication to its truth without regard to reality can't help but often be wrong.

In this sense, as knowledge, President Obama's stimulus plan represents the mind to use public logic and government institutions to counter socially destructive consequences of economic activity, especially those events that threaten the capacity for free economic activity in the first place. That it is good for markets to employ this more thoughtful understanding of how they work.

Monday, February 16, 2009

Monetary risk

It looks like tomorrow President Obama will sign into law the stimulus bill. It is a historic bill -- a meaningful re-distribution of wealth that contrasts sharply with the previous administration's approach to distributing wealth, especially their initial tax cuts. About this plan, the other day I wrote:

The argument against Obama's plan is that it exacerbates monetary risk.

The words 'monetary risk' represent a need for new categories of language and knowledge. The recent era of easy money was little concerned with monetary risk. Instead, the country has proceeded as if our monetary regime is beyond reproach -- we were, we are, the world's printing press, the thinking went, and so we can, if we choose to, create more and more debt. Or, as Dick Cheney, put it, "Reagan proved deficits don't matter."

The current contraction is ending this knowledge. Events are showing that America's ability to print money and finance huge debts is not endless.

It is time the words 'monetary risk' get bandied about more seriously when economists, social scientists, journalists, and businessmen and women talk. The sentiment behind the words should be in the minds of elites and publics alike.

But to this point, our ideas have not yet acclimated to this new knowledge, as this stimulus bill includes tax cuts instead of a way to pay for it.

That said, I still am for the stimulus.