Not What Keynes Had in Mind

Keynes didn't consider the concept of liquidity trap to be too relevant in practice. He knew that, in the case of near-zero interest rates, the speculative demand for money would be infinite, the demand for bonds would be null, and borrowing would increase, so interest rates would probably rise and take the economy out of the trap (a good summary of this point is provided in Handa's Monetary Economics).

And this is exactly what happened during the early stages of the current financial crisis. People who believe that the US found itself in a liquidity trap should at least acknowledge that this was the artificial creation of a central bank subservient to a prodigal treasury operating in a financially repressed economy.

Keynes was worried about the hypothetical lack of autonomous demand and how "benign" government debt could be used to compensate for it. Chronic overindebtedness, financial deleveraging and repression, and a central bank that enjoys the role of quasi-fiscal authority were not among his most well-known theoretical concerns.

Falling Geographic Mobility in the US

I always suspected that this was the case, but here's some quantitative evidence: American internal migration rates have been falling fast, and they have now approached European levels, according to Molloy, Smith, and Wozniak. America could even have become less mobile than Europe since 2007:

Overall, the secular decline in geographic mobility appears to be specific to the U.S. experience, since internal mobility has neither fallen in most other European economies nor in Canada—with the United Kingdom as a notable exception. One caveat to this conclusion is that the publicly available European Labor Force Survey data extends only through 2007, so it is unknown how internal migration in Europe has compared to the U.S. experience during the most recent global downturn.

Budget Skeletons in the Closet Not a Figment of Imagination

This has always been my impression, so it's nice to see that the question was finally tackled academically. According to research by Campos, Jaimovich & Panizza:

In Campos et al (2006), we move beyond anecdotal evidence and use data for 117 countries over a period of 30 years (1972–2003) to show that in the average country-year, debt grows 3 percentage points of GDP faster than what is implied by the budget deficit (this value is obtained after dropping outliers; if outliers are included in the sample, the average unexplained change in debt reaches 5% of GDP.

7th Art: One Way Passage (1932)

I love to watch classic movies among other reasons because of what they reveal about the historical context of the times during which they were made. "One Way Passage" is a great example: the movie is filled up with heavy drinking from the very first scene to the very last. Liquor consumption is so widespread that (SPOILER!) even dead people drink.

And here's the great irony: this Warner Bros. production came to the screens while the American prohibition (Volstead Act) was yet in place. Talk about drinking by proxy!

The French Tobin Tax Folly

President Sarkozy's populist support of a Tobin tax for the EU prompts me to ask interested parties to read my article about the taxation of bank transactions, which discusses some general principles that also apply to a Tobin tax but are frequently ignored by the public. Among them, it's particularly relevant the fact that this kind of tax can in reality impair the public finances of highly indebted countries:

Levying BAD taxes on government debt transactions impairs net revenue and can lead to potentially misleading deficit accounting. It may cause the government primary deficit of a country to decrease, while causing the operational deficit (which includes real interest expenditures) to increase, creating illusory revenue streams. A sensible government therefore should leave transactions with government bonds out of the tax incidence base, particularly in the case of highly indebted countries.

In other words, Sarkozy's Tobin tax would be for France the public finance equivalent of shooting one's own foot.

Boudreaux on the Myth of Public Debt Irrelevance

In a thoughtful post, Don Boudreaux translates Buchanan and explains why issuance of public debt not only matters but can even be unethical:

Suppose the government of A gives each adult citizen of A between the ages of 18 and 65 the right to force another randomly chosen adult citizen of A to work six months out of every year for the first adult’s benefit. Every adult has this right – which government steadfastly enforces whenever that right is exercised – to command the labor (or the fruits of the labor) of another adult. No adult is exempted from the obligation to labor for another adult.

Would resource allocation be unchanged from what it would be in the absence of this policy of mutual conscription? Does the answer change by recalling that each adult citizen of A, after all, devotes his or her conscripted labor only to another adult citizen of A? What if we specify that the total aggregate labor hours worked under this policy is the same as it would be in the absence of this policy: would resource allocation then be the same as without this policy?

Isn’t deficit financing of government spending equivalent in some essential ways to the above hypothetical? The ability to free-ride on others’ labor (or, more generally, resources) leads to the misuse of that labor (or resources). This fact isn’t altered if those doing the free-riding are citizens of the same country as are those who are free-ridden upon – or by the fact that each free-rider is also freely ridden upon by someone else.

7th Art: Intouchables (2011)

"Intouchables" is one of the best movies I've seen this year. Box office first-runner in France, a witty, intelligent and politically incorrect movie based on real events. As politically incorrect as real life is, and yet deeply human and positive.

François Cluzet reminds me of Dustin Hoffman in his best roles, and Omar Sy puts together the best of Sidney Poitier and Eddie Murphy.

The paragliding scene shows the city where I and Sophie got married (Beaufort) painted on the Alpine background.

Blame the USPS?

How important is the economic inefficiency and, why not, income inequality (think about e-commerce millionaires) created by the price subsidizing and cross-subsidizing of long-distance online commerce implicit in the artificially low USPS mailing fees structure found in the US?

Buying and selling decisions in Europe are more affected by distance, resulting in a lower amount of wasteful individual item packaging and long-distance routing. European fees structures also favor local brick & mortar retailers. In the US, consumers buy an excessive amount of small-value items through e-commerce because the cost of shipping them individually across long distances is too low. Without this price subsidy, consumers would resort more frequently to local retailers, which should be able to sell for less due to bulk shipping, handling and packaging.