Tuesday, March 31, 2009
Sunday, March 29, 2009
I'll translate some of the main points as a warning against the same statist and centralizing trends that we currently observe here in the US:
[The Brazilian Senate], with 81 Senators, has 181 directors, each receiving a yearly salary of around $ 141,000 (R$ 325,000) . The budget of the Senate is greater than the budget of the municipality of Porto Alegre [one of the largest cities in Brazil]. To manage a few buildings and needs, the [Senate] spends more than a city with a population of more than 1.4 million.
This is the heritage of our patrimonialist culture, which deifies the state so it can be used as private property by some. Nothing more than taxpayers’ money at the service of the privileges of a quiet caste of surreptitious swindlers. In Brazil, due to the particularities of its civilizatory process, state power - the Portuguese Crown - arrived before the establishment of communities. The people came after, submissive and conformed to the preexisting structure of command. The consequence is that our history was drawn around the fringes of the state, while society remained subject to a secondary, supporting role.
This is why the private sector is so much despised [in Brazil]. For no other reason than that entrepreneurship is not part of our curricula. ... And yet we greet the state as our only possible redeemer.
Saturday, March 28, 2009
I would not be surprised if, in the near future, we start hearing acid speeches like the one below here in the US. The speech was recently delivered by Representative Daniel Hannan in the European Parliament, accusing Prime Minister Gordon Brown of furthering UK's economic descent. Will we be next?
In short, do you really believe that drug dealers with millions of dollars on the line don’t have sufficient resources to open those borders as wide as they please? On the other hand, do you really think that gun legislation in Texas or a re-configured Brady bill is going to make the violence disappear like Houdini's elephant? What do you think?I'd like to comment on the question of gun sales to Mexico. This question can easily become technical, and I believe it's important to avoid the trap of wishful thinking here. I touch on the point briefly in my research on border crime, and there's also an extensive economic literature on the particular subject of guns and crime, with lots of issues yet to be settled. I'll just point out three problems with the idea that forbidding gun trade with Mexico (in this case, blocking exports that are legal in the US but illegal in Mexico) is important to solve the crime problem in Mexican border cities:
- As exemplified by Ennyman's post itself, blocking exports of guns to Mexico, besides creating an additional cost to the American taxpayer, probably won't do any real good, since it's so easy to smuggle guns into Mexico anyway. I wonder if this should really be a priority.
- Those same guns are available to Texans, and yet Texas is, in general, one of the safest places to live in the US, despite the fact that the number of police officers per capita in Texas is lower than in most Northern states. Just as an example, El Paso, right across the border from Cd. Juarez, is one of the safest large cities in America.
- Gun ownership is almost totally outlawed in Mexico (mostly for political, not criminal reasons), and that has never stopped Mexico from being a violent country, on the contrary, it only increased the asymmetry of power between "ranchers and cowboys" and "government thugs and bandits" - to oversimplify a much more complex discussion.
My take on it is that we should work incessantly and selectively to improve collaboration efforts with all Mexican citizens that recognize the problem and want to improve their institutions. The difficulty here is the strong resistance to institutional change that is put up by many in Mexico (and even by some in the US that benefit from the status quo in Mexico), and, unfortunately, there's no easy solution to this part of the problem. Anyway, I don't think that there's any real alternative to institutional change.
Friday, March 27, 2009
1. We cannot efficiently value or transfer “toxic” assets - so a good plan cannot depend upon this.
2. The UK’s Special Resolution Regime, or one similar to that of the US FDIC, can cleanly split off the key banking functions into a new "bridge" bank, leaving liabilities behind in an "old” bank, thus also removing creditors’ bargaining power.
3. Creditors left behind in the old bank can be fairly compensated by giving them the equity in the new bank.
4. We can pick and choose which creditors we wish to “top up” beyond this level, but should not indiscriminately make all creditors completely whole as in recent bailouts.
5. Coordinating actions with other countries will reduce any risks.
As we pour good money after bad in trying to save the banks, far too much time and attention has been focused on attempting to value or transfer or shore up the so-called “toxic” assets. This is natural enough, since they arguably caused the crisis, but it’s also wrong. ...
A plan that isolates the bad liabilities rather than the bad assets of the banks, and pays the owners of those claims everything they legally deserve in liquidation but does not fully immunise them from losses, will achieve three major objectives.
- It will help unfreeze the credit markets by creating healthy banks able to lend.
- It will assure that depositors are paid in full, and all creditors are paid at least their entitlement.
- It will make the bailout cheaper for the government, increasing its flexibility.
Finally, as an additional benefit, paying creditors based on market values rather than government guarantees reduces moral hazard in bank finance, and increases the prospect of better monitoring by sophisticated private creditors in determining the future allocation of capital across financial institutions.
There will be a lot more we will need to do to solve the financial crisis -- let's not make the bank bailouts more expensive than absolutely necessary.
Wednesday, March 25, 2009
Maybe we needed an European from a country wrecked by socialism to make us see that the the emperor has no clothes. Despite the administration's insistence on misrepresenting the economics profession, many economists have denounced the lack of soundness of a plan that is at best a cartoonish application of outdated economic theories, possibly driven by less-than-noble politics.
The road to hell is paved with good (and sometimes bad) intentions. The AIG fiasco continues to burn: the resignation letter of Jake DeSantis to Edward M. Liddy is an excellent example of how government micromanagement (or should we say micro-mismanagement?) of the economy is a recipe for economic disaster (HT Mankiw, see also Division of Labour). I couldn't care less about corporate intrigue, however, this one is being supported by the taxpayer!
The government has botched up badly by keeping this company afloat, and the more it tries to replace markets and free enterprise with overblown politics, the faster we'll go down that old hot road. I just hope we make a U-turn before reaching terminus station.
PS: Megan McArdle's post and the commentaries that follow reveal how easily corporate governance can be messed up by government micro-mismanagement.
Tuesday, March 24, 2009
NEW YORK—A new study published in The Journal Of Pediatric Medicine found that a shocking 98 percent of all infants suffer from bipolar disorder. "The majority of our subjects, regardless of size, sex, or race, exhibited extreme mood swings, often crying one minute and then giggling playfully the next," the study's author Dr. Steven Gregory told reporters. "Additionally we found that most babies had trouble concentrating during the day, often struggled to sleep at night, and could not be counted on to take care of themselves—all classic symptoms of manic depression." Gregory added that nearly 100 percent of infants appear to suffer from the poor motor skills and impaired speech associated with Parkinson's disease.
Monday, March 23, 2009
It is a measure of how deep the anger runs that most press attention at the weekend focused on the government's new proposal to increase its scrutiny of executive pay rather than on leaks of the Treasury's long-awaited plan to tackle toxic assets. ...
Bankers are not the only ones feeling the heat, however. The Treasury knew about the bonuses before it gave AIG its most recent shot of state aid. And Senator Christopher Dodd, who faces a tough re-election bid, has come under pressure to explain why he did not try to stop such bonuses when he helped to write the bail-out legislation.
Mr Obama has been trying to catch up. ... But the president's critics say that, once again, he has let Democrats in Congress define an issue in such a way that it makes the administration's job of winning the public's trust more difficult. Indeed, Mr Obama did little to quell the outrage last week. In an appearance on the Jay Leno show he sang along with the chorus of disapproval and maintained that America had to get back to “an attitude where people know enough is enough” and a “sense of responsibility”. It was left to Mr Leno to say he thought it a “little scary” that the government could impose a tax on someone it doesn't like.
Recessions produce economic insecurity and are ripe for populist politics. The danger is that Mr Obama risks being seen to be pandering to populism. Worse, some are wondering how well the relatively inexperienced Mr Obama would fare with a full-blown crisis given his wobbles over a minor issue such as bonuses. Others maintain he is still running last year's presidential campaign, and that he needs to show himself as more presidential, by using his position to calm and explain, rather than merely echo the public's frustrations at Wall Street. To be fair, Mr Obama did take a stab at that when interviewed by Mr Leno, but the call for more regulatory “common sense”, perhaps a plea to Congress, got lost amid the rage and the gags.
Saturday, March 21, 2009
Friday, March 20, 2009
Thursday, March 19, 2009
Sachsida for example wrote a post (in Portuguese) that explains how inflation targeting failed to anchor inflationary expectations and may even have been responsible for the exchange rate run-up of 2002 (my translation):
The goal of this post is to question the current interpretation regarding the success of the inflation targeting regime in Brazil. I'd like to know how it is that a system that SYSTEMATICALLY fails to reach its targets can be considered a success. In its 10 years of existence, the inflation targeting regime was incapable to fulfill its targets in almost half of the years; and in the other half, nothing guarantees that the inflation targeting regime was responsible for price stability.
Wednesday, March 18, 2009
PS: here's Marginal Revolution on AIG presidential campaign contributions.
PS: here's Cafe Hayek on Fannie and Freddie bonuses.
Tuesday, March 17, 2009
State officials across the country are proposing price controls to help fix the economy, riling economists who warn they can harm the economy and even destroy cities. ...
The New York Legislature and the San Francisco City Council are considering expanding rent controls. Some politicians in Vermont are trying to limit the price of milk. And in Alaska, a bill to cap oil prices is pending in the state legislature.
Proponents say the government has an obligation to provide relief for consumers during these trying economic times. But many economists say controlling prices and rents has failed in the past, and it often has bad consequences.
"Economists widely agree that price controls often lead to shortages. There are many examples throughout history, and we have seen more recent demonstrations of this principle of economics in Venezuela and Zimbabwe," said Dr. N. Gregory Mankiw, a Harvard University economics professor and former chairman of the Council of Economic Advisers under President George W. Bush.
Dr. Edward Glaeser, a Harvard economics professor who researches the effects of rent control, said price controls have "a whole litany of problems that make them among the most foolish forms of economic populism known to man." ...
"You had gas lines in the '70s.... The tougher thing is to think of cases where there was not a shortage due to price controls," said George Mason University economics professor Dr. Tyler Cowen, author of "Discover Your Inner Economist." ...
"In many cases rent control appears to be the most efficient technique presently known to destroy a city -- except for bombing," said Swedish economist Assar Lindbeck, a former socialist who has been researching rent control since the 1960s.
Monday, March 16, 2009
Sunday, March 15, 2009
Natural resources, supposedly the object of imperialist greed, are not fundamental [for economic development], since Japan became wealthy without them. Education does not guarantee progress, since Russia collapsed years after adopting the formula of Lenin: education plus electrification. The saving rate is important, but only if investments are not wasted. Stable money is a necessary but not sufficient condition. Furthermore, capitalism is not enough, unless it is liberal and competitive, since state capitalism is disastrous.
It appears that we're bound to repeat the economic mistakes of the past, and nothing out there will stop us from doing so.
Politics [when it comes to this crisis] will make matters worse, primarily because governments in both the rich and the developing worlds are intervening in their economies more broadly and deeply than at any time since the end of World War II. Policy makers around the world are hard at work crafting stimulus packages filled with subsidies and protections they hope will breathe new life into their domestic economies, and preparing to rewrite the rules and regulations that govern global markets
Why is this dangerous? At the G-20 summit a few weeks ago, world leaders pledged to address the crisis by coordinating their economic policy responses. That's not going to happen, because politicians design stimulus packages with political motives -- to satisfy the needs of their constituents -- not to address imbalances in the global economy. This is as true in Washington as in Beijing. That's why politics will drive the global economy more directly (and less efficiently) in 2009 than at any point in decades. Its politics that is creating the biggest risk for markets this year.
This is part of a worrisome long- term trend. In China and Russia, where histories of command economics predispose governments toward what we've come to call state capitalism, the phenomenon is especially obvious. National oil companies, other state-owned enterprises, and sovereign wealth funds have brought politicians and political bureaucrats into economic decision-making on a scale we haven't seen in a very long time.
Now the U.S. has gotten in on the game. New York, once the financial capital of the world, is no longer even the financial capital of the U.S. That honor falls on Washington, where lawmakers are now injecting populist politics into economics decisions. Companies and sectors that should be left to drown are being floated lifeboats. This drama is also playing out across Europe and Asia. As engines of economic growth, Shanghai is losing ground to Beijing, Mumbai to Delhi, and Dubai to Abu Dhabi.
Saturday, March 14, 2009
Friday, March 13, 2009
Follow this link to see the list of courses (HT Marginal Revolution). Among them, you'll find "PHIL 180 - Philosophy and Star Trek" (descriptor here), taught at Georgetown University. Maybe they should have added "metaphysical implications of quantum mechanics" to the syllabus...
Thursday, March 12, 2009
Central banks' track history is not encouraging when it comes to correctly timing monetary contractions. I really hope that this time we'll be luckier than before, but as Benjamin Franklin once said, "he that lives upon hope will die fasting."
U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.
In striking contrast to President Obama's popularity with the public, a new Wall Street Journal survey of economists gives the president and his treasury secretary failing grades.
Wednesday, March 11, 2009
Colonel von Waldheim: Labiche! Here's your prize, Labiche. Some of the greatest paintings in the world. Does it please you, Labiche? Give you a sense of excitement in just being near them? A painting means as much to you as a string of pearls to an ape. You won by sheer luck: you stopped me without knowing what you were doing, or why. You are nothing, Labiche -- a lump of flesh. The paintings are mine; they always will be; beauty belongs to the man who can appreciate it! They will always belong to me or to a man like me. Now, this minute, you couldn't tell me why you did what you did.The great irony presented in the movie is that while Colonel von Waldheim was willing to kill and die for a regime that considered the paintings that he loved to be nothing more than degenerate art, Labiche was willing to kill and die for the freedom represented by those paintings, even though he didn't have any aesthetic interest for them. Labiche's actions are a nice example of Voltaire's pledge: "I do not agree with what you have to say, but I'll defend to the death your right to say it."
Monday, March 9, 2009
Will the administration make a clear statement against this shameful development in American politics?
This is a good example of what happens when concepts such as class struggle and nativism become accepted in the polticial discourse. People should be ashamed of even proposing such ideas.
Here's the CNBC video on the subject:
PS: Here's Mankiw on the subject.
Sunday, March 8, 2009
Saturday, March 7, 2009
Friday, March 6, 2009
If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. ...
The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world.
His [Alan Moore's] main rationale:A very good point indeed. Here's the trailer of the movie:
If a thing works well in one medium, in the medium that it has been designed to work in, then the only possible point for wanting to realize it on "multiple platforms," as they say these days, is to make a lot of money out of it.Even if money were the sole motive behind the Watchmen movie, though, how does it follow that the result will be bad? Adam Smith might retort, "It is not from the benevolence of the producer, the director, or the actor, that we expect our entertainment, but from their regard to their own interest."
Inflation "IT" Targeting
The Bank of England, one of the pioneers of inflation targeting (IT), until recently a much praised monetary policy framework (one that, by the way, I helped to implement in Brazil), decrees the death of the regime (italics are mine):
Inflation targeting was introduced in 1992 with the aim of enhancing economic stability and making policy decisions more transparent. When Labour took office in 1997, Gordon Brown took that policy farther by making the Bank responsible for setting interest rates. Mr Brown also split responsibility for monetary policy from banking supervision, which he vested in the the new Financial Services Authority (FSA). ...
The derelictions start with these. Monetary policy failed. The Bank's mandate of targeting inflation proved too narrow. It focused on consumer prices but overlooked asset prices. Cheap imports from China helped to dampen inflationary pressures and let the Bank keep interest rates low. But a massive bubble in house prices, fuelled by imprudent lending, was left unconstrained. The Bank was so consumed with its monetary responsibilities that it failed in its task of securing financial stability. ...
The British financial system is dysfunctional and has damaged the wider economy. Mr Brown is its author. It might hasten necessary repairs if he were to acknowledge those errors.
Thursday, March 5, 2009
From Zaretsky and Scott we learn much about Hume, Rousseau, Voltaire, and others in the constellation of talents that made the Age of Enlightenment, even if (like Rousseau) some of them were in it rather than of it. There cannot be enough such books, or enough readers for them. They bring the time and its debates vividly into focus and remind one that what mattered then still matters now: not least the dangers of a philosophy of sentiment and passion -- Rousseau's prescription -- in which what one feels is justification for anything, though the world around one, if it has improved at all, has been improved by empirical common sense -- Hume's prescription. That is the real quarrel, which the quarrel between Rousseau the feeler and Hume the philosopher perfectly illuminates.
So what do I read this morning? A line worthy of an Ayn Rand villain:
I'm still not convinced that Obama will be the next FDR. To riff off Samuelson, scary quotations by high-ranking officials have forecast nine of the last five transitions to socialism. But I am convinced that many people in high places have bad intentions. If we avoid the worst, we will have gridlock - not our leaders - to thank.Rahm Emanuel, the incoming White House chief of staff, has said, "You don't ever want to let a crisis go to waste: it's an opportunity to do important things that you would otherwise avoid."
They argue that, in spite of ample evidence that private provision is superior to public provision and no evidence that public provision is superior to private provision, governments generally tend to produce education instead of relying on private suppliers. ...
Pritchett and Viarengo argue that government schools exist to produce not just values-neutral skills like literacy and mathematical competence, but beliefs and values. In other words, governments have a stake in controlling schools for the same reason they have a stake in controlling media: socialization and inculcation of regime-friendly values.
Their new wrinkle is that they expand conventional models of schooling supply and demand to include provision of beliefs in addition to skills. As evidence, they cite the prevalence of religious schools as the alternative to government schools. Both governments and religious organizations "are willing to subsidize skill acquisition in order to link it with socialization and the inculcation of belief" ...
Casual empricism and my experience with American schools suggests that the key problem is common ownership with multiple parties claiming the legitimate right to be "the regime." The ideological commitments of the polity should then determine the degree to which regime-ownership is contested.
Wednesday, March 4, 2009
Most analysts of the modern Latin American economy hold to a pessimistic belief in historical persistence -- they believe that Latin America has always had very high levels of inequality, suggesting it will be hard for modern social policy to create a more egalitarian society. This paper argues that this conclusion is not supported by what little evidence we have. The persistence view is based on an historical literature which has made little or no effort to be comparative. Modern analysts see a more unequal Latin America compared with Asia and the rich post-industrial nations and then assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. This paper argues to the contrary. Compared with the rest of the world, inequality was not high in pre-conquest 1491, nor was it high in the postconquest decades following 1492. Indeed, it was not even high in the mid-19th century just prior Latin America’s belle époque. It only became high thereafter. Historical persistence in Latin American inequality is a myth.
Paul Krugman suggests my skepticism about the administration's growth forecast over the next few years is somehow "evil." Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?
Team Obama says that real GDP in 2013 will be 15.6 percent above real GDP in 2008. (That number comes from compounding their predicted growth rates for these five years.) So, Paul, are you willing to wager that the economy will meet or exceed this benchmark? I am not much of a gambler, but that is a bet I would be happy to take the other side of (even as I hope to lose, for the sake of the economy).
Wow! Will Krugman accept the challenge and put his money where his mouth is?
Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.It's interesting to contrast the gloominess of markets with the yet very positive public opinion, which appears to be much more lenient and, I would guess, affected by political sunk cost irrationality. It'll also be interesting to see if voters will be time consistent in their positive and tolerant initial judgment of the Obama administration.
Monday, March 2, 2009
Sunday, March 1, 2009
Olds and Schwartz may be correctly sounding alarm bells regarding isolation, but what they're seeing is the fruit of what Packard cited more than forty years ago. In his 1962 analysis, "Personal isolation is becoming a major social fact of our time. A great many people are disturbed by the feeling that they are rootless or increasingly anonymous, that they are living in a continually changing environment where there is little sense of community."
A popular interpretation is that technological progress and industrialization are the main factors behind it. I disagree. The use of technology may have reduced our dependency on our neighbors and the time available for local social interactions, but in most cases it allowed for the elimination of barriers that were once important impediments to socialization. Just think about the success of Facebook and other social network tools that came up with the Internet. The demand for these socialization services can be seen as proof that there's indeed much loneliness in the world, but it's also proof that technology is able to provide solutions to the phenomenon.
The problem with these statist ideologies is that they glorify state regulation of human actions and collectivist activism at the cost of meaningful interactions at the individual level, particularly when these interactions have a normal, human and mostly benign self-serving nature. Because they propose that all individual actions must be framed by some dirigist higher purpose or some collective definition of social good, and not by the "selfish" needs of those immediately around, they may lead to dehumanization, like what's found among people under totalitarian rule.
My own personal experience tells me that this may be indeed an important factor, and I'd also say that it helps to explain phenomena like the one reported in this post.