"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen


"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister


"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont


"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister


"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Saturday, July 31, 2010

Afghan women fear loss of modest gains.
For women, instability, as much as the Taliban themselves, is the enemy. Women are casualties of the fighting, not only in the already conservative and embattled Pashtun south and east, but also in districts in the north and center of the country where other armed groups have sprung up.
As Afghan and Western governments explore reconciliation with the Taliban, women fear that the peace they long for may come at the price of rights that have improved since the Taliban government was overthrown in 2001.

Friday, July 30, 2010


Doug Henwood on the CBO's weird projections.
How do they come up with these numbers? I asked the CBO for clarification, but they haven’t responded. But asking around yields something like this. Over the long term, economic growth is a function of labor force growth and the productivity of that labor -- how much workers can produce in an hour or year of work. The CBO apparently assumes that the labor force will grow very slowly -- around 0.3 - 0.4% a year. That’s less than half the current rate, and about half the rate that the Census Bureau projects the population will grow in the coming decades. If that’s true, the share of the adult population working will shrink to levels we haven’t seen since, well maybe forever, and certainly in modern times. At the same time, they’re assuming record-low growth in productivity, probably around 1.5%, which is something like a third below the long-term average, and well below the rate clocked in the much maligned 1970s.
These assumptions are very similar to those underlying projections that the Social Security system will go broke. But if the economy grows at something closer to its long-term average, then that won’t happen. And the massive growth in debt won’t happen either, because the government will collect more in taxes than it would if we were locked in a semipermanent slump.
So what’s going on here? Is the CBO pushing these strange projections to promote an austerity agenda - cutting social spending and privatizing Social Security? Or are they really serious that a seventy-year near-depression awaits us? Inquiring minds want to know.
The Kids Are All Right
(but they need to turn out in November)

Charlie Cook looks at the polls and says we may be seeing a turning point for the Democrats.
Gallup noted that this was the first time that either party has held an advantage of this size for two consecutive weeks. In the 21 weeks that Gallup has asked the generic ballot test question this year, the two parties have averaged a tie. It should be noted, however, that polls of registered voters inherently tilt Democratic by 4 or 5 points compared with polls of likely midterm election voters. Voter turnout for midterm elections is about a third less than it is in presidential years, and midterm voters tend to be whiter and older, two problem population groups for Democrats this year.

For the four previous weeks, the two parties were tied at 46 percent on the generic ballot question. For the four weeks before that, Republicans averaged a 3-point lead, 48 percent to 45 percent. So, if Democrats really have turned up the heat and are running 4 or 5 points ahead among registered voters, the practical result would be about an even proposition among likely midterm voters and the national popular vote. If that were true, it would mean a very, very close contest for control of the House.

(via Jonathan Chait)
via Calculated Risk: Chicago PMI shows expansion in July
From the Institute for Supply Management - Chicago:
The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER rebounded, marking a tenth month of growth.
The overall index increased to 62.3 from 59.1. Note: any number above 50 shows expansion.

Employment improved to 56.6 from 54.2 in June.

The new orders index increased to 64.6 from 59.1.

Overall this was a positive report. The national ISM manufacturing index will be released on Monday.

Thursday, July 29, 2010

Hope
(or turning Japanese)

Krugman blogs:
All that money sitting there -- and deflation continued apace. I remember Taka Ito telling me that the only consumer durable selling well was ... safes. When you’re in a liquidity trap, the size of the base doesn’t matter.
But at least some Fed types are getting it.

Lady Gaga Kidnaps Commissioner Gordon

 

Epistemic Closure
(or The Wall Street Journal Op-Ed Page is loco)

Jonathan Chait blogs about supply-siders and their zombie economics(reprinted in its entirety):
Supply-Siders: 1990s Boom, Bush Recession Only A Flesh Wound!
Like the Black Knight in Monty Python, supply-siders fight on with a bluster utterly undiminished by two decades that have systematically cut the premises out from their philosophy one by one. First they insisted Bill Clinton's upper-income tax hike would destroy the incentive to get rich, create a recession and reduce tax revenues. Then they promised George W. Bush's supply-side tax cuts would deliver a decade of prosperity. Now they're warning that a return to Clinton-era top tax rates will destroy America's economic competitiveness. Here's Wall Street Journal op-ed columnist Daniel Henninger:
Extend the current tax rates for all and free everyone in an economy begging for the chance to be strong again. Yes, the U.S. economy will always be "strong," but it needs to be strong enough to take on all comers and win, which last time I looked was the real American way.
Advocates of keeping the Bush-era tax rates for the rich seem to write as if they have some kind of new plan. In fact, the Bush-era tax rates are currently in place. We're already "free." The question is whether to return to the slavery of the Clinton era tax regime.
I also like this bit about why raising taxes on the rich won't reduce the deficit:
The deficit is dangerous. But raising taxes to cut the deficit is a bailout for the spenders--until proven otherwise.
I think it's been proven:

DeLong passes on the info that Aussie John Quiggin's new book is scheduled for release on October 5th:


Krugman blogs about the return of the Mellonheads:
One of the truly amazing things, however, is the return of full, 1930s-type liquidationism -- the idea that a slump serves a useful purpose, and that stimulating the economy, even through monetary policy, is a mistake. And so we have Raghuram Rajan in today’s FT arguing that with 9.5 percent unemployment, long-term unemployment at record levels, and falling inflation, we need to ... raise interest rates
...
I’ve written about this before; but let me add a few numbers. Is it at all reasonable to attribute high unemployment now to the need to shift the economy out of housing and cars?
OK, I actually haven’t taken cars into account; someone with more time can do that. But let’s look at the role of job losses in construction versus other sectors, since December 2007. It looks like this:

If high unemployment were largely about shifting workers out of an overblown construction sector, wouldn’t you expect job losses to be concentrated in that sector? Wouldn’t you expect employment elsewhere to be, if anything, rising? In fact, however, the vast majority of job losses have occurred in parts of the economy with little direct connection to the housing bubble. Yes, as a percentage job losses have been much larger in construction; but nothing in Rajan’s argument explains why we shouldn’t be using policy in an attempt to prevent vast job losses in parts of the economy that aren’t overblown.
Rajan was the top economist at the IMF (surprise, surprise) but more surprisingly he was the lone dissenter at a famous going-away party in Jackson Hole, Wyoming, for Alan Greenspan in August 2005 after Bernanke had been nominated to replace him. He presented a highly critical paper to the guests - central bankers do that at parties - and according to John Cassidy's wonderful book How Markets Fail, "As a rule, central bankers don't rush stages or toss their chairs; if they did Rajan might have been in physical danger."

But Rajan turned out to be correct when he called out Greenspan and politicians' deregulation of the financial sector for putting the economy in a vulnerable position.

But Rajan is from India and the Brahmin there have a notoriously callous attitude towards the lower classes.

Wednesday, July 28, 2010

Maureen Dowd on Af-Pak:

The waterfall of leaks on Afghanistan underlines the awful truth: We’re not in control.
Not since Theseus fought the Minotaur in his maze has a fight been so confounding.
...
During the debate over war funds on Tuesday, Representative Jim McGovern, a Massachusetts Democrat, warned that we are in a monstrous maze without the ball of string to find our way out.
In Study, 2 Economists Say Intervention Helped Avert a 2nd Depression by Sewell Chan

Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.
In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year. 
In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
...
Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.
 By comparison, the savings and loan crisis cost about $350 billion in today’s dollars: $275 billion in direct cost and an additional $75 billion from the recession of 1990-91 -- or about 6 percent of G.D.P. at the time.
...
If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.
The combined effects of both sets of policies cannot be directly compared with the sum of each in isolation, they found, "because the policies tend to reinforce each other"
David Leondhardt's reaction.

DeLong's reaction.

Krugman on why the stimulus was too small and how we knew that at the time.


Market Failure

Cost of freight shipping rises.
Fighting for freight, retailers are outbidding each other to score scarce cargo space on ships, paying two to three times last year’s freight rates -- in some cases, the highest rates in five years. And still, many are getting merchandise weeks late.
The problems stem from 2009, when stores slashed inventory. With little demand for shipping, ocean carriers took ships out of service: more than 11 percent of the global shipping fleet was idle in spring 2009, according to AXS-Alphaliner, an industry consultant.
 I'd assume prices will adjust over time. But Dean Baker makes a good point:
Okay, so we are seeing a big run-up in prices and, "fighting for freight, retailers are outbidding each other to score scarce cargo space on ships, paying two to three times last year’s freight rates -- in some cases."
ummm, what happened to the 11 percent of shipping fleet that is now idle? The article does make a brief reference to this idle capacity later, noting that firms are reluctant to bring it back on line. This sounds a bit like a case of collusion to keep prices high. It might make for a good article by an enterprising reporter.

Hysteresis in unemployment
(the anti-Panglosses or we're not in Kansas anymore)

DeLong, Krugman, and Robert Reich say there may be a "new normal" in unemployment as long-term unemployment turns structural. Which is horrible news obviously.

DeLong notes what skeptical commentator Robert Waldmann of Angry Bear says:
David Altig Says That Our Cyclical Unemployment Has Started to Turn Structural: Shorter Brad DeLong:
Terrible news, there are lots more job openings in the USA than there were a year ago.
Huh? I'd say that job openings are good news. Would you rather there were fewer? One might imagine that high unemployment and high vacancy rates are, as you directly state, a bad sign as high unemployment combined with high vacancies lasts longer -- that the combination is a sign of hysteresis from a) deteriorated jobs skills, or b)deteriorated work habits, or c) irrational stigma due to employers assuming a or be or d) missmatch. I recall such a graph. It was the terrifying UK Beveridge curve from 1988-9 (look it up). The word (from among others Layard) was that unemployment had become almost impossible to fight as the long term unemployed were discouraged. Then employment took off.
The Beveridge curve is the lower envelope of a slightly more complicated dynamic with counterclockwise cycles above the curve.... My reading is that when the market crashed in 87, Thatcher panicked and allowed the (not independent) bank of England to stimulate. So the economy took off. It took a while to into work down the huge stock of unemployed, but there was no sign of a bad tradeoff. Just further proof that her insane policies (until she missinterpreted the crash of 87 as the crash of 29) were the problem.
Krugman shares your view and he does tend to be right, but still, I'm tempted to make a prediction...
As Waldmann says, it is not wise to bet against Krugman. I tend to agree with Waldmann though. We've been through the biggest crisis* since the Great Depression and it will take a while to get back to where we were even with government help.

The Senate and the Fed can and should do more to bring down unemployment more quickly. I doubt they will though. They feel the economy has stabilized and will grow "naturally."

----------------------------
* If there's an upside to the crisis is that it smacked down the freshwater / laissez-faire / new classical economists who have been ascendant since the stagflation of the 1970s and had grown noticeably complacent.

Pakistan's official name is the Islamic Republic of Pakistan. I caught New York Times reporter Jane Perlez on Charlie Rose last night and she made a good point.

The Pakistan government is doing two things which help the U.S. enormously despite an anti-American citizenry. 1) They're allowing the constant flow of supplies to NATO troops through their country 2) they've allowed an increase in predator drone strikes in their country.

Also she pointed out that Pakistan considers the Taliban an asset. They are trying bring them into a coalition government, although I don't know how that would work.

We need to internationalize the Kashmir issue.

Tuesday, July 27, 2010

Hitchens on how the United States and Europe successfully stood up to Serbia, which was diplomatically backed by Russia and China.
That was then. Now it seems incautious to speculate how far a rogue regime can go, and still feel itself immune from reprisal or consequence. The Iraq and Afghanistan conflicts have sapped and eroded our confidence. The dictators in Iran and North Korea sense this, and probe, and often find only mush. And as in the case of Kosovo then and now, Russia and China can be counted on to provide the protection and the excuses.
Dean Baker on future crisis prevention:
In fact, the main problem was that the housing bubble was driving the economy, generating $1.2 trillion in annual demand through construction and housing equity driven consumption. There is no easy mechanism through the economy can replace this much lost demand. That would be the case whether or not the collapse of the bubble was associated with a financial crisis.
The article also fails to list one of the most simple and obvious ways that central banks can combat a bubble: talk. During the run-up of the housing bubble, Federal Reserve Board Chairman Alan Greenspan repeatedly said that everything was fine in the housing market, as did Ben Bernanke, who was a governor at the Fed for most of the period. This helped undermine the case of those who were warning of the bubble.
A week ago Barry Ritholtz pointed out that the housing bubble was a global phenomenon (see graph below). Does this mean that no matter the U.S. government's policies - mortgage tax credit, Fannie/Freddie, Greenspan's public opinions - there would have bubbles in other countries? Should have all central bankers talked down the bubble? Would a better-regulated financial system have been able to prevent a crisis? Why didn't either Germany or Japan have a bubble?

Monday, July 26, 2010

Krugman has some terrifying musings:

Third -- and I fear that this is going to be a major issue in the future -- it’s important to take account of downward rigidity so as not to get fooled into accepting a persistently depressed economy as normal. Picture America in, oh, 2014: unemployment is still around 9 percent, prices are falling about 1 percent a year. Many economists might look at that situation and say, well, deflation is stable, not accelerating, so we must be at the natural rate of unemployment -- move along, folks, nothing to see here.
So it’s time to start focusing on downward rigidity and what it implies. After all, all indications are that we’re going to be dealing with a depressed economy for a long time to come.
Does he really believe that in 2014 unemployment will still be around 9 percent with prices falling at 1 percent a year?


Stuck in the Middle

We need to "internationalize" the conflict in Kashmir, something India is dead set against.

A leaked trove of secret military reports from Afghanistan say that many believe Pakistan's spy service has been aiding the Taliban in Afghanistan.

Pakistan's main concern is India. They use the Taliban in Afghanistan to fight Indian influence there, just as they employ Muslim extremists to fight India in the disputed region of Kashmir.

Pakistan has been fighting the Pakistani Taliban in Swat valley and Waziristan, partly as a result of the U.S. giving them $1 billion a year in aid (certainly India does not like all of this aid, some which is probably diverted to be used against India.) And with U.S. troops to begin withdrawing from Afghanistan in a year, no doubt Pakistan will have second thoughts about fighting extremists who can be used against India.

The conflict in Kashmir needs to be internationalized in order to end the conflict between India and Pakistan. Once Pakistan no longer sees India as a threat, it will no longer need Muslim extremists in Afghanistan and Pakistan to use against India. This may sound like a pipe dream but it's what needs to be done. Otherwise what will happen is that once we pull out of Afghanistan, the Taliban will take over again with Pakistan's help - as they did after they beat the Soviets with money and arms supplied by us through Pakistan's spy service, the ISI. And once the Taliban have control, they'll allow terroist havens in their war-torn country as they did before 9/11.
Industry profits are up because of deep cuts made during the recession.
Profit margins -- the percentage of revenue left over after expenses -- crumble in most recessions, as overall sales fall but fixed costs like infrastructure, commodities and rent remain the same. In 2002, during the recession that followed the bursting of the technology bubble in addition to the Sept. 11 attacks, margins sank to 4.7 percent. Although the most recent downturn was far more severe, profit margins bottomed out at 5.9 percent in 2009 and quickly rebounded. By next year, analysts expect margins to hit 8.9 percent, a record high.
...
To be sure, sales are rising for many companies, albeit at a much slower pace than the increase in profits. Among the 175 companies in the S.& P. 500 that have reported earnings for the second quarter, revenues rose 6.9 percent on average while profits jumped 42.3 percent, according to Thomson Reuters.

Lula grooms protégée Dilma Rousseff to be successor.

Sunday, July 25, 2010

Martin Wolf writes:
In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective, consistently putting the Democrats at a political disadvantage. It also made the Republicans de facto Keynesians in a de facto Keynesian nation. Whatever the rhetoric, I have long considered the US the advanced world’s most Keynesian nation - the one in which government (including the Federal Reserve) is most expected to generate healthy demand at all times, largely because jobs are, in the US, the only safety net for those of working age.
New York Times editorial page comes out for Elizabeth Warren. Have they done this before?

Another enjoyable, thought-provoking film I saw recently is Agora, directed by Alejandro Amenábar and starring Rachel Weisz and a good cast.

It takes place in the 4th century C.E. (A.D.) in Alexandria, Egypt which was then located in a province of the Roman Empire. Christianity - the purifying, intolerant religion of slaves - is on the rise. First the pagans and then the Jews are killed or converted so that Christianity has no rivals. Even the agnostic astronomer/philosopher/scientist/mathematician/adviser to the chief magistrate, Hypatia, is commanded to submit. But of course she won't. The Christians in the movie are eerily reminiscent of contemporary extremist Muslims (whether Shia or Sunni) however the movie points out how Christianity caught on with the slaves. And of course the fall of the Roman empire was followed by the Dark Ages which lasted until the Renaissance in the 14th Century.

It was kind of neat that Alexandria had the largest, best library of the Ancient world and a lighthouse which was one of the Seven Wonders of the Ancient world.

I read a review that panned the movie, but I found it completely enthralling and inspiring. Plus you get to see Weisz's bum!

Ariadne's Thread
(Spoiler Alert)

I knew I'd love Inception, because I really liked The Dark Knight, Christopher Nolan's* previous film, and Nolan had assembled a great cast for it: DiCaprio, Joseph Gordon-Levitt (from (500) Days of Summer), Tom Hardy (from RocknRolla), Marion Cotillard (from Public Enemies), Ken Watanabe, Cillian Murphy, Tom Berenger, and Ellen Page who plays Ariadne.

In Greek mythology, Ariadne was the daughter of king Minos of Crete. According to the legend
Minos attacked Athens after his son was killed there. The Athenians asked for terms, and were required to sacrifice seven young men and seven maidens every nine years to the Minotaur. One year, the sacrificial party included Theseus, a young man who volunteered to come and kill the Minotaur. Ariadne fell in love at first sight, and helped him by giving him a sword and a ball of red fleece thread that she was spinning, so that he could find his way out of the Minotaur's labyrinth.
Inception is in part about the labyrinths of our dreams that the mind creates. And the plot is quite a labyrinth. DiCaprio's character Cobb leads a crew who performs corporate espionage by entering a targeted person's dreams and stealing the corporate secrets hidden away in their mind. At the beginning of the film Cobb's crew are attempting to steal a secret from Watanabe's character (named Saito), an executive of a large energy corporation, but they are unsuccessful and he catches them. Saito's corporate rival is sick and about to die thereby leaving the ginormous conglomerate in his son's hands. Saito offers Cobb a deal: if instead of stealing a secret from his rival's heir's mind (extraction), Cobb can plant an idea (inception) - specifically to break up the company, Saito will pulls some strings so Cobb's criminal record will be erased and he can return to his home country again.

Cobb agrees and assembles a new crew for the job: Gordon-Levitt's Arthur who was in the original crew; Tom Hardy's Eames who has the ability to change his appearance in the dreamworld in order to influence the target; Yusuf, a maker of specialized sleeping drugs**; and Ellen Page's Ariadne who is the "architect" of the crew.

Once the crew is in the target's dream, a dream architect can alter the environment.  Specifically they create a sort of mental labyrinth to keep the subject's unconscious mind occupied while the crew goes about its task. The crew needs this done because all of the people in the subject's dream are "projections" of her/his subconscious/id and they became hostile if they sense interlopers are tampering about in their dream.

So the bulk of the movie is a caper flick, with the crew attempting to implant an idea in the heir's mind. But his mind has been trained to have tougher defenses than normally would be the case and doesn't make it easy for the infiltrators. Plus there are other complications involving Cobb and his wife Mal played by Marion Cottilard.

Two things come to mind. 1) I'd be interested to read what the Lacanian film buff Zizek thought of the movie. His reading of the Matrix was fun. 2) imagine a Sci-Fi story where "inception" teams would enter targets' dreams and implant ideologies.

-----------------------------------
* He is Generation X's film auteur. It's weird to realize he's a couple weeks older than me.
** The crew needs specialized drugs so that they can "go meta" and enter a dream within a dream.