"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, October 09, 2010
The usually well-informed Ezra Klein says something odd this morning:I think it's an open question. Bernanke said the same thing in his June testimony. My guess is that it's all of the above: the stimulus and inventory effects are fading and the European sovereign debt crisis happened. I'm not sure but I would guess that it pushed up the dollar and made businesses and consumers more cautious. No doubt it helped the austerians rhetorically. They could now point to Greece as example of what could happen to a country that wracks up too much debt.
In 2007 and 2008 we had a major financial crisis. That led to a wrenching recession. But what killed the recovery was the European debt crisis. It was proof that there wasn’t just one risk that the system hadn’t properly accounted for, but many risks. And in a fragile global economy, the impact of any negative event was going to be magnified.I don’t know where Ezra got that, but it’s just not right. It’s not as if we had a solid recovery, then Greece came along. We never had the basics for self-sustaining recovery in place: aside from the stimulus and inventory bounce, demand remained weak. And financial jitters from the eurozone crisis had nothing to do with the US slowdown; growth is flagging because both the stimulus and inventory effects are fading.
Update: Ezra Klein repsonds
But a lot of the economists, business types and policymakers I've talked to have pinned the European debt crisis as a moment when whatever confidence various players had in the recovery collapsed. It was a whole new world moment: We hadn't just gone through one horrible, unlikely event and now we were recovering, and people should plan for a slow return to normal. The debt crisis was emphasized that there are a lot of risks out there and the world economy is vulnerable to them. The danger for businesses looking to invest wasn't just that demand could come back slowly but that everything could totally fall apart.
My guess is Krugman would dismiss that as rationalization. If government had responded to the crisis correctly and the economy was gaining more jobs and people were buying more things, businesses would be investing to meet the demand. And I agree with that. But in the absence of the correct government response, there's certainly a range of possible ways the private sector could've reacted, and I think it's plausible that their extreme caution is partly a response to seeing the world economy as vulnerable to all sorts of unpredictable shocks, which is leading them to wait for much more solid evidence of recovery than might otherwise be the case.
On the other hand, Krugman has a Nobel, and I, well, don't.Along with the deleveraging in the economy and not enough aggregate demand, I would guess another problem is "over"-demand for safe assets because people are nervous, in part because of the lack of aggregate demand. The European sovereign debt crisis would have added to this nervousness, unlike, say, Obama's tax and regulatory policies. But as Klein says, I don't have a Noble either.
Thursday, October 07, 2010
Day of the TriffinsVia Wikiepdia:
I am mildly surprised that Paul Krugman hasn't used this as a title for a blog post about the US$/yuan exchange rate yet. I donate it as open source to the community.
That is all.
He wrote The Feast of the Goat (La fiesta del chivo), a political thriller, which was published in 2000 (and in English in 2001). It was based on the dictatorship of Rafael Trujillo, who governed the Dominican Republic from 1930 until his assassination in 1961.
Geithner Call for Global Cooperation on Currency by Sewell Chan
As finance officials from around the world gather here this weekend for the annual meetings of the I.M.F. and the World Bank, American officials are concerned that the degree of cooperation in the recent financial crisis is eroding. In particular, the Obama administration is looking to the I.M.F. to help bring about what months of negotiations have failed to achieve: greater exchange-rate flexibility by China.I'm pretty sure the competitive devaluations of the 1930s helped ameliorate the Depression.
Instead of the "competitive devaluation" of the 1930s, which exacerbated the Depression, the world faces a threat of "competitive nonappreciation," Mr. Geithner said, citing a term coined by Edwin M. Truman, a former official at the Treasury and the Federal Reserve.
That was a reference not only to China but also Japan and Brazil, which have taken steps recently to prevent their currencies from rising in value.
Financial Shock and Awe by Barry Eichengreen
(via Mark Thoma and Brad DeLong)
First, it is a misunderstanding to believe that the policies pursued by the BOJ, the Fed, and the Bank of England come at one another's expense. What we are seeing, in all three cases, is not exchange rate manipulation but what is known as quantitative easing, actual or incipient. The evolution of BOJ policy makes this clear. What two weeks ago started as a modest foreign exchange market intervention has now turned into an explicit program of purchasing 5 trillion yen of Japanese treasury bonds and bills, commercial paper, exchange traded funds, and real estate securities. The Bank of England has made no bones about its continued commitment to quantitative easing. The Fed is moving slowly, slowly in the same direction.Eichengreen sees the Fed employing "shock and awe" methods in the data, but wishes they would be more explicit. (Krugman notes that the markets appear to believe in QE2) He hopes China sees reason as well, but I doubt they will.
This, of course, is precisely what is needed in a world where deflation has again become a problem and fiscal policy, for better or worse, is off the table. It is not a "beggar thy neighbor race to the bottom." If anything it is a race to the top.
The Fed needs to stop dithering and make precise the extent of the quantitative easing it intends. Uncertainty about whether it will move in increments or adopt a policy of shock and awe is contributing to the erratic behavior of the dollar exchange rate.Eichengreen believes the European Central Bank is still fighting the last war, but will eventually come around.
Not only would more clarity help that exchange rate settle down, but in addition it would make it easier for other central banks to calibrate their own policies. In particular, a Fed policy of shock and awe which, recent data increasingly suggest, is what is called for will make it easier for China to calibrate an appropriate response. With China experiencing inflation rather than deflation, looser credit conditions are the opposite of what it needs. Its challenge is to continue to modestly cool off its economy. Delinking from Fed policy by delinking from the dollar is the obvious way of achieving this result.
The ECB, for its part, needs to start planning for the next battle instead of incessantly fighting the last. If it ends up with an exchange rate of $1.50 to the euro, the European economy tanks, and in the absence of growth the Greek, Irish, and other fiscal austerity programs will collapse. It will only have itself to blame.--------------------------------------------
Here's a prediction: Contrary to what the markets currently assume, the ECB will eventually join the quantitative easing bandwagon. The only question is whether by the time it does it will already be too late.
* what often happens in marriage. Spouses compete on who can not appreciate the other the most. (sad trombone sound - wah wah)
Wednesday, October 06, 2010
Krugman on Quantatative Easing: the Sequel:
So I didn’t and don’t think that we can count on monetary policy to do the job; blithely declaring that the Fed should target nominal GDP misses the difficulties. And that means we need fiscal policy.On China, Krugman notes Martin Wolf agrees with him but favors Daniel Gros's reciprocity on capital controls. Krugman doesn't see how you could do capital controls on one country.
Of course, at this point, with the loss of political will, it looks as if we’re going to see an attempt to do the trick with quantitative easing alone. I hope it works, but I wouldn’t bet on it.
I'd support trying Gros's idea - which is what China is doing to us - Krugman's tariffs and the Eichengreen/Yglesias combo devaluations. Try all three and once we're at full employment, back off again.
Tuesday, October 05, 2010
(or Lawyer Up!)
I saw "The Social Network" and found it entertaining and thought-provoking, as everyone has been saying. The actors were all good, especially Jesse Eisenberg, Andrew Garfield, and Justin Timberlake.
Basically, Jesse Eisenberg plays Mark Zuckerberg whose Harvard friend Eduardo Saverin, played by Andrew Garfield, gives him a computer algorithm that allows him to create a software program Facemash which gets him noticed by the Winklevi twins and their friend Divya Narendra, who hire him to program their dating program. He uses some of the ideas from their dating program, his Facemash program, and some start-up money from Saverin to start his Facebook site.The ever-more-popular website gets noticed by Justin Timberlake's Sean Parker who lures Zuckerberg out to Silicon Valley and connects him with venture capitalists. And the website becomes more popular. Keep in mind, though, that Saverin did give him the original algorithm and the original start-up money.
Some random thoughts: Facebook caught on because of the aesthetic design which lacked advertisements and the relationship status on people's profiles. It caught on despite the existence of similar websites like MySpace and Friendster, and became a success because of the various efforts of Mark Zuckerberg and his business partners. No one can take that away from them, but the movie does portray Zuckerberg screwing over his friend and business partner Saverin. Saverin was duped into signing away his stake in the company, so I guess the morale of the story is one should have one's own lawyers look over these sorts of contracts even if it involves a contract with a "friend."
The characters seem real because they have both likable and unlikable qualities. They're complicated. Garfield's Saverin was the most sympathetic in the film, although you could see how Zuckerberg could be annoyed by his frequent mentions of his father. Also, the movie seems to say Saverin's focus on advertising was the wrong way to go for Facebook and Zuckerberg was correct to follow the business advice of Timberlake's Parker who among other things connected Zuckerberg with venture capitalists and suggested he change the name of the site from The Facebook to just Facebook. Parker and Zuckerberg also had an endearing desire to "stick it to the Man," or at least to stick to people who were patronizing and disrespectful to them. Maybe it's the adolescent boy in me who finds that trait appealing, because the movie also shows how that trait can lead people astray. Also, Parker and Zuckerberg obviously have other psychological "issues" for all of their business savvy.
The movie posits the possibility that Zuckerberg set up his businesses partners Saverin - via the cruelty to a chicken - and Parker - via a police bust - which really would have been Machiavellian, but ends up suggesting that he probably didn't. One of his lawyers* advises him to settle a lawsuit because a jury might think he had indeed set up his business partners to get them out of the way, because of some unethical and malicious behavior Harvard had disciplined him for before Facebook was up and running.
In my previous post, I had a quote where David Carr and producer Scott Rudin want to divide the views on Zuckerberg into Tragic or Heroic. Why not be dialectical and describe him as both? Or can the Tragic encompass the Heroic? Zuckerberg can be a visionary, perfectionist, tough, driven workaholic who got lucky and still be a flawed, unethical asshole.
Update: In his article on how the movie ignores the importance of "network neutrality," Lawrence Lessig writes
To his credit, Sorkin gives [Zuckerberg] the only lines of true insight in the film: In response to the Winklevi twins' lawsuit, he asks, does "a guy who makes a really good chair owe money to anyone who ever made a chair?" And to his partner who signed away his ownership in Facebook: "You’re gonna blame me because you were the business head of the company and you made a bad business deal with your own company?" Friends who know Zuckerberg say such insight is common. No doubt his handlers are panicked that the film will tarnish the brand. He should listen less to these handlers. As I looked around at the packed theater of teens and twenty-somethings, there was no doubt who was in the right, however geeky and clumsy and sad.My guess is that Carr, Rudin and Lessig can identify with Zuckerberg in that they have screwed over some Saverins of their own on the way to success.
Lessig happens to be a professor at Harvard Law School and the director of the Edmond J. Safra Foundation Center for Ethics. He's right about net neutrality and the chair-making analogy, but I don't see what's ethical about misleading your business partner about what's in the contract he was signing. Saverin wouldn't have signed it had he understood what he was signing. In Lessig's view it's acceptable to screw over a sucker? I realize a lot of businesses operate this way - not to mention whole industries like Wall Street - but is it moral?
Is that good business ethics to lie to your business partners? Evidently it's good business. Marx was right about how capitalism reduces everything to the "cash nexus" which is why America is such a litigious society. At one point the old money Winklevi twins are at odds about suing Zuckerberg over intellectual property theft. One twin doesn't want to sue because "that's not how things are done at Harvard" which is a nod at the old aristocratic traditions and codes of honor, a vestigial feudal frame of reference. The twins' partner Divya Narendra doesn't just want to sue, he wants to hire the Sopranos** to "beat the shit out him" which is the logical conclusion of Lessig's social Darwinist ethics. Of course Zuckerberg could in turn sue Narnedra for damages.
The director David Fincher's Fight Club took a jaundiced-eyed look at late 20th-Century consumer capitalism. The Social Network is a much lighter, if more realistic take on business in the 21st century. He deserves an Oscar.
*played by actress Rashida Jones, who dated Obama's longtime speechwriter Jon Favreau (she's single now). A fictional Harvard President Larry Summers has a funny scene. Another co-founder of Facebook, Chris Hughes, helped the Obama Presidential campaign set up its social networking site. And of course Obama went to Harvard Law.
** As the Italian mobster in the Coen brothers' film Miller's Crossing says, "no one's got ethics these days."
Monday, October 04, 2010
Plus the script mentions Menticide. Either that or Jason Schwartzman ad libbed.
(or American Idiot*)
David Carr is sampling from the wrong group of young Americans:
But the movie [The Social Network] could well serve as a referendum on business aggression and ambition that breaks along generational lines.
Many older people will watch the movie, which was No. 1 at the box office last weekend, and see a cautionary tale about a callous young man who betrays friends, partners and principles as he hacks his way to lucre and fame. But many in the generation who grew up in a world that Mr. Zuckerberg helped invent will applaud someone who saw his chance and seized it with both hands, mostly by placing them on the keyboard and coding something that no one else had.
By the younger cohort’s lights, when you make an omelet this big -- half a billion users -- a few eggs are going to get broken. Or as the film’s artful tag line suggests, "You don’t get to 500 million friends without making a few enemies along the way."
"When you talk to people afterward, it was as if they were seeing two different films," said Scott Rudin, one of the producers. "The older audiences see Zuckerberg as a tragic figure who comes out of the film with less of himself than when he went in, while young people see him as completely enhanced, a rock star, who did what he needed to do to protect the thing that he had created."Ezra Klein reflects on the Gallup poll about who likes Obama:
18-29 year-olds 57%
65 and older 38%
If young people do not turn out for the mid-terms next month (they historically don't) and Republican retirees do as they historically do - what else do they have going on? - Republicans will take the House.
Onion review of American Psycho.
*idiot is taken from the Greek idiotus meaning someone with no interest in politics
From Sewell Chan's article: camps within the Fed.
- Doves: William C. Dudley, New York Fed; Eric S. Rosengren, Boston Fed, Janet L. Yellen, Fed vice chairwoman (was San Fransisco Fed); (all three have votes on the 2010 FOMC)
- Leaning Dovish: James Bullard, St. Louis Fed; Charles L. Evans, Chicago Fed; Sandra Pianalto, Cleveland Fed; Sarah Bloom Raskin, Fed governor; Daniel K. Tarullo, Fed governor; (four have votes on the 2010 FOMC)
- Middle: Ben S. Bernanke, Fed chairman; Elizabeth A. Duke, Fed governor; Dennis P. Lockhart, Atlanta Fed; (two have votes on the 2010 FOMC)
- Leaning Hawkish: Narayana R. Kocherlakota, Minneapolis Fed, Kevin M. Warsh, Fed governor (Warsh has a vote on the 2010 FOMC)
- Hawks: Thomas M. Hoenig, Kansas City Fed; Richard W. Fisher, Dallas Fed; Jeffrey M. Lacker, Richmond Fed; Charles I. Plosser, Philadelphia Fed (Hoenig has a vote on the 2010 FOMC)
James Hamilton discusses QE2. (via Mark Thoma) Hamilton quotes New York Fed President William Dudley:
some simple calculations based on recent experience suggest that $500 billion of purchases would provide about as much stimulus as a reduction in the federal funds rate of between half a point and three quarters of a point. But this estimate is sensitive to how long market participants expected the Fed to hold on to these assets.