So the following are not my words, but are reprinted with permission from my dearest friend. Her take on it is exactly what I would have said. I removed a few typos, but have basically reproduced spot on.
I feel like I've been waiting almost 10 years for people to realize what assholes they were after the WTC fell - all the rhetoric, the fundamental misunderstanding of what this religion is or isn't, how different it is from region to region, the US' role in sowing the seeds in Pakistan/that the guys that sit in caves and plan this shit are a step above the avergae fundamentalist - they see everyone as a legitimate target. Nothing doing - I'm still hearing this crap. Maybe I'm a weirdo, but I've really enjoyed the influx of muslims into the cities that I've lived in. I grew up in a pastey white [town]. Nothing wrong with that, but there is something kind of cool about seeing a guy pray on a mat one the sidewalk or at work. There is something kind of homey and pleasant about seeing someone who hasn't been here for very long (generationally speaking) make their home in the same town, go to the same stores, take the same trains, get pissed off at the same traffic, suffer the same nasty heat or bad snow clearance. People should be embarassed about this discussion, the way that any of the rich right wingers over here tossing around fascist rhetoric in or eugenics sentiment in the 1930s should have been embarassed by 1939.
Ultimately, what really bothers me about this entire discussion is that there was a hostage taking across the street yesterday. I walked by this girl around 7 am. She was dressed in evening clothes, clearly uncomfortable, no shoes...on the phone. When strolled back around the corner a 1/2 hour later the entire street was filled with cops - 50 cops maybe. She was being interviewed. Some guy in this virtually abandonned building had held her for hours. I saw her right after she escaped. About a year ago, I found a human tooth in front of this building. Not to distract from the clear nastiness that this girl went through, but this is my reality. This is where I live. That I can rhyme off local terror plots and attempted attacks that have been uncovered/happened over the last 5 years casually and it's no big thing is a little fucked up. Yesterday day a guy was sentenced for "The Subway Terror Plot" and I have to admit, I can't even remember him being arrested. I have no idea what this plot was about. Add in this guy who was in time square, the JFK gas line bomb plot, the 23 guys out in Queens, and the other guy with no game who tried to buy explosives from an undercover agent, and that's a lot of plots to uncover since 2007. Those are just the ones I know about.
Since living here I have worked beside a building when it was hit by a plane, ran to midtown to find [a friend] after a steam pipe exploded on his block and shot boiling hot water hundreds of feet into the sky, smelled maple syrup scent wafting over the city for no particular reason, watched ConEd lines explode on my block , heard a ConEd manhole explode right after I entered a building- and then there is just the shit I've read - the guy walking down the UWS with two electric hack saws attacking people, the guy that chopped up the postal worker on the subway platform while MTA employees ignored him, the cops sodomizing a drunk guy in the Bronx with a radio antenna, the cops firing hundreds of rounds at this guy leaving a strip club the night before his wedding, the persistent threat of dying in a ConEd street shock. I'm sure there are many more things - but the point is I live here. I have to deal with the persistent threat of being blown up on purpose or by accident. I'm so tired of hearing about 9/11 measures in places that will be lucky if they are mentioned in the national news this year.....or next 5 years. I'm tired of hearing people recount to me where they were [on 911], like I could possibly relate - I wasn't here. I'm especially tired of people who will never see a day of the sort of shit that goes on everywhere else in the world use the phrase "well, since 9/11" in reference to security, or their vacation or their job. I don't like to use the phrase, and I live here. I really am all for empathy - I think everyone should strive to be empathetic - but every time someone says it I just want to shake them by the shoulders and say "get over it. this didn't happen to you".
As for the Mosque: There has been a plan in place for many years to develop a friendship center of sorts on the WTC site. The Mosque is a small part of a larger educational institution whose entire purpose is Islamic outreach and community good will for non-muslims and the NYC arts and education scene. My understanding is that it is supposed to be like an Islamic 92nd street Y/Symphony Space. I have to tell you - the 92nd street Y sometimes brings people like Alan Dershowitz - promoting torture as an anti-terror technique and anilation of Islamic states, but most of their programming is actually things like Jane Goodall talks chimpanzees, followed by Yo Yo Ma discusses his love of cooking. It's more or less an inoccuous setting, with some religious services, a fantastic gym, lots of great educational programs, some with a Jewish tilt- but everyone is welcome. That's the model [that] has been used to set up this Islamic education center. No one had a problem with this group moving into the WTC when they were one of the very few (and let me emphasize this - very, very few) groups to actually lease or buy property within sight of the WTC. This is a right wing political complaint, in part.... A big part of this battle has to do with basic NYC-to fed politics....in my view anyway.
I'm not sure if you have seen the WTC site. It is enormous. This center could be close to the center of that area of Manhattan and still be on the corner of this site. Fact is, the city can't afford to not lease any area around there. We need the taxes. The entire downtown area around the WTC is a skeleton and has been since I got here. There are few restaurants, no cultural sites and most of those banks moved to Midtown. This was an area that was really hard to find affordable space in 10 years ago. [My friend's] firm just moved down there because the rent is cheap. They can't give space away and the place is desperate for anything of any cultural significance. How it is that these people are not kissing the feet of this NGO is beyond me. That said, most people registering a negative opinion fall into one of two groups as far as I can tell - a) Europeans (the BBC will not shut up about it) and b) small firey contingents within the 911 victim groups. The latter still feels that nothing should be built on this site at all. The subways have only just been rerouted to this area and foundation work on this buildings only just started because this group of people have routinely sued the city over site designs, water access - private viewing areas to mourn, architectural firms...and it just goes on. The arguers in that group, in my view, are really holding up what is in the best interests of all of us - development, taxes and moving on.
Therein ends my friends piece. I have just a couple of things to point out. First of all, as a minor correction, I know that churches are typically tax exempt, so I'm not sure that the city gains a tax benefit. They would certainly gain a benefit from the 120 million in jobs, materials and construction. Given the money multiplier in spending, it's probably more on the order of 200 million for NYC. Particularly in an area, where she correctly notes, has been moderately depressed for the past eight years. Moreover, the city has been trying to make over the Financial District into a living breathing community for a dozen years now, with only moderate success. An outreach center such as this would add a lot of value to the community. On an economic note, such edifices would usually add property value. Given the racist concerns of Americans, I think there might be a moderate dip in property value, but, this would eventually net out as people moved on to the next outrage du jour. A couple of other things. As someone intimitely familiar with the area. The Burlington Coat Factory slated for the site, is not even visible from the WTC. Granted, when both buildings are up, they may well be viewable. But for the average tourist, you probably wouldn't even know where to look. The present building is an exceedingly ugly piece of property, empty, home to vagrants and physical refuse. That sure celebrates American enterprise.
Finally, let me put it in blue and white. If you are Anti-Islam, you are racist. The protestors should be honest about this one thing. They are not protecting the sanctity of anything. They have veiled their blaring racism with vague talk about "honoring the victims." We as a people have a greater responsibility to humanity, and that is protecting one of the central tenets of democracy: freedom to worship.
Tuesday, August 31, 2010
Tuesday, August 17, 2010
Thoughts on the Environment
I've always held that there is no rational reason to believe that global warming is a hoax, or that concerns about protecting the environment are unwarranted.
Here's a simple test. If you were taking a nature walk through your local preserve, and you decided to have a little mid-hike repast, let's say a candy bar, would you dump the wrapper on the ground? Or would you put it away in your bag to dispose of later.
I'd like to think that even the staunchest global warming denier would choose to save the wrapper for the next garbage can he sees. I could be wrong about that. I'd like to think that anyone who is hiking in the forest would be offended by seeing someone else's wrapper on the trail ahead of him. Hiking in nature is all about breathing fresh air, seeing, remembering that primal forces exist outside of the realm of man, looking for wildlife, enjoying the cheap showiness of nature, what better way to be dragged forcibly back to earth than a filthy three musketeers wrapper on the ground.
Whether or not you believe in the established science of global warming, whether or not you think the whole thing is a hoax or a giant conspiracy, if you pass that test, you should be all about passing environmental protection laws. Let's put the wrappers in the garbage can please. It's not just a courtesy, it's an homage, an ode, a benediction to the forces that keep us living on this planet.
The only rational argument to environmental protection has been that there is a tremendous expense to it. An expense that would cause irreparable harm to the economy.
Where is the harm in factories not dumping waste chemicals into the sky, the sea, rivers and lakes? It's an added expense to the bottom line, but environmental costs have economic repercussions. Let alone the healthcare costs of widescale poisoning. Our oceans are undergoing massive irreversible extinctions--that's a much larger cost to jobs, food prices, local economies than an added surcharge on the price of goods. Moreover, these costs are largely projected. The Clean Air Act of 1963, passed by the Kennedy White House, under the guidance of Sen. Ed Muskie (D) didn't uproot the financial underpinnings of the country. The sixties were largely a period of economic prosperity, despite the turmoil of anti-war fervor. GDP more than doubled in the next decade. So why is there an assumption that these costs would cripple production? Also, there is a very real possibility that these expenses would get recirculated as consumer spending in the new economy, increasing jobs, and overall GDP growth.
I know I know, what about jobs. If Massey Energy decides to buy a mine in India and leave the USA, where will the jobs go? I suggest we worry about that when it happens. Increased regulation doesn't cause capital flight, it inhibits it. Think about the economic crisis. Did companies move their assets out of the U.S.? Absolutely not, they moved their money into it, because our regulatory environment makes certain guarantees to corporations.
Lower costs encourage capital flight, but overall lower production costs have already caused some companies to move their operations. Moreover, the U.S. economy is shifting away from these types of exports, and should shift away from them. An educated populace is in demand over the world, and that should be our most valuable export. Anyway, I'm going far afield from the topic du jour.
I keep coming back to it: Here is the reason for protecting the environment. Who is the only group to gain by deregulating, anti-regulation environmental protection laws? Mass industrialists. Everyone else stands to gain except for management. And mass industrialists do not want what we need. They have the money and the power to live the way they choose, wherever they choose to live it. But clean air, clean water, clean food, and the continued survival of the all the genetic diversity our planet can muster, that's what we need. And that's in jeopordy because of the short term needs of less than one percent of the population.
Here's a simple test. If you were taking a nature walk through your local preserve, and you decided to have a little mid-hike repast, let's say a candy bar, would you dump the wrapper on the ground? Or would you put it away in your bag to dispose of later.
I'd like to think that even the staunchest global warming denier would choose to save the wrapper for the next garbage can he sees. I could be wrong about that. I'd like to think that anyone who is hiking in the forest would be offended by seeing someone else's wrapper on the trail ahead of him. Hiking in nature is all about breathing fresh air, seeing, remembering that primal forces exist outside of the realm of man, looking for wildlife, enjoying the cheap showiness of nature, what better way to be dragged forcibly back to earth than a filthy three musketeers wrapper on the ground.
Whether or not you believe in the established science of global warming, whether or not you think the whole thing is a hoax or a giant conspiracy, if you pass that test, you should be all about passing environmental protection laws. Let's put the wrappers in the garbage can please. It's not just a courtesy, it's an homage, an ode, a benediction to the forces that keep us living on this planet.
The only rational argument to environmental protection has been that there is a tremendous expense to it. An expense that would cause irreparable harm to the economy.
Where is the harm in factories not dumping waste chemicals into the sky, the sea, rivers and lakes? It's an added expense to the bottom line, but environmental costs have economic repercussions. Let alone the healthcare costs of widescale poisoning. Our oceans are undergoing massive irreversible extinctions--that's a much larger cost to jobs, food prices, local economies than an added surcharge on the price of goods. Moreover, these costs are largely projected. The Clean Air Act of 1963, passed by the Kennedy White House, under the guidance of Sen. Ed Muskie (D) didn't uproot the financial underpinnings of the country. The sixties were largely a period of economic prosperity, despite the turmoil of anti-war fervor. GDP more than doubled in the next decade. So why is there an assumption that these costs would cripple production? Also, there is a very real possibility that these expenses would get recirculated as consumer spending in the new economy, increasing jobs, and overall GDP growth.
I know I know, what about jobs. If Massey Energy decides to buy a mine in India and leave the USA, where will the jobs go? I suggest we worry about that when it happens. Increased regulation doesn't cause capital flight, it inhibits it. Think about the economic crisis. Did companies move their assets out of the U.S.? Absolutely not, they moved their money into it, because our regulatory environment makes certain guarantees to corporations.
Lower costs encourage capital flight, but overall lower production costs have already caused some companies to move their operations. Moreover, the U.S. economy is shifting away from these types of exports, and should shift away from them. An educated populace is in demand over the world, and that should be our most valuable export. Anyway, I'm going far afield from the topic du jour.
I keep coming back to it: Here is the reason for protecting the environment. Who is the only group to gain by deregulating, anti-regulation environmental protection laws? Mass industrialists. Everyone else stands to gain except for management. And mass industrialists do not want what we need. They have the money and the power to live the way they choose, wherever they choose to live it. But clean air, clean water, clean food, and the continued survival of the all the genetic diversity our planet can muster, that's what we need. And that's in jeopordy because of the short term needs of less than one percent of the population.
Tuesday, August 10, 2010
New Deflation Fears
I' been singin' this song for two years now. Inflation is not a fear relevant to our current economic situation: Deflation is. And now the Fed is worrying about it too. But what can the Fed do? Interest rates are already at zero. They could buy more treasury notes and increase the money supply, go negative interest, but is that really desirable?
Monetary policy has failed--except for Bernanke's landmark moves to save the financial system from complete meltdown, the country needs a blood transfusion, stat. And that means, yooouuu guessed it! More government spending!
Here's the thing. While politicans respond to polls and Fox news fears about the federal deficit, the States are in serious trouble. We all know about California, but that's only the tip of the iceberg. And the states can't run deficits. They are constitutionally unable to run deficits. Except for one state, Vermont. So when the government can't afford to pay their employees, the only way to close the budget will be to institute mass layoffs or accept federal subsidies. Watch those Republican governer's squirm as they bitch about government spending with their mouths, and greedily go for all the cash they can grab with their hands. We've already seen that in Louisana. Go Bobby Jindal!
Let's see who to can first? Everyone hates bureaucrat's, let's can them. So no state licensing, no state medical billing, no consumer protection=no new businesses. Not to mention that every single one of those guys will be eligible for unemployment, raising the deficit higher. No wait, Republicans want to eliminate unemployment checks. Ok, that's great. Well, millions of people aren't going to starve to death, and there are no jobs to have, so let's riot. So crime will go up, but wait, we've cut down the police force to minimal staffing requirements. Not to mention our nonexistent state fire departments, so you can count on raging neighborhood fires. Thousands of homeless. But wait, let's cut the teachers. That's a good idea. So, business goes on as usual except for the fact that public education is at a stand still. Well at least childcare will go up. Oh wait, that's not counted in GDP, so there again, continue the downward spiral. But don't we want to grow the economy? Not allow for a productivity gap larger than anything the world has experienced since World War II? Don't count on it. What else? Road maintence down, accidents up. No courts, no justice. Let alone the markets. If the SEC were to dissolve say, public companies would be under no obligation to tell the truth to their investors. Everyone would declare famous profits, and the market would crash in disbelief.
So yay states rights. Yay right to life. Yay personal responsibility. Boo gay marriage. Boo Mexicans. Boo Muslims.
Yay chaos and anarchy.
So I'm being a little overboard. True. If any of this happens at all, it won't happen overnight. And all it takes will be a taste of blood letting in the streets before politicans on both sides of the aisle get off their hands. But lest we forget, think Summer of 1967, 1968, and 1969. Riots and assassinations. Police brutality, John Birch Society, Black Panthers, riots in a dozen major American cities. All this has happened here before. And it can happen again. And it will happen again.
So forgive me for not being concerned about the deficit. America's venerability as a debt guaranteeing society does not depend on today's Federal Deficit, it depends on its political stability. America's economic future does not depend on the money it owes today, it depends on the investment it makes on its people tomorrow.
So Americans vote Democratic. We ain't great, but we've passed two major, historical pieces of legislation with absolutely no help from the opposition party. And we're already seeing the effects. Remember overdraft charges? In 5 days, you'll never see another overdraft charge again*. That's what we call consumer protection.
*Caveat. Provided you 1) opt out. And 2) This means your card will get declined, so mind your balance!
Monetary policy has failed--except for Bernanke's landmark moves to save the financial system from complete meltdown, the country needs a blood transfusion, stat. And that means, yooouuu guessed it! More government spending!
Here's the thing. While politicans respond to polls and Fox news fears about the federal deficit, the States are in serious trouble. We all know about California, but that's only the tip of the iceberg. And the states can't run deficits. They are constitutionally unable to run deficits. Except for one state, Vermont. So when the government can't afford to pay their employees, the only way to close the budget will be to institute mass layoffs or accept federal subsidies. Watch those Republican governer's squirm as they bitch about government spending with their mouths, and greedily go for all the cash they can grab with their hands. We've already seen that in Louisana. Go Bobby Jindal!
Let's see who to can first? Everyone hates bureaucrat's, let's can them. So no state licensing, no state medical billing, no consumer protection=no new businesses. Not to mention that every single one of those guys will be eligible for unemployment, raising the deficit higher. No wait, Republicans want to eliminate unemployment checks. Ok, that's great. Well, millions of people aren't going to starve to death, and there are no jobs to have, so let's riot. So crime will go up, but wait, we've cut down the police force to minimal staffing requirements. Not to mention our nonexistent state fire departments, so you can count on raging neighborhood fires. Thousands of homeless. But wait, let's cut the teachers. That's a good idea. So, business goes on as usual except for the fact that public education is at a stand still. Well at least childcare will go up. Oh wait, that's not counted in GDP, so there again, continue the downward spiral. But don't we want to grow the economy? Not allow for a productivity gap larger than anything the world has experienced since World War II? Don't count on it. What else? Road maintence down, accidents up. No courts, no justice. Let alone the markets. If the SEC were to dissolve say, public companies would be under no obligation to tell the truth to their investors. Everyone would declare famous profits, and the market would crash in disbelief.
So yay states rights. Yay right to life. Yay personal responsibility. Boo gay marriage. Boo Mexicans. Boo Muslims.
Yay chaos and anarchy.
So I'm being a little overboard. True. If any of this happens at all, it won't happen overnight. And all it takes will be a taste of blood letting in the streets before politicans on both sides of the aisle get off their hands. But lest we forget, think Summer of 1967, 1968, and 1969. Riots and assassinations. Police brutality, John Birch Society, Black Panthers, riots in a dozen major American cities. All this has happened here before. And it can happen again. And it will happen again.
So forgive me for not being concerned about the deficit. America's venerability as a debt guaranteeing society does not depend on today's Federal Deficit, it depends on its political stability. America's economic future does not depend on the money it owes today, it depends on the investment it makes on its people tomorrow.
So Americans vote Democratic. We ain't great, but we've passed two major, historical pieces of legislation with absolutely no help from the opposition party. And we're already seeing the effects. Remember overdraft charges? In 5 days, you'll never see another overdraft charge again*. That's what we call consumer protection.
*Caveat. Provided you 1) opt out. And 2) This means your card will get declined, so mind your balance!
Thursday, August 5, 2010
Why the Moral Hazard Argument Fails
Ok, this post should be more accurately titled, several reasons why the moral hazard argument fails. So the progenitor of this post is a July planetmoney podcast about the financial reform act. I'm not going to rehash the podcast. Listen to it yourself. One of the contributors stated the argument for moral hazard. Namely, if bad behavior isn't punished, bad behavior will continue unabated, and in fact, worsen to the point of systemic failure. In the case of finance, this argument was applied most recently to Lehman Brothers during the financial crisis. Hank Paulsen was worried that if the government bailed out Lehman, than it would send the message to the markets, no worries no foul, go ahead and invest poorly and mismanage your companies, because you've got a money back guarantee. And of course, Paulsen let Lehman collapse, and the market dropped a thousand points overnight. That in itself is an argument against moral hazard, but that's not where I'm going with this.
Here's the point. The fear of moral hazard shows a fundamental lack of understanding about human motivations. Humans not only repeatedly act against their own best interest, they are effected by both short term and long term interests in unpredictable ways. Economists are particularly guilty of this, and this is why behavioral economics is becoming a big field. So to draw a coralary here, the argument for capital punishment has always been: It's a deterrent to the most heinous of crimes. Well, dozens of studies over the years have proven that to be false. There is no deterrent factor to the practice of capital punishment. Likewise, the notion of certain corporate death ("CCD"), provides no fear for companies, or investors to change their habits.
Why is that? Companies aren't people. Even the smallest company isn't a person. While people may act to prevent their own death, there is no consistent rationality to demonstrate even that fact. But even if you assume it's truth--and I don't--the fact is that companies never act like people. The larger you are, the less of an identity you have. AIG, for example, is composed of hundreds of small companies that were eaten by the larger fish, who kept three quarters of the staff, dumped the rest, claimed the assets for the parent's balance sheet and wrote off the liabilities as a restructuring charge. Hundreds of different entities, all moving about on their own recognizance. All loosely controlled by corporate management. But even that doesn't hold true because, though company loyalty is a nice thing for managers, even managers routinely betray their company's best interests for temporarl payoffs that may or may not exist. The runaway derivatives trading of the last decade is ample proof for that. No one knew that George Bush, a Republican president, was going to issue the largest bank bailout in American history, the only reason the bailout was assumed was because we all knew deep down that letting everyone fail who deserved it would have been total death for the country, for the world. Simply put, the argument for Moral Hazard relies on so many baseless assumptions that the only rational way to prove it would be to rely on statistical data, of which there isn't enough to come up with even a biased sample.
But even this isn't exactly the topic I wanted to rave about. The guys at Planetmoney believe that if you guarantee companies, and risk moral hazard, you risk destabilizing the markets in an exceedingly critical way. This would be true, if it were a risk. I don't think it is, unpredictable risks aside. And don't talk to me about Black Swans, because the financial crisis wasn't unpredictable. Everyone and their blind, three legged hamster knew it was coming.
Listen: If I buy, again let's use everyone's favorite bully boy, AIG stock, I'm not buying it on the premise that the money is safe, but that I expect to make money on the return. This is critical to my point. The safest possible investment you can make, is in treasury stocks, so this can't be a matter of mere safety. We're talking about returns. So when I buy AIG stock, it might be nice to know it's backed by the government, but I'm buying it because I think it's undervalued and that it will reap a decent profit in terms of dividend, and in terms of rising stock price. And that means, that I have to know something about AIG. The Planetmoney men were concerned that the destablization would occur because the values would become essentially meaningless. While that is a valid fear for entirely different reasons, like short-selling, I don't think there's any real fear of that for the overall market for stocks. You have to know something about the company, you have to be making and upgrading your assessments of your positions. And you have to do it fairly often. And that means people making valuations--people struggling to name the price of an asset. And that's what the market is--a place where prices are named and called. To wit, a government backstop on corporate assets doesn't have the catastrophic effect on markets that media fear mongers would have us believe.
Here's the point. The fear of moral hazard shows a fundamental lack of understanding about human motivations. Humans not only repeatedly act against their own best interest, they are effected by both short term and long term interests in unpredictable ways. Economists are particularly guilty of this, and this is why behavioral economics is becoming a big field. So to draw a coralary here, the argument for capital punishment has always been: It's a deterrent to the most heinous of crimes. Well, dozens of studies over the years have proven that to be false. There is no deterrent factor to the practice of capital punishment. Likewise, the notion of certain corporate death ("CCD"), provides no fear for companies, or investors to change their habits.
Why is that? Companies aren't people. Even the smallest company isn't a person. While people may act to prevent their own death, there is no consistent rationality to demonstrate even that fact. But even if you assume it's truth--and I don't--the fact is that companies never act like people. The larger you are, the less of an identity you have. AIG, for example, is composed of hundreds of small companies that were eaten by the larger fish, who kept three quarters of the staff, dumped the rest, claimed the assets for the parent's balance sheet and wrote off the liabilities as a restructuring charge. Hundreds of different entities, all moving about on their own recognizance. All loosely controlled by corporate management. But even that doesn't hold true because, though company loyalty is a nice thing for managers, even managers routinely betray their company's best interests for temporarl payoffs that may or may not exist. The runaway derivatives trading of the last decade is ample proof for that. No one knew that George Bush, a Republican president, was going to issue the largest bank bailout in American history, the only reason the bailout was assumed was because we all knew deep down that letting everyone fail who deserved it would have been total death for the country, for the world. Simply put, the argument for Moral Hazard relies on so many baseless assumptions that the only rational way to prove it would be to rely on statistical data, of which there isn't enough to come up with even a biased sample.
But even this isn't exactly the topic I wanted to rave about. The guys at Planetmoney believe that if you guarantee companies, and risk moral hazard, you risk destabilizing the markets in an exceedingly critical way. This would be true, if it were a risk. I don't think it is, unpredictable risks aside. And don't talk to me about Black Swans, because the financial crisis wasn't unpredictable. Everyone and their blind, three legged hamster knew it was coming.
Listen: If I buy, again let's use everyone's favorite bully boy, AIG stock, I'm not buying it on the premise that the money is safe, but that I expect to make money on the return. This is critical to my point. The safest possible investment you can make, is in treasury stocks, so this can't be a matter of mere safety. We're talking about returns. So when I buy AIG stock, it might be nice to know it's backed by the government, but I'm buying it because I think it's undervalued and that it will reap a decent profit in terms of dividend, and in terms of rising stock price. And that means, that I have to know something about AIG. The Planetmoney men were concerned that the destablization would occur because the values would become essentially meaningless. While that is a valid fear for entirely different reasons, like short-selling, I don't think there's any real fear of that for the overall market for stocks. You have to know something about the company, you have to be making and upgrading your assessments of your positions. And you have to do it fairly often. And that means people making valuations--people struggling to name the price of an asset. And that's what the market is--a place where prices are named and called. To wit, a government backstop on corporate assets doesn't have the catastrophic effect on markets that media fear mongers would have us believe.
Thursday, July 22, 2010
Shirley Brown the Red Herring
I won't bother you with the fine details of this story. If you haven't seen it, you're probably better off staying with the rock you've been living under.Here's the skinny. Shirley Brown works at the Department of Agriculture, an Obama appointee. She's a black woman. This is important, so remember that. She gave a speech that was startlingly honest. When a poor white couple came to the department for help, it gave her pause. That's all. Andrew Breitbart, Fox News, and Bill O'Reilly later, she was fired.
My issue is this: Blacks in the America have cause for racism. That doesn't make it right, but it is completely justifiable. The reason why it's a problem because as a public official, her duty is to all Americans. But, various American authorities have been viruluently anti-black since the country's inception. Many of them had public heads who were completely open about their racism.
So for a blackwoman to feel two ways about helping a poor white couple, that's A-O-K. She did help them, and the family went public, thanking her profusely for aid.
Here's the kicker, and this is what pisses me off. Glen Beck and his ilk are the first to decry "white racism." But "white racism" is a shield, a red herring, and blackhearted lie for what is actually racism against blacks. These proponents, so vociferously defending the beknighted white class from their oppressors, are guilty of outright racism. I don't care how many black friends they have. No one can legitimately deny that minorities have it worse in this country than the white majority. Are their poor whites? Of course. Do I feel for them? Absolutely. Would I like them to find government aid? You bet I would. But are they victims? No.
And it will work. The hate will build, and this laughably entitled "post racial era" will end in a heart beat as the violence escalates.
Freedom of speech doesn't give you the right to be an asshole. Someone needs to put that on a bumpersticker for me.
Wednesday, July 21, 2010
For you deficit hawks
So, there is a great movement afoot to stymie macroeconomic expansionary policy for the remainder of Obama's term, and if, god forbid, a Republican takes office, clearly for his term (and one term it will be if they attempt to real in the deficit).
So the federal deficit stands at 13 trillion dollars. Check out the linked site. It's pretty amazing. That's a pretty large number, and it's pretty scary for most Americans. But for all the wrong reasons. The reasons I've heard counted include inflation, China, bonds, and personal savings. I'm going to handle some of these in this post.
Inflation--First of all, there's been almost no signs of inflation. Infact, inflation rates were negative for much of 2009 and are hovering at 2% for most of 2010. As Paul Krugman has pointed out ad nauseum, the real risk we run is deflation. That's where prices get so low that production levels decline because firms no longer have the capacity to produce. Deflation is a nasty spiral, and it's not entirely clear how to get out of it, once the spiral begin. That's in comparison to inflation, for which we have a number of well practiced tools. If that's the case, why are so many people worried about inflation? Well, simple, when debts are so huge, it's been the practice of floating currencies to print more money. By expanding the money supply, you can pay your debts, up until the point that your currency loses all value. That's how Germany attempted to deal with WWI reparations. But there are absolutely no signs of this happening. 2% inflation is exceptionally low. Remember, in the recessions of the 80s, inflation climbed as high as 14%, in 2006, inflation was higher than it is now, at 4%. The Taylor rule, pegs good inflation exactly at 2%.
China-Bonds--I'll handle these two together because they're related. So, to raise the money supply, the Fed sells treasury bonds on the open market. Commercial banks buy them, but also the central banks of other countries buy them too. And, as you've no doubt heard, China owns a whole bunch! Five years ago, they owned nearly 850 billion. These fears about China have been going on for thirty years, and are a bad hangover from the Cold War. The fact is, China's been a great bogeyman for U.S. politicians, particularly Republithugs, for years. And I'm not really sure why. Is it that they think China will invade? Such a thing, while catastrophic if it occurred, is so unlikely as to be pure fantasy. More likely, people are worried over the vast effects that the Chinese exert over our economy. There are some major levers that the Chinese have, by owning so much debt, not to mention the equities they own in the country and the world, but the most troubling to U.S. politicians currently, is how they devalue their own currency. So the aggregate demand equation goes as follows. Aggregate Demand= C+I+G+(X-MI). That is, Consumer Spending + Investment + Government Spending + Exports minus Imports. The most popular way to stimulate demand is by becoming an export nation. No one likes the government to spend, consumers always spend at the Marginal Propensity to Consume (MPC) which is directly related to their income (excepting cheap credit!). Investment means, new houses and new factories, so it's hard to stimulate that (the only way is through tax credits, which might not accomplish anything anyway). And that leaves exports. And there are several ways to stimulate exports. Have a cheap dollar, and have a cheap labor force. China values its currency against the U.S. dollar. But it does so at 8 to 1 (7 to 1 since mid 2009. )
But this nebulous fear of the Chinese, is just that, nebulous. China doesn't want to change it's relationship with the U.S. They've attained great wealth through us. We are their biggest customers! And if they undermine the U.S. capacity to repay it's debts, they'll be forced to take a major writedown. A writedown that could destabilize their entire political system (already on the verge of destablizing).
Let's not talk about war. It's silly. Plus, both the U.S. and China have spent billions on war plans that will go into effect the minute hostilities break out anyway.
All of this to say, don't worry about the deficit. Worry about employment and economic change.
Employment speaks for itself. The unemployment rate is bad, 9.5%, again worse in the 80s, and full employment is actually around 5% unemployment, but still bad enough to be a game changing issue this November. So new jobs need to be created. And that means more stimulus. People are fond of pointing to Japan's lost generation as a benchmark for when increased government spending did not raise aggregate demand--but Japan is very different from the U.S. Moreover, Japan left its lost generation with state of the art urban areas, transportation of all varieties. Whereas our infrastructure is still decaying faster than it can be rebuilt, despite the stimulus money already spent. Moreover, why the hell is Obama building more roads? Repair the existing, add a lane or two if you must, but the stimulus money really needs to come to expanding urban areas. We no longer have a factory or agricultural based economy. To be sure large percentages of our GDP come from those industries, but the largest stake came from our health and finance sectors. These are urban professionals!
This is where we get down to the real problem here. Change. Nothing's changed. The internet bubble is gone, so is the housing bubble. How do we spur real change? Innovation. Where are the innovators? They're going to business school instead of engineering school because the payoff's higher. The U.S. should be dumping a load of stimulus funds on universities. The coffers of the NIH and the WHO need to be replenished. Disclaimer: I'm engaged to a graduate student, so I have a financial interest here. But where is the next thing going to come from? Not better coffee, not a new brand of food, not a new iPod, or iPhone. It's going to be game changing when it happens, but it will only happen here if we invest in our human capital.
Enough. I need to get to work.
Change
So the federal deficit stands at 13 trillion dollars. Check out the linked site. It's pretty amazing. That's a pretty large number, and it's pretty scary for most Americans. But for all the wrong reasons. The reasons I've heard counted include inflation, China, bonds, and personal savings. I'm going to handle some of these in this post.
Inflation--First of all, there's been almost no signs of inflation. Infact, inflation rates were negative for much of 2009 and are hovering at 2% for most of 2010. As Paul Krugman has pointed out ad nauseum, the real risk we run is deflation. That's where prices get so low that production levels decline because firms no longer have the capacity to produce. Deflation is a nasty spiral, and it's not entirely clear how to get out of it, once the spiral begin. That's in comparison to inflation, for which we have a number of well practiced tools. If that's the case, why are so many people worried about inflation? Well, simple, when debts are so huge, it's been the practice of floating currencies to print more money. By expanding the money supply, you can pay your debts, up until the point that your currency loses all value. That's how Germany attempted to deal with WWI reparations. But there are absolutely no signs of this happening. 2% inflation is exceptionally low. Remember, in the recessions of the 80s, inflation climbed as high as 14%, in 2006, inflation was higher than it is now, at 4%. The Taylor rule, pegs good inflation exactly at 2%.
China-Bonds--I'll handle these two together because they're related. So, to raise the money supply, the Fed sells treasury bonds on the open market. Commercial banks buy them, but also the central banks of other countries buy them too. And, as you've no doubt heard, China owns a whole bunch! Five years ago, they owned nearly 850 billion. These fears about China have been going on for thirty years, and are a bad hangover from the Cold War. The fact is, China's been a great bogeyman for U.S. politicians, particularly Republithugs, for years. And I'm not really sure why. Is it that they think China will invade? Such a thing, while catastrophic if it occurred, is so unlikely as to be pure fantasy. More likely, people are worried over the vast effects that the Chinese exert over our economy. There are some major levers that the Chinese have, by owning so much debt, not to mention the equities they own in the country and the world, but the most troubling to U.S. politicians currently, is how they devalue their own currency. So the aggregate demand equation goes as follows. Aggregate Demand= C+I+G+(X-MI). That is, Consumer Spending + Investment + Government Spending + Exports minus Imports. The most popular way to stimulate demand is by becoming an export nation. No one likes the government to spend, consumers always spend at the Marginal Propensity to Consume (MPC) which is directly related to their income (excepting cheap credit!). Investment means, new houses and new factories, so it's hard to stimulate that (the only way is through tax credits, which might not accomplish anything anyway). And that leaves exports. And there are several ways to stimulate exports. Have a cheap dollar, and have a cheap labor force. China values its currency against the U.S. dollar. But it does so at 8 to 1 (7 to 1 since mid 2009. )
But this nebulous fear of the Chinese, is just that, nebulous. China doesn't want to change it's relationship with the U.S. They've attained great wealth through us. We are their biggest customers! And if they undermine the U.S. capacity to repay it's debts, they'll be forced to take a major writedown. A writedown that could destabilize their entire political system (already on the verge of destablizing).
Let's not talk about war. It's silly. Plus, both the U.S. and China have spent billions on war plans that will go into effect the minute hostilities break out anyway.
All of this to say, don't worry about the deficit. Worry about employment and economic change.
Employment speaks for itself. The unemployment rate is bad, 9.5%, again worse in the 80s, and full employment is actually around 5% unemployment, but still bad enough to be a game changing issue this November. So new jobs need to be created. And that means more stimulus. People are fond of pointing to Japan's lost generation as a benchmark for when increased government spending did not raise aggregate demand--but Japan is very different from the U.S. Moreover, Japan left its lost generation with state of the art urban areas, transportation of all varieties. Whereas our infrastructure is still decaying faster than it can be rebuilt, despite the stimulus money already spent. Moreover, why the hell is Obama building more roads? Repair the existing, add a lane or two if you must, but the stimulus money really needs to come to expanding urban areas. We no longer have a factory or agricultural based economy. To be sure large percentages of our GDP come from those industries, but the largest stake came from our health and finance sectors. These are urban professionals!
This is where we get down to the real problem here. Change. Nothing's changed. The internet bubble is gone, so is the housing bubble. How do we spur real change? Innovation. Where are the innovators? They're going to business school instead of engineering school because the payoff's higher. The U.S. should be dumping a load of stimulus funds on universities. The coffers of the NIH and the WHO need to be replenished. Disclaimer: I'm engaged to a graduate student, so I have a financial interest here. But where is the next thing going to come from? Not better coffee, not a new brand of food, not a new iPod, or iPhone. It's going to be game changing when it happens, but it will only happen here if we invest in our human capital.
Enough. I need to get to work.
Change
Tuesday, July 20, 2010
Macroeconomics Post 3: The Role of the Federal Reserve
So the last chapter before the final was an illuminating one, in part because it dealt with one of the central debates of economic policy. In the the common parlance of liberals and conservatives, the issue has been framed by conservatives as the role of "big government." But, the book explains, this is a read herring. The issue for Macroeconomists has nothing to do with the size of government, because that is fiscal policy--it's a different issue. Most economists believe in the economy's auto-stabilizers like unemployment insurance and the graduated income tax. The issue, says Baumol, is actually the degree to which the government attempts to regulate the economy, or to what degree the "self-corrective" market is allowed to be free. This battle largely takes place at the Federal Reserve.
So the Federal Reserve can affect the economy in several ways. 1) They can change the interest rate 2) They can change the money supply. There is a third way that is rarely used 3) It can change the reserve ratio for banks. The Big Debate in Macro is whether or not the Fed should worry about 1, or 2.
Keynsians think the Fed should concentrate on the interest rate. This keeps the interest rate relatively stable, and with several underlying assumptions, it helps expansionary policy work effectively to stimulate the economy. The monetarists, lead by Milton Friedman and his ilk, believe that the key is actually the money supply. They think the interest rate should be determined by supply and demand. The key concern of the monetarists is inflation, and when the Fed lowers the interest rate, they expand the money supply--and chance inflation. Now in practice this hasn't really been the case. The correlation between low interest rates and high inflation hasn't really born out. Even when adjusted for the "two year lag" that monetarists believe affect inflation numbers.
Anyway, economics is over now, but it was a fascinating class that I wish we could have gone more into depth on. Next stop Forensic Accounting and Tax!
So the Federal Reserve can affect the economy in several ways. 1) They can change the interest rate 2) They can change the money supply. There is a third way that is rarely used 3) It can change the reserve ratio for banks. The Big Debate in Macro is whether or not the Fed should worry about 1, or 2.
Keynsians think the Fed should concentrate on the interest rate. This keeps the interest rate relatively stable, and with several underlying assumptions, it helps expansionary policy work effectively to stimulate the economy. The monetarists, lead by Milton Friedman and his ilk, believe that the key is actually the money supply. They think the interest rate should be determined by supply and demand. The key concern of the monetarists is inflation, and when the Fed lowers the interest rate, they expand the money supply--and chance inflation. Now in practice this hasn't really been the case. The correlation between low interest rates and high inflation hasn't really born out. Even when adjusted for the "two year lag" that monetarists believe affect inflation numbers.
Anyway, economics is over now, but it was a fascinating class that I wish we could have gone more into depth on. Next stop Forensic Accounting and Tax!
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