Jasper Smith

Commentary on politics, economics, culture and sports.

Archive for the ‘Economics’ Category

Bailing out Detroit

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I’ve pretty much come around to the idea that doing something with taxpayer money now is better than doing nothing when it comes to the Big Three. Again, if we weren’t coasting along (or headed toward) the bottom of a vicious recession at the present moment, I’d no doubt stick with my free market instincts. But letting them slip into Chapter 7 right now strikes me as very high stakes poker. Yglesias, needless to say, is having none of it:

Part of what makes the auto bailout conversation difficult to have realistically is that this $25 billion number is hanging out there. That’s a lot of money, yes, but it’s actually a relatively small amount of money relative to the scale of the Big Three’s operations. Under the circumstances, a bailout looks a bit like a good deal.

But by the same token, I don’t see any reason to think that $25 billion would actually turn these firms around or even forestall collapse for very long. The car industry in general is in a big slump, and these companies in particular have been on a downward trajectory for a long time.

So what if they money doesn’t stave off collapse “for very long?” If it buys us only ten months it may be worth it. If it ultimately costs $75 billion (probably something under 2% of what Keynesian measures are ultimately going to cost the government over the next few years) but buys us three years, I think it will definitely be worth it. Letting all of the big three go under precipitously at the present time is extremely risky. Sure, maybe the economy would make the adjustments to post-big three life smoothly, but I’d rather not tempt fate. Nobody’s arguing we shouldn’t structure the best deal possible — one that is optimal with respect to the national interest (and that unfortunately means a lot fewer automobile-related rust belt jobs).

Handing out a million and a half pink slips in gradual fashion over the next, say, four years (even if this costs the taxpayers a lot of money), is a safer course of action than handing out two million over the next twelve months. It may be a cheaper (for us taxpayers) course of action, too, although our lack of easily observable parallel universes will make it impossible to prove either way.

I think this is basically our choice.

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November 18, 2008 at 8:56 pm

Obama’s carbon tax plans

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Megan McArldle doubts the political viability of battling climate change with carbon taxation:

The Democrats right now are divided into deficit hawks, who think that the nearly $1 trillion deficit headed down the pike means they can’t afford any big programs, and the big spenders, who say to hell with the deficit, let’s spend as much as we can to make it look like we’re really doing something.  More on this later.  But one wrinkle that hadn’t seemed as important as it now does is that the Democrats do not have the luxury of proposing unpassable legislation in order to look like they’re doing something.  They can’t make good on Obama’s electoral promises about global warming by putting up a program the Republicans hate enough to take down, because there aren’t enough Republicans to credibly blame for the bill’s destruction.  So they either have to actually pass a carbon bill that will be massively unpopular when it raises energy prices, or explain why Obama didn’t really mean it.

If the Democrats are smart, they’ll pass a carbon bill that will only gradually raise energy prices, and that won’t really kick in in a serious way for another 5-7 years. Modest rises in energy prices in the short term will not prove to be “massively unpopular” and more substantive increases — while no doubt not exactly something the public will love — will be tolerated if the economy as a whole is once again growing briskly, and median income is once again increasing, and people see real progress in developing the kind of infrastructure that helps them deal with said higher energy prices.

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November 6, 2008 at 3:24 pm

Paulson Watch

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More troubling news on the bailout front:

U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years…

Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends — or conversely, why banks that need government money are still spending so much on dividends.

“The whole purpose of the program is to increase lending and inject capital into Main Street. If the money is used for dividends, it defeats the purpose of the program,” said Sen. Charles E. Schumer (D-N.Y.), who has called for the government to require a suspension of dividend payments.

The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid.

Among other restrictions, participating institutions cannot increase dividend payments without government permission. They also are barred from repurchasing stock, which increases the value of outstanding shares.

The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury’s investment over the initial three-year term.

“The terms of our capital purchase program were set to encourage participation by a broad array of financial institutions so they strengthen their financial positions,” Treasury spokeswoman Michele Davis said.

The Treasury’s approach contrasts with decisions by foreign governments, including Britain and Germany, to require banks that accept public investments to suspend dividend payments until the government is repaid. The U.S. government similarly required Chrysler to suspend its dividend payments as a condition of the government’s 1979 bailout.

Heckuva job, Paulsie.

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October 30, 2008 at 11:39 am

Like a chicken with its head cut off

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I strongly suspect this situation directly flows from Bush-Paulson’s rudderless, schizophrenic approach to fnancial crisis strategy:

The bailout is now the hottest lobbying game in town.

Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history.

The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession.

These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well.

The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday.

Lobbying efforts are intensifying.

Sounds very unfocused, and rather depressing.

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October 25, 2008 at 5:35 pm

Obama and Ottawa

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Commenting on John McCain’s enthusiastic pro-Nafta speech this week north of the border, John Ibbitson writes:

Mr. Obama,  on the other hand, is a NAFTA skeptic. “NAFTA and its potential were oversold to the American people,” his website declares. “Obama will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.” When Austan Goolsbee, Mr. Obama’s chief economic adviser, reportedly told Canadian diplomats that Mr. Obama’s statements on NAFTA were mere campaign rhetoric, the ensuing controversy embarrassed both the candidate and the Canadian government. Mr. Obama does appear to be trying to distance himself from some of his earlier tough talk, telling Fortune magazine that some of his trade rhetoric was “overheated and amplified.” But his support for increased trade ties with Canada is lukewarm at best, and he could actually prove hostile to the bilateral trading relationship.

I think the significant majority of Canadians who feel Obama’s politics more closely match their own political ideals (and therefore are inclined to favor his candidacy over McCain’s) are right not to worry too much about the Illinois senator’s nods to the protectionists and anti-globalists in the Democratic party. Nearly all parties of the left in rich democracies count within their ranks substantial numbers of people opposed to the further integration of the global economy. And the thing is, a number of states Obama either badly wants to win (Ohio) or absolutely must win (Pennsylvania) are home to large number of culturally conservative unemployed/marginalized blue collar workers who may abandon the culturally liberal Obama if they perceive he’s an excessively enthusiastic fan of free trade.

I believe it’s clear Obama knows the path to securing the living standards of working people lies in strengthening the safety net and not in erecting barriers to trade.

This is simply American presidential politics 101. There’s no serious prospect of an Obama administration’s igniting a trade war between the US and Canada. And in the unlikely event that a President Obama were to broach the subject of labor standards and worker protections with Ottawa (over the Nafta issue), Canadians would have nothing to worry about, since any resulting action would mean it is the US that would be beefing up its standards to match the practices of the more Western European-style Canadians.

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June 21, 2008 at 12:40 pm

Obama, McCain and the tax code.

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On the topic of the Obama’s and McCain’s views on taxation, Clive Crook writes:

With their fixation on the fate of the Bush tax cuts, both of them are missing the main point: comprehensive reform is needed–and needed so badly it may be unavoidable. The key is to broaden the income-tax base. Income-tax rates are moderate in the United States by international standards, but the income-tax base is narrow, so the total raised is less than you would expect. Raising significant amounts of additional revenue–which is going to be necessary, even if no new spending is undertaken–would push income-tax rates quite high. The country needs to broaden its tax base and simplify the rate structure, and much the best way to do this is as part of a thorough overhaul of the code. A lot of what should be done is neither liberal nor conservative. Ordinarily one thinks of a trade-off between equity and efficiency. At some point, those choices do have to be made, but the United States is not at that point. The current system is so inept, so complicated, and so replete with unintended consequences that it is easy to devise a win-win alternative–fairer and more conducive to growth at the same time. Yet neither Obama nor McCain gives any sign of embracing comprehensive reform. Quarreling over the fiscal legacy of the Bush administration is more to their liking. So much for post-partisan politics.

Although I couldn’t agree more that the country badly needs reform of the tax code, I strongly suspect neither Obama nor McCain is so much “missing” this point as avoiding it, for reasons of politics. Any reform of the tax code that is sufficiently radical to do any real good will require a bloody political fight.

I don’t see much prospect of any decent reform plan getting enacted under a McCain presidency, given the likely composition of the Congress (though you never know, and of course McCain has shown some proclivity for working with Democrats). I reckon Obama is the more plausible agent of change in this regard. If I were he I’d avoid getting into specifics with respect to tax reform ideas if such an agenda were part of my plans (one can only hope tax code reform is part of his plans). Obama displayed admirable unwillingness to pander to the electorate on gasoline taxes — an unwillingness that probably helped him finish off Hillary Clinton. But I don’t think he can count on a similarly happy outcome flowing from the effects of candor on the tax code in general, at least to the extent that any substantive reform cannot wholly ignore the mortgage interest deduction

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June 7, 2008 at 4:08 pm

Helsinki as Hell

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McMegan ponders the sustainability of the Scandinavian welfare state:

It occurs to me that Scandinavia, with its homogeneous population, may have been spending down the accumulated social capital of its pre-welfare state society. Before the widespread welfare state, people who attempted to free ride by collecting benefit when they could be working faced both internal guilt and considerable external social pressure; the neighbors essentially functioned as the fraud police. But as the generations who grew up before the kribbe-to-grav safety net die off, and are replaced by a newer generation perfectly comfortable with broad public charity, this is clearly breaking down. Sweden’s rates of long term disability, sick leave, and so forth, are very high. The Scandinavians I know generally report that the once-famous work ethic is not really all that impressive any more, and there’s little stigma attached to malingering on long-term sick leave.

Yes, but is the Nordic system really “breaking down” just because people take advantage of its opportunities for leisure?

I was under the impression that these countries were really beginning to suffer from dismal growth and its attendant problems (worsening public sector finances, declining living standards, joblessness, etc.) in the 80s and early 90s. But I also thought that, over the last ten years or so, they had pretty much gotten their acts together, tweaked the incentives their systems create, and undertaken some non-trivial structural reforms — and that as a result they were all once again growing at a pretty decent clip. Am I wrong?

Relatedly, what I’ve often wondered is, wouldn’t the average Scandinavian who was gainfully employed enjoy a substantially higher standard of living than what who stayed home to live life on the dole? In other words, I would imagine you could structure a generous and expensive array of social programs and still have a society where nonetheless rational actors possess a strong incentive to achieve successful careers.

I think libertarian efforts to portray the Nordic countries as grim dystopian hells (not saying that’s what Megan’s doing here, by the bye) are comically handhanded. It’s plain to see these countries simply rock.

Written by Jasper

June 2, 2008 at 5:48 pm

Posted in Economics, Nordic, Sweden

Planes, trains and automobiles

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Ross reacts to Huckabee’s pander to suburban voters proposal to double the width of I-95:

…America’s transportation infrastructure simply hasn’t kept pace with our population growth, our average commuting time has tripled in the last twenty-five years, and our country needs those extra lanes of traffic. Families need them. Businesses need them. Suburban and exurban voters – the swing vote in elections these days – need them. I understand all the “bridge to nowhere”/Big Dig fears on the porkbusting right, but his is an issue that a sensible pro-business, pro-family Republican Party ought to own – particularly since transportation earmarks, which blossom in the absence of a concerted strategy for improving national infrastructure, are part of the problem, not part of the solution.

Ross’s thoughts got the inevitable thread going on the evils of the automobile, and the superiority of trains. But I’ve tended to be of the opinion that choosing between the two is, well, a false choice.

I’m all for congestion pricing, carbon taxation, and sundry other schemes to account for externalities and reduce cost shifting. It seems to me however, that to a large extent, we need not choose between better highway infrastructure and more and faster trains. We can have both, given a sufficiently robust financial commitment.

Now, obviously not every part of the country is a suitable candidate for inter-city fast trains. And not every part of the country needs major highway improvements, either. But my sense is the denser parts of the country need and could make use of both. Because the thing is, in many of the parts of Europe that have excellent rail service (I’m thinking Germany, the Low Countries, Britain, France), they also have superb highways.

Given enough density, it makes economic sense to have both great highways and great trains. In America we’re simply too averse to a robust, well-funded public sector for there to be a realistic chance at emulating our across-the-pond cousins.

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January 25, 2008 at 1:44 pm

A non-angry black man vs. a New Dealer

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Matt Yglesias writes that Obama

…almost certainly feels that he can’t come anywhere near the level of outrage at economic injustice in America that you see from a John Edwards, or give voice to the anger that many of us feel about George W. Bush’s malgovernment without losing his status as “one of the good ones.” To be the most mainstream progressive black political figure ever, he’s crafted a relentlessly upbeat, uplifting message. And it’s a good message, but it is a bit out of step with how a lot of us really feel about the state of things.

Yes, but you don’t have to be angry or shrill or militant to push for things like universal healthcare, or to defend the status quo on Social Security, or indeed to stand up for working families or the middle class in general. You can do it in a sunny and optimistic manner. Obama has simply chosen not to make this sort of economic pitch much of a focus of his campaign rhetoric — at least not the speeches picked up by the media. I think this is a major tactical error. Sure, if you go to his website you can find policies dealing with the economic anxiety issue — amidst the ones you find about civil rights, foreign policy, political reform, and Iraq. Contrast that with Hillary’s site, where the first “issues” button you see is “strengthening the middle class” and the second one you see is “affordable healthcare.”

I think Obama’s campaign has made a big mistake by hitherto so relentlessly stressing the kumbaya factor. There’s a lot of economic anxiety out there. Rightly or wrongly, people associate Hillary Clinton with a New Deal style of Democratic politics that focuses on the economy. Obama they associate with political reform, civil rights, the environment, and foreign affairs. Not surprisingly, downscale Democrats in New Hampshire closed ranks for Clinton. I think this is a big advantage for Hillary in the primaries as the country trudges through a winter of economic discontent. Obama had better have a chokehold on the votes of African Americans in the primaries, because, if anything, downscale voters will make up a larger chunk of the remainder of the primary electorate than they did in New Hampshire.

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January 10, 2008 at 11:25 am

On second thought: the case for John Edwards

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Ezra seems skeptical about the ability of a President Edwards to enact his plans:

I can’t figure out what the Edwards plan is. How do you fight like hell to change the power balance in the system? What’s the pressure point? The vulnerability? I’ve heard some suggest campaign finance reform, but that has to pass Congress, first, and Congress is where the system exhibits its most profound rot. Does Edwards mean to use the bully pulpit to spark social organizing, as Reagan did with his tax cuts, creating enough voter pressure to scare Congress into constituent service before corporate fealty? If so, how will that work?

Well, it remains to be seen exactly how things will transpire, but I reckon there are two elements that speak to the superiority of the Edwards approach when it comes to effecting change:

a) Longer coattails. This has been written about extensively. Edwards will take more states against the Republican nominee than either Clinton or Obama, and this will give down ticket Democrats the greatest possible chance at gaining for their party larger congressional margins.

b) His fiery rhetoric probably is a big plus. I’m about as doctrinaire a free trader as you’re likely to find in liberal circles, but even I think Edwards’s views on trade may be useful if one’s goal is to strengthen the safety net and modify the tax code. The last thing the plutocrats want is anybody messing with their ability freely engage in the no-holds-barred form of capitalism that has made them jaw-droppingly wealthy. A populist president who enters Washington possessed of both deeper congressional majorities and the imprimatur of the voters for his anti Wall Street, pro worker views is probably in a far stronger position to exact meaningful concessions from the business community than either a connected DC insider or a national healer-in-chief.

Edwards surely is correct about the need to take power. It won’t freely be given.

Written by Jasper

December 17, 2007 at 12:07 pm

Crook on Rodrik on Hillarytrade

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Clive Cook talks about Dani Rodrik’s calm reaction to Hillary Clinton’s recent embrace of protectionism:

Dani is right of course that having doubts about the current multilateral arrangements does not make you a protectionist. Raising trade barriers, or turning your face against opportunities to lower them, is what makes you a protectionist. I also agree with Dani that taking a breather on trade agreements does not mean that the global trade regime will collapse. But collapse is an extreme scenario. The danger is not collapse, but erosion.

Dani argues that to maintain the openness we have, we must improve the legitimacy of the existing arrangements and build political support for liberal trade. Yet again, we agree. The issue that divides us is whether Hillary Clinton’s call for a time-out on trade advances or retards those goals.

Acknowledging that there can be winners and losers from trade, and developing better kinds of social insurance to ease the strain, makes sense. I am very much for that. But those policies do not envisage restrictions on trade. It is very hard to maintain that (a) trade is good for us in the aggregate and (b) it makes sense to go slow on trade liberalisation. If you are going to argue (b), before long you will find yourself failing to mention (a). And once you have forgotten (a), or decided it might actually be wrong, good luck in trying to “maintain the openness we have”.

If liberal trade is not good for America in the aggregate, why even try to maintain it? Why not join forces with outright protectionists and pursue the “fair trade” agenda without inhibition?…Once the US decides that liberal trade does not serve its collective interest–and Hillary, in effect, is proposing a time-out to think about this–the openness we have is indeed at risk.

I suspect most of the “US” — that is, the American people — already think liberal trade is against its collective interest. That horse has already left the barn. It’s a most deplorable state of affairs, and it unfortunately means that, in the party of the left, at least, the path to power requires mouthing protectionist bromides to peel off at least some protectionist voters.

I really doubt Hillary Rodham Clinton truly believes the fair trade nonsense. But she’s evidently concluded gaining the White House is going to require a certain amount of pandering. Nothing new there.  Pandering is as muc a part of the American political condition as baby kissing or chicken dinners. I now suspect however, that, perhaps ironically, free trade’s best bet is to put a Democrat in the White House. The Republicans certainly don’t appear interested in making safety net improvements (heck, they don’t appear very interested in making the case for trade, either).

Perhaps after eight years of a safety-net-repairing Democratic administration, it will once again be morning in America for free traders.

Written by Jasper

December 8, 2007 at 6:32 pm

Declining cities and vicious circles

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There’s been a lot of talk lately — indeed it’s renewed talk as we slide into hard times and deal with the foreclosure crisis — about the decline of American rust belt cities. I’ve long held the view that we truly exacerbate our urban ills with bad public policy choices — or at least bad public policies born out of accidents of history.

It’s clear to me that, in America at least, local governance — and especially the way local governance is financed — contributes to the sort of longer-term, truly pernicious urban decline apparent in places like Detroit and Cleveland, or in some of the smaller cities in my own backyard such as Lawrence or Brockton. I would argue it is bad policy to require a municipality to raise the bulk of its revenue from its own local economy. It would be wiser for all revenues to be raised at the state level; the economy of an entire state is larger than that of a municipality, after all, and therefore subject to less volatility. Raising all local governance money in a centralized fashion at the state level — and then distributing funds back to municipalities on a per capita basis — would help deteriorating cities resist decline. Under status quo arrangements (which typically require municipalities to rely heavily on the property values within their borders to finance local services), once economic decline sets in, it is often next to impossible to reverse, as a vicious circle is set off: A flagging economy and declining population reduce property values, which in turn decimates tax collections, which in turn makes it difficult to pay for adequate schools, infrastructure and public safety, which in turn exacerbates the economic decline and population exodus…

Centralized, state-level funding of local governance isn’t a magic bullet. But it is a concept that ought to seriously be considered as a means of arresting the seemingly inexorable decline of America’s hardest-pressed cities

Written by Jasper

November 18, 2007 at 11:51 pm

Posted in Cities, Economics, Policy

Examining the exurbs

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Matt Yglesias gets into a discussion on the geographical composition of the foreclosure crisis in his analysis of the situation with Blue Dog Democrats, and their alleged caving in to financial interests intent on sticking it to beleagured mortgage payers:

My look at the data thus far has been very cursory, but my preliminary conclusion would be that the hardest-hit areas are the high-growth fringes of vibrant metro areas. In Virginia, for example, Arlington County right next door to DC has a higher foreclosure rate than South Dakota. It’s lower, however, than the rate in Fairfax County — the further-out part of suburban Virginia. Fairfax’s foreclosure rate, in turn, is lower than the rates in Loudon County and Prince William County — the dread exurbs. The ring of counties around those two counties — rural areas — see the rate dropping again.

One of the thread commenters mentions his skepticism that higher gas prices are adding much fuel to the fire for hard-pressed exurban home owners, opining that such people stand to “save” a couple of hundred thousand bucks by choosing to live far out from the city center (a “savings” that, according to his logic, apparently far outweighs the recent spike in gasoline prices).

I’m not so sure about this line of reasoning. It seems to me plenty of folks in exurban  areas really are facing major financial stresses these days, and higher prices at the gas station don’t help matters. In the first place, is the whole concept of buying in the exurbs really a question of “saving” $200k? That makes it sound like the average exurbanite has the option of buying a $500k house close to the city but instead opts to “save” a couple of a hundred thousand by tolerating a sixty mile commute.

I think the reality is that, in most exurbs, many of the people who have settled there have done so because that’s all they can afford. This is in contrast to city centers and close-in suburbs, which are often populated either by wealthier folks or people, who, for whatever reason, (too poor, or else young urban hipsters who haven’t started families yet) have no burning need (or ability) to be homeowners. In other words, exurbs are peopled by folks who very often are strapped for cash. Just the kind of people who got into an exotic mortgage a couple of years ago — and bought at the height of the market. There’s a heavy preponderance of residents with children, as well, and kids, as we all know, aren’t exactly cheap.

Anyway, it doesn’t surprise me that foreclosures are higher in the exurbs than either in more central location or in truly rural areas. The exurbs are where the American dream — in all its glorious excess — thrives in good times, and crashes and burns when the time comes to pay the piper.

Written by Jasper

November 8, 2007 at 11:08 pm

Dollar doldrums

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With respect to the falling dollar, one hears that it could get a lot worse very quickly, and there is dark talk of a sudden plunge, or speculation that “the Chinese might decide to dump US holdings.” What I want to know is, if, by “Chinese” one is referring to the government of China, exactly why would they Beijing want to take this course of action?

Wouldn’t dumping dollar assets just put yet more, enormous downward pressure on the greenback, thereby making Chinese exports more costly to American consumers? Last time I heard, they’ve got a lot of mouths to feed, and a very restive population; the last thing they need is massive layoffs. Here’s the point: the Chinese government is, um, a government. Why does a sovereign government care if its holdings of a particular financial asset are worth less? It has these things called “printing presses,” after all. And moreoever, the government of China is not saving up for a downpayment on a house, or trying to build a nest egg for retirement, or anticipating a costly wedding down the road. Governments don’t need to save, or build up portfolios, in the same manner as individuals.

I’m not saying people making such claims about the dumping of US bonds by the Chinese are wrong, mind you. I just don’t understand the logic, and I wonder if someone has an explanation.

Obviously private sector Chinese actors are dumping dollar-denominated assets just like other folks around the world, or else the dollar wouldn’t be dropping. I’m just wondering why they government in Beijing might want to do this. Seems to me a risky move for little (or no?) gain.

Written by Jasper

November 8, 2007 at 10:43 pm

School choice: like kryptonite to liberals

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Ezra criticizes supporters of school choice, citing the example of a voucher program in place in the D.C. school system:

Given that a lot of this conversation (about vouchers) has actually been about the DC public school system, this data is relatively important. Again, it doesn’t mean that experimentation couldn’t have positive impacts — say, under charter schools, where pubic accountability is retained — but this intense focus on vouchers stems from a commitment to economic orthodoxy, not because the programs have any proven results.

I frankly don’t get the reluctance of my fellow economic liberals to support injecting competition and choice into the K-12 model. I agree that libertarians have a lot of nutty ideas with respect to the role of government and the efficacy of markets (they underestimate the former and overestimate the latter). But it seems to me they’re basically correct about the desirability of funding students instead of funding schools.

Now, just to clarify, I’m not some kind of concern troll here. On this and other forums I’ve called for an additional $600 billion in federal safety net enhancements (that’s totally doable, by the way — we’d only be looking at an additional 4-5 points of GDP, which would still leave us way south of the EU average). And I want to see this type of government funded with a rather Nordic combination of progressive income taxes and consumption taxation. Give me Denmark in America, baby. There’s no question but that I’m an economic liberal of a rather robust sort.

But as long as government is willing to spend what it ought to be spending, it seems to me it shouldn’t be engaged in actually owning, managing and operating the facilities that provide services (such as schools) unless there’s no alternative, or unless there’s some utterly compelling reason it’s better to do it this way. You don’t have to be a loony libertarian to like the cool things given to us by free markets. I likes me some big robust safety nettage and very free (albeit prudently regulated) markets.

And any way, lots of government benefits are already portable: Medicare, Medicaid, Food Stamps and Social Security to name a few. I would imagine the quality of, say, grocery store services enjoyed by retirees or poor people genuinely would suffer if, instead of issuing Food Stamps and Social Security checks, we “assigned” the recipients of such programs particular stores where they were required to do their shopping (the only way out being the purchase of an expensive address in an pricey “shopping district” where they have fancier stores). Anyway, I suspect we are already getting some sort of reduction in the quality of public education because of a similar lack of competition in public K-12. I don’t think this is a liberal or conservative thing. I think it’s simple human nature. Unless the possibility of failure exists (ie., losing your customers to the competition) there’s simply no sufficiently powerful leverage to insure that schools — just like, say, software companies and hospitals and law firms and universities – are constantly striving to improve their “product.” The latter institutions are all capable of losing their customers. But K-12 public school mostly aren’t.

I rather have the notion that school choice is for American liberalism what, say, the politics of homosexuality is for American conservatives. Surely a lot of libertarian-minded American conservatives know in their heart of hearts that, in addition to being immoral, it’s simply nonsensical to base much of your platform on being nasty to gay people.

Similarly, most liberals these days are perfectly comfortable with free markets. We enjoy the better restaurants, fancy IPhones and improved coffee competition brings us. Indeed, we’re quick (and rightly so) to sic the Justice Department on would-be monopolists, because we know restraint of trade harms society.

So, why, when there are no reasons based on technical feasibility or efficaciousness to oppose a market approach to K-12, are we so stubborn? After all, such liberal societies as Sweden and The Netherlands have apparently enjoyed pretty good success with allowing taxpayer money to follow students to the schools of their choice. And indeed in America we ourselves have enjoyed world-leading success with the way we structure post secondary education– a sector characterized by competition, choice, and funding portability. A sector, in other words, that is structured a lot like a voucher program.

Written by Jasper

November 5, 2007 at 9:24 pm

A little Sunday Wal-Mart bashing

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Kevin Drum thinks Wal-Mart can do better by its employees:

Labor expenses only amount to about 10% of revenues for Wal-Mart. If you increased the pay of every single clerk, greeter, and stocker in the chain by two or three bucks an hour, it would only increase Wal-Mart’s prices by about 2%. Their prices would still be the lowest around because it’s not labor costs that account for most of their efficiency. It’s world class logistics, aggressive offshoring, enormous sales volumes, and ruthless bargaining with suppliers that account for most of it. If Wal-Mart had to offer low wages and lousy benefits just to stay in business, that would be one thing. But they don’t. We should expect them to do better.

Personally I think this is the wrong approach. Wal-Mart no doubt could afford to pay higher wages, but, like nearly all companies, they don’t pay more than they have to to attract and retain the workers they need. Pfizer or Goldman Sachs don’t pay the wages they do because they’re nice firms, they pay the wages they do because they have no choice: workers who possess such skills as analytical chemistry and currency arbitrage are more expensive than shelf stockers. And, although offering a “buck or two more” might not break the bank for Wal-Mart, offering significantly more robust benefits probably would have more of an adverse effect on their profits than Kevin’s glib assessment indicates. Health insurance is very costly in America. Unlike other, wiser nations, we rely on employers to act as purchasing agents for health benefits. It’s a stupid practice. Wal-Mart and McDonald’s shouldn’t be disparaged for a rational response to a policy that is not their fault.

I think Liberals waste a lot of energy engaging in corporation bashing. A company’s job is to make money. Not to provide for a just society. That’s government’s role. By all means spend more money on a stronger social safety net and universal healthcare, and raise taxes if you have to. But let companies get on with what they know how to do best: generate profits for their owners.

Written by Jasper

September 30, 2007 at 3:24 pm

Posted in Economics, Policy

Our long national nightmare is finally over

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Thank God. What a serious buzz killer this has been.

Written by Jasper

September 17, 2007 at 8:36 pm

Monday Putin blogging

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Ross Douthat ponders the legacy of Vladimir Putin:

I think there’s little question that Putin has been one of the most successful world leaders of the new century, and I’ve always had the impression that this success is related to his being smarter, in some meaningful way, than most of his rivals and partners on the world stage… It will be very interesting to watch what he does after 2008 – both how he continues to exercise power in Russia (as he assuredly will), and what his de facto political dominance will mean for the leaders who succeed him. He will only be fifty-six when his term ends – younger than any of the front-runners for the GOP nomination, it’s worth noting – which means that the Putin era, in one fashion or another, probably still has decades left to run.

I guess time will tell. I personally suspect there’s another shoe that may still drop, and it’s called “the price of oil.”

It’s hard to imagine Putin accomplishing 10% of what he’s accomplished in recent years without all those fat petrochecks. I don’t buy the hype about oil remaining dear ad infinitum. Oh sure, in the long run we’re no doubt running out of the stuff, and over the long term it will likely get more expensive. The short and medium terms, however, are a different story.

Price spikes in the past have prompted conservation efforts. They’re doing so again. When you follow this process with the inevitable recession (we still haven’t managed to repeal the business cycle, by the bye), the price of oil drops. Usually quite substantially. And so, too, will Russian economic prospects, and the received wisdom about how great a leader Vladimir Putin has been.

Written by Jasper

September 17, 2007 at 1:38 pm

Farm subsidies: even worse than you think

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Matt Zeitlin takes Robert Samuelson to task, not for his opposition to farm subsidies, but for his poor argument:

Robert Samuelson should be shooting a fish in the barrel, launching to a perennial column about the the evil of agricultural subsidies. Before I criticize Samuelson, let me make something clear, I support the total elimination of all agricultural subsidies, protections, tariffs, quotas and price supports. Not only do they distort the domestic market, but they also have a fair amount of culpability for hundreds of thousands of deaths and persistent poverty in the agricultural sector of the third world. Samuelson, seemingly afraid to argue that having a domestic supply of food isn’t all that important, tries to go the other way and ensure his readers that even without agricultural price supports and subsidies, there’d still be agriculture in the US…

I’m not going to re-quote the lengthly Samuelson excerpt Matt provides. I will key in on one conclusion he (Zeitlin) arrives at, however, that I believe is erroneous (even as I wholeheartedly agree with both Zeitlin and Samuelson about the evil of agricultural subsidies):

So if the US meat sector is doing well, it is largely because we subsidize it indirectly through keeping the price of corn low. This is, however, not an argument against getting rid of subsidies.

I’m extremely skeptical of Matt’s argument here, but it’s one I hear often. I think there’s a widespread belief out there that, although farm subsidies are a harmful policy as a whole, they at least keep food cheaper. I’m pretty sure this logic isn’t sound however, and here’s why.

In a nutshell, taxpayer money flowing to farmers tends to prop prop up inefficiency. Without subsidies, some acreage devoted to corn or soybeans or whatever would indeed be allowed to go fallow (or converted to golf courses, or whatever). But, to the extent that the domestic market (read meat producers and food processors) demanded it, any decrease in US agricultural output created by the ending of government subsidies would simply be met by higher efficiency farms. In other words, farmers in Iowa or Alberta or Brazil would meet the demand, and they’d do so on an economically efficient basis (otherwise they’d not be profitable). Over the long term this would almost certainly have the effect of lowering the price of agricultural commodities, and, by logical extension, meat and other foods.

By “enabling” inefficient producers to stay in business, or to control greater market share, or simply to produce less efficiently than they would need to in a subsidy-free environment, taxpayer supported subsidies mean that animal feed and other agricultural commodities are probably more expensive, and this must surely hurt the profits of meat producers. It also means we all get hit with higher prices at the dinner table.

Farm subsidies indeed create all kinds of economic distortions, and they absolutely hammer both taxpayers and developing world farmers. Thing is, though, they’re even worse than most people think.

Written by Jasper

September 17, 2007 at 9:19 am

Iraq policy: just how crazy?

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Matt Yglesias talks about possible motivations behind US policy in Iraq:

…while the absence of political reconciliation is probably Iraq‘s biggest problem, it’s not a particularly large problem for the American military presence. On the contrary, a unified Iraq — especially one swayed by Iraqi public opinion — might be very likely to give the US the boot. By contrast, in a divided and chaotic Iraq one can easily imagine the main players resenting the US presence but preferring it to anarchy. Indeed, Bush seems to have convinced both the Maliki government and the Anbar Salvation Front that they need American troops to protect them from each other. Meanwhile, the Kurds want us to defend them from the Turks, and the Turks want us to keep the Kurds in line and there’s really no sign of an end to the tensions and violence. From one point of view it looks like a quagmire, but from another point of view it’s more-or-less ideal.

It’s really really really hard for me to believe that even some of the certified crazy people running US foreign and defense policy these days think our current situation in Iraq is “more-or-less ideal.” Unless they’re a whole lot more fucking crazy than I thought.

First, the meat grinder that is Iraq without question is putting enormous stress on the US military, and is surely negatively impacting its effectiveness. How the hell would would the US be able to respond to an outbreak of trouble in, say, East Asia? How can that be “ideal”? Moreover, the Iraq debacle is costing the Treasury over ten billion a month, if you believe the wildly conservative, unrealistic estimates (which fail to properly account for things like medical costs for rehabbing vets, etc.). Even for a country as rich as the US, writing an eleven figure check every freaking month ain’t chicken feed. What’s so vital about Iraq’s geography that couldn’t be emulated a lot more cheaply by bases in Kuwait or the UAE?

I’m personally no longer able to perceive any rational basis whatsoever behind US policy in Iraq. It’s now all about George Bush’s worries with respect to the history books.

Written by Jasper

September 16, 2007 at 7:29 am