The ritual extolling of markets and denigration of government make no sense at a moment when a conservative Republican administration is rushing to save the markets through governmental intervention.Via Harold Meyerson of The Washington Post. (Hat tip to Mark Thoma.)
Because of Fannie Mae and Freddie Mac's sizes (together they own or guarantee somewhere around $12 trillion worth of mortgages or mortgage-based assets), these government-sponsored enterprises are widely considered "too big to fail" - meaning that government would probably bail out these two out if they ever are in dire straits.
The value of Fannie and Freddie's assets have been plummeting along with housing prices to the point where they may need a bailout in the near future. These problems have spurred a debate over the role that Fannie and Freddie played in the broader mortgage crisis, with some claiming that they deserve a substantial amount of blame while others assert that Fannie and Freddie's troubles are symptomatic of the crisis, rather than causal.
Reasons to think that Fannie and Freddie are to blame:
Tyler Cowen posed the following questions:
Won't the Russians benefit greatly from a warming world, both because they are a bit cold and because they will access a warmer Arctic? Would the UN Security Council approve climate engineering? Probably not. If the United States did it on its own, could that be perceived as an act of war? If geo-engineering is cheap (which is part of its very promise), and unilateral action is accpetable, don't other countries also get to take their shot at influencing the environment and moving us toward an optimal climate? What does the resulting equilibrium look like? Who moves last? How would we feel if someone changed the U.S. climate to make many parts of the country colder?Professor Cowen admits that his concerns about geo-engineering are mainly political. But what about the environment? If there were ever a policy for which we should worry about unintended consequences it would be that of purposely changing the Earth's climate. Earth has already suffered from historically high rates of desertification, which have coincided with increasing human influence on the atmosphere and rising temperatures in recent years. These changes result in species loss, monocultures, and increased fire dangers. A casual look at what is going on in our world illustrates how much we are affecting it and how clueless we are about the full consequences of our actions.*
More to whine about:
Economy Will Stay Sluggish, Bernanke Tells Congress
G.M. Suspends Dividends and Plans More Layoffs
Confidence Ebbs for Bank Sector and Stocks Fall
It's not all bad news. At least, the price of oil is down, and stocks rebounded.
An op-ed by Nicholas D. Kristof in today's New York Times highlights the efforts of Greg Mortenson, who has been building schools in Pakistan and Afghanistan. These schools give people opportunities to make a better lives for themselves rather than resorting to extreme fundamentalism. Mr. Mortenson...
notes that the Taliban recruits the poor and illiterate, and he also argues that when women are educated they are more likely to restrain their sons. Five of his teachers are former Taliban, and he says it was their mothers who persuaded them to leave the Taliban; that is one reason he is passionate about educating girls.Mr. Mortenson has some fans in our government:
The Pentagon, which has a much better appreciation for the limits of military power than the Bush administration as a whole, placed large orders for [Mortenson's book] “Three Cups of Tea” and invited Mr. Mortenson to speak.
“I am convinced that the long-term solution to terrorism in general, and Afghanistan specifically, is education,” Lt. Col. Christopher Kolenda, who works on the Afghan front lines, said in an e-mail in which he raved about Mr. Mortenson’s work. “The conflict here will not be won with bombs but with books. ... The thirst for education here is palpable.”
These comments illustrate how terrorism is not a result of religion or some kind of "hatred for democracy," as President Bush thinks, but of economic circumstance.* Kudos to Greg Robinson for giving people the opportunity to get out of a life devoid of opportunity, out of a life that could lead to terrorism.
*: The film Paradise Now is a story of an economically frustrated Palestinian youth who contemplates committing a terrorist act in Israel. Highly recommended.
A straw man, courtesy of the Free Exchange blog over at The Economist:*
There seems to be a temptation lately to label anyone who even dares mention supply-side economics, without immediately deeming it the silliest idea born to a napkin, an economic heretic. That's unfortunate. True, with the exception of very high marginal tax rates, a tax cut will generally not pay for itself. But there exists ample empirical evidence that cutting income taxes does increase growth. Thus, the long-run impact of a permanent tax cut is still up for debate. The effect of lower-income tax rates on labour supply is mixed. But it does seem, at the very least, lower tax rates decrease the amount of tax evasion. Writing off supply-side economics as a blatant fallacy is as much of a 1990s relic as wearing a goatee.The argument is a straw man, for it takes anybody who doubts the effectiveness of making the tax cuts enacted earlier this decade permanent to also believe that tax cuts can never benefit an economy, which is ridiculous - no rational thinker would ever make such a claim.
Happy World Population Day!
It really is a shame that so many families worldwide do not have access to resources necessary to successfully plan their families. Some facts:In 1968, world leaders proclaimed that individuals have a basic human right to determine freely and responsibly the number and timing of their children. Forty years later, modern contraception remains out of reach for hundreds of millions of women, men and young people.
This year’s World Population Day reaffirms the right of people to plan their families. It encourages activities, events and information that will help make this right real – especially for those who often have the hardest time getting the information and services they need to plan their families, such as marginalized populations and young people.
When people can plan their families, they can plan their lives. They can plan to beat poverty. They can plan on healthier mothers and children. They can plan to gain equality for women. Plan to support World Population Day this year!
There is a major schism in the discussion of racism: commentators do not agree on the definition of the word. Mainstream definitions of "racism" (i.e. those in dictionaries, for example) categorize certain actions and beliefs as racist regardless of who perpetrates the actions or beliefs against whom. Other definitions (like this one) assert that racism is a combination of race-based prejudice and institutional power. These definitions utilize the fact that white people have the most institutional power to focus the definition of "racism" on whites, so that only they can be racist and only people of color can be victims of racism (for example). Some of these definitions go as far as to define white people as racists.
Orthodox definitions of "racism" are often viewed as part of the very power structure that the race-based definitions claim is a necessary component of a racist system of white privilege and colored oppression. Many of those who subscribe to the race-based definitions of "racism" see the orthodox definitions as a ploy by white people to highlight the negative racial sentiments held by minorities and thereby deflect attention away from the system that provides whites with privilege. Please understand I have no interest in supporting any racist system - my purpose is to facilitate discussion, learn, move towards a consensus on the definition of "racism," and (of course) eliminate racism.
Also, please know that I abhor bias and I understand that by growing up as a white person, with all of the privilege and opportunities that that has afforded me, my perspective on race issues is substantially different than the perspective I would have if I were a person of any other race. Even though it is impossible to know whether I am successful in doing so, I am at all times striving to not let any of my characteristics or experiences affect my thoughts on this or any issue. That said, I submit that I am concerned about the set of definitions that focus on whites. Specifically for this post, I am concerned about whether defining "racism" along racial lines is practical for our fight against racism. (I will presently withhold my thoughts regarding the validity of the premises behind these definitions.)
By focusing racism on whites, these definitions turn attention toward the system that has done, and continues to do, the most harm along racial lines in the United States. Even though slavery has been eliminated, voting and civil rights extended, and the separate-but-equal doctrine nominally vanquished, the system of white privilege and colored oppression continues to adversely impact millions of lives, so it is conceivable that focusing racism on white people and the system that gives them so much privilege is optimal for minimizing racism (at least in the U.S. and other places where whites dominate).
However, I am skeptical about whether these definitions contribute to the goal of eliminating racism because the concerns I have could outweigh the fact that the race-based definitions of "racism" focus on the most destructive system of racial prejudice and discrimination in the U.S.
My biggest concern is that by limiting racism only to the thoughts and actions of whites, these definitions lessen the perceived wrongness of these actions when they are perpetrated by people of color. If this is the case, then we might expect that the level of these thoughts and actions among colored people is higher with these definitions around than without. Since inter-racial strife seems to be a system exhibiting positive feedback (i.e. strife between two racial groups tends to fuel even more strife between them), one might conclude that even if these definitions have only a small effect on interracial relations at first, this effect will grow in time. If we want to eliminate racially-charged thoughts and behaviors should we not categorize them consistently, without regard to who exhibited them?
Another concern is that these definitions that focus racism on whites may actually lead to higher levels of white racism. Consider the fact that the word "racism" itself is inherently race-neutral; there is nothing within "racism" that identifies it with any specific race (unlike terms such as "white-power," "white privilege," or "brown-pride"). Many whites feel that they should be treated exactly as everybody else is treated with respect to this inherently race-neutral term. For these whites, the fact that many people of color refuse to allow "racism" to be defined without regard to race could fuel even more negative sentiment between these whites and people of color because whites don't want to be discriminated against any more than anybody else. Moreover, defining whites as racist probably exacerbates negative sentiments and/or lowers goodwill of whites towards people of color. Potential allies for the cause of minimizing racism could turn their backs on the cause as a result of being prejudged by such definitions - imagine, for example, the frustration of a white person who consciously strives not to discriminate or prejudge being branded as a racist along with neo-Nazis and KKK members.
In closing, I would like to remind you that a purpose of this post is to facilitate discussion - respectful comments are welcome, particularly if you disagree with this post.
President Bush on the recent "election" of Robert Mugabe in Zimbabwe:
"You know I care deeply about the people of Zimbabwe. I’m extremely disappointed in the elections, which I labeled a sham-election."
Starbucks has announced that it will close 600 of its more than 6000 stores and lay off 12,000 employees.
Is this retrenchment a result of overaggressive store-opening on Starbucks's part or is it being force by consumers tightening their belts when it comes to discretionary purchases? It's probably a little bit of both. Saturating the market to the point where there are multiple Starbucks's on many blocks surely led to lower profts per store. And I would imagine that with gas and food taking up increasing shares of peoples' budgets, they might be looking to for cheap substitutes for things like Starbucks coffee. I wonder if more people are brewing coffee at home these days.
The other day Senator McCain proposed a $300 million dollars as prize from the federal government for anybody who can develop a better battery for electric cars and plug-in hybrids.
Many economists seem to think that this really is not such a good idea, that the proposed prize is just another case of a politician pandering ideas that might sound good but actually are not (such as the gas tax holiday). The basis behind the thoughts of many of those who think it's a bad idea can be summed up by a quote from this:
"...if someone were to invent a better one they'd already be poised to make a huge amount of money through its commercialization. Offering prizes for innovation isn't always a terrible idea — for pharmaceuticals with a limited market of potential users it can make sense due to the huge costs associated with developing and testing a new drug. But everyone in the developed world needs better energy storage technology, and they need it right now. And while it's important to make sure your new batteries are safe and robust (e.g. they don't explode too much), that's still much easier and cheaper to do than it is to conduct a set of double-blind human trials. So sweetening the pot is unnecessary. Anyone who has a good idea about how to build a better battery is already working on the problem."
"Current vehicle-battery developers all recognize that reducing battery cost is instrumental in the adoption of hybrid-electric and plug-in hybrid vehicles" that recharge from the power grid, says Yet-Ming Chiang, founder of A123 Systems, a Watertown, MA, company that develops advanced lithium-ion batteries and is working with several carmakers on plug-in hybrids. "Offering this prize is a great way to focus attention on the problem and get the dialogue going on how we will solve it. I would love to compete for this prize, and the wheels are turning in my mind."
Economists are debating whether or not speculators are driving up the price of oil. (Mark Thoma offers a good summary of some of the debate as does this New York Times article.)
I agree with those who think that speculators are not significantly affecting oil prices, because for speculators to affect current prices they need to withhold oil from the market and I doubt that this is happening. Would you withhold oil from the market when 1.) the price of oil is historically high, 2.) Saudi Arabia is planning to increase supply, and 3.) China is cutting back on its subsidies for oil consumers? I certainly would not.
Furthermore, if one plausibly assumes that speculators are risk averse and want to get the most out of the oil they are supposedly hording, the futures price of oil must be significantly higher than the spot price, and this isn't happening (as Paul Krugman points out).
If this thinking is correct, then politicians are mistaken when they point their fingers at speculators as the cause of high priced oil. Instead, they should focus on boosting the buying power of the dollar, which is weak primarily because our country (both citizens and government) is highly indebted to foreigners.
I am becoming more and more aware of bias in economics - in both casual and scholarly discourse.
Consider, the following quote:
"I think that people have a legitimate concern about researchers who are essentially conducting advocacy work. I try to stay away from advocacy of any kind, but that doesn't prevent people from being suspicious that I have an agenda of some kind.
"I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole."
This was from David Card, a respected labor economist from UC Berkeley, in an interview (hat tip to Kathy G.) mentioning a study he did with results suggesting that a minimum wage increase in New Jersey in the early 1990's did not cause greater unemployment.
The concern regarding "advocacy work" is probably warranted because one can often predict the results of a study of a contested issue just knowing the subject and author of the study. But, that idea that some work in economics may be biased does not mean that all of it is; it only means that we must be vigilant.
If economics is to progress, we need to transcend our biases and be open to results that challenge our world-veiw. If one suspects that some result is driven by advocacy work, one should scrutinize the methods and/or data that lead to that result rather than simply dismiss the result and the scholar who obtained it. Anybody who dismisses a result merely because it does not fit into some paradigm does not deserve to be called an economist, for they are hindering scholarship and are the real "traitors to the cause of economics as a whole."
Add gaping holes in levees along the Mississippi River to the list of infrastructure failures (like the bridge collapse in Minneapolis and the levee failures in New Orleans after Hurricane Katrina) suffered in the U.S. over the past few years.
Don't you think it's time we invested in renovating our infrastructure?
Ross Perot is back! (Hat tip: Greg Mankiw)
He is concerned about the economy and he wants to do something about it.
He is rolling out the charts again, this time on a website. The charts look fantastic and the best part about them, in my opinion, is that registered users can comment on them - it's great that Mr. Perot is facilitating discussion on economic/fiscal topics.
A sample chart:
The Joint Economic Committee of Congress will hold a hearing on drug policy.
The JEC's media advisory:
Washington D.C. – U.S. Senator Jim Webb (D-VA) will convene a hearing of the Joint Economic Committee (JEC) to examine the economic consequences of the United States’ drug policy. The hearing entitled, “Illegal Drugs: Economic Impact, Societal Costs, Policy Responses” will be held Thursday, June 19 at 10am in Room 106 of the Dirksen Senate Office Building. The panel will discuss the illegal drug economy in the United States, assess the costs of U.S. policy responses to combating drug use, and address the need for policy reforms. Last year, Senator Webb and the JEC examined the economic implications of the steep increase in the U.S. prison population.
Internet service providers are considering charging their users by how much bandwidth they utilize. I didn't realize it until reading about these possible schemes in the New York Times, but bandwidth under current ISP pricing schemes is essentially a commons. Hence, it is possible that bandwidth is subject to the tragedy of the commons, wherein those who utilize common property overuse that property to the point where it is over-exploited and/or under-provided. If this is true, then charging costumers by bandwidth utilization would lead to the provisions of more bandwidth in the future.
Such a change in pricing schemes will impact many online media providers, such as YouTube, whose services utilize a large amount of bandwidth. These companies are understandably upset about the possibility of by-the-byte pricing.
Regardless, the ISPs own the bandwidth, so it is their right to price it however they want. But, that doesn't mean that some Coasian bargaining won't occur - perhaps media companies will pay ISPs to not change pricing schemes. I wouldn't rule out the possibility of media companies buying out ISPs as a result of this either.
I have encountered a few people on the web, bloggers and their commenters, who place a lot of blame on those who borrowed loans that they later could not afford. Do we really want to blame these people for the mortgage mess? What would blaming them accomplish?
The mortgage market failed largely because of information asymmetries, as lenders took advantage of the complicated nature of mortgages and sub-prime borrowers' lack of experience to give them loans laden with hidden fees and interest rates that were higher than their risk often warranted (see the previous post in this series for more details). The borrowers of these loans deserve no more blame than anybody else who falls victim to asymmetrical information in a market.
It seems pretty safe to say that Ron Paul has replaced Senator McCain as the "maverick" of conservative politics. Mr. Paul stood alone on many issues (most notably our foreign policy and whether the 9/11 terror attacks were blowback for U.S. neo-colonialism) in the debates for the republican nomination. Ron Paul is passionate about the problems he sees this country and his party are facing and he is not letting the fact that Senator McCain has all but wrapped up the Republican nomination stop him from trying to remedy these problems. He seems to be giving up his campaign, but he is focusing his energy on a new project: The Campaign for Liberty.
The campaign has a website where one can join and donate to the movement. There is also a mission statement:
"The mission of the Campaign for Liberty is to promote and defend the great American principles of individual liberty, constitutional government, sound money, free markets, and a noninterventionist foreign policy, by means of educational and political activity."
The strategy of the mission is also listed on the website:
The Campaign for Liberty will carry out its mission through the following activities:
The Joint Economic Committee of Congress has issued a fact sheet summarizing a recent study by the Energy Information Administration on the possibilities of drilling in Arctic National Wildlife Refuge. The study was commissioned by Senator Ted Stevens (R) of Alaska.
The abstract of the fact sheet:
"The recent run-up in the price of crude oil has prompted new calls for the Federal government to increase its petroleum production by allowing exploration and drilling in the Arctic National Wildlife Refuge (ANWR) along the northern coast of Alaska. While there is a strong incentive to provide much needed relief to American families who are currently struggling with high gasoline prices, analysis of ANWR’s projected contribution to crude oil markets suggests that relief will be neither substantial nor timely in its effect. Based on Energy Information Administration (EIA) projections of the effect of ANWR on crude oil prices, we estimate that opening up ANWR will reduce gasoline prices by just one cent, starting in 2018."
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