links for 2009-01-03

• Taleb vs Merton, Cont. - Felix Salmon
• The definitive account of the Fanniefredderung - The Curious Capitalist
• FDR and the New Deal: Did it prolong the Great Depression? (No...) - Salon
• What I really think about Finance - Robert Waldmann
• Tyler Cowen: Statist, anti-Rothbardian agent of the Kochtopus - Justin Fox
• Refuted economic doctrines #1: efficient markets hypothesis — Crooked Timber
• Efficient markets and terrorism futures - Andrew Gelman
• In Obama’s Team, 2 Camps on Climate - NYTimes.com
• Who Saw The Housing Bubble Coming? - Bruce Bartlett
• Ignoring the Oracles - Real Time Economics
• Rethinking urbanisation - voxeu.org
• Central banks and financial crises: Lessons from Latin America - voxeu.org
• For now, stick with the non-seasonal numbers - News N Economics
• What Led to the Financial Meltdown - NYTimes.com
• S&P Case-Shiller House Price Graphs for October - Calculated Risk
• Bowl Games Deliver Me Into the Hands of the Far Left - The Plank

Comments

[DZKeith]

Ìèð ñòàíîâèòñÿ âñ¸ webàíóòåå è webàíóòåå

[anne]

http://delong.typepad.com/sdj/2009/01/greg-sargent-takes-a-big-risk.html

January 2, 2009

Greg Sargent Takes a Big Risk...

He jumps from an organization with integrity and a reputation--Talking Points Memo--to one without--the Washington Post.

-- Brad DeLong

[The new criticism, or making a point of being impossibly stereotypical and demeaning.]

[anne]

http://www.nytimes.com/2008/12/30/opinion/l30mideast.html

As Bombs Strike the Mideast Yet Again

To the Editor:

"Israel Keeps Up Assault on Gaza; Arab Anger Rises":

I believe the Israeli airstrikes are clear violations of international humanitarian law. While the Palestinian rocket fire against civilian targets in Israel may be illegal, that does not give Israel the right to violate the Geneva Conventions. The airstrikes represent:

¶Collective punishment (the civilian population is being punished for actions of a few militants).

¶Unlawful attack on civilians in a protected population (the strikes are targeting civilian areas, Gaza being one of the most densely populated areas in the Middle East).

¶Disproportionate military action (Israel has destroyed the entire security infrastructure of 1.5 million people).

In addition, earlier Israeli actions, like the closing of Gaza's borders, have led to severe shortages of medicine and fuel, so ambulances can't respond to the injured, hospitals can't adequately receive or treat the wounded, and doctors are unable to provide sufficient medical care.

Israel is using F-16 fighter jets and weapons provided by the United States. We must stop military aid to Israel.

Phyllis Bennis
Washington, Dec. 29, 2008
The writer, a fellow at the Institute for Policy Studies, is the author of a book about understanding the Palestinian-Israeli conflict.

[Barkley Rosser]

I have my disagreements with Taleb, but on him versus Merton, I am more on his side. It has been my understanding that most traders moved some time ago beyond the simple B-S formula, which does indeed depend on worthless Gaussian distributions. Maybe this new defense by Merton's allies involves more sophisticated versions, I have not read it, but if it does not, they are in deep doo doo barking up a dead tree.

[anne]

Spending time in a television studio watching French news, was as revealing these last days as during the Georgian bombardment of an invasion of Ossetia in August. During August, it was immediately clear that Georgia had attacked Russian peace-keepers and Russian and Ossetian civilians along the Russian border and Russia responded in defense in a measured way. From America however, there was immediate and continual criticism of Russia that still echoes.

Currently from America however, there has been immediate and continual support for Israel from the beginning of the attacks on Gaza with suggestions let alone requests for a ceasefire muted. That there is terrifying harm and damage being done in Gaza seems irrelevant from America while from France there such portrayal.

says...

VOX..."When central bank money was intensively used, it constrained central banks’ ability to conduct an orderly monetary policy. As central bank claims on banks mounted, it became increasingly difficult for central banks to mop up liquidity and, hence, monetary aggregates exploded, leaving the economy without a nominal anchor to contain inflation."

Things are being done in the US that have never before been done. They have been done overseas, with bad results.

"Banking crises also inflicted lasting effects on monetary policy in a number of countries. In many cases, the recovery of assets pledged as collateral was significantly smaller than the value of the loans (plus interest) provided in the midst of the crises."

It is likely that monetary policy in the US will never quite be the same. There is the danger that trust will be lost. It can take a long time to restore trust, as US private sector borrowers are now finding out.

says...

Angry Bear..."There would be investors who save when young and dissave when old..."

Life cycle consumption smoothing of this sort has been systematically destroyed by constant inflation. Citizens no longer buy significant quantities of capital goods with their savings during their prime earning years.

[anne]

"Life cycle consumption smoothing of this sort has been systematically destroyed by constant inflation. Citizens no longer buy significant quantities of capital goods with their savings during their prime earning years."

Where is the evidence, since this seems to be bizarrely wrong? Show evidence, any evidence however bizarrely Austrian (the economics and not the people).

[anne]

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=842464

November, 2005

Has Financial Development Made the World Riskier?
By Raghuram G. Rajan

Abstract:

Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behavior makes more likely. As a result, under some conditions, economies may be more exposed to financial-sector-induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market-friendly policies that would reduce the incentive of intermediary managers to take excessive risk.

[anne]

http://krugman.blogs.nytimes.com/2009/01/03/economists-behaving-badly/

January 3, 2009

Economists Behaving Badly
By Paul Krugman

Ouch. The Wall Street Journal's Real Time Economics blog has a post * linking to Raguram Rajan's prophetic 2005 paper ** on the risks posed by securitization — basically, Rajan said that what did happen, could happen — and to the discussion at the Jackson Hole conference by Fed vice-chairman Kohn and others. *** The economics profession does not come off very well.

Two things are really striking here. First is the obsequiousness toward Alan Greenspan. To be fair, the 2005 Jackson Hole event was a sort of Greenspan celebration; still, it does come across as excessive — dangerously close to saying that if the Great Greenspan says something, it must be so. Second is the extreme condescension toward Rajan — a pretty serious guy — for having the temerity to suggest that maybe markets don't always work to our advantage. Larry Summers, I'm sorry to say, comes off particularly badly. Only my colleague Alan Blinder, defending Rajan "against the unremitting attack he is getting here for not being a sufficiently good Chicago economist", emerges with honor.

* http://blogs.wsj.com/economics/2009/01/01/ignoring-the-oracles/

** http://www.kc.frb.org/publicat/sympos/2005/PDF/Rajan2005.pdf

*** http://www.kc.frb.org/publicat/sympos/2005/PDF/Kohn2005.pdf

[anne]

Larry Summers also comes off particularly badly as Treasury Secretary in being unwilling to consider the purposeful California energy market distortion that was carefully pointed out by Frank Wolak and Paul Krugman, and allowing fierce damage to be done as Krugman with a voice through the New York Times was in particular criticized.

[anne]

What unremitting attack from the Chicago School folks, who were dominant for so long and who were always fierce, could mean, also reminds me of an attack on defense of the minimum wage that was so unremittingly fierce as to drive an economist to silence. (I wonder who the economist was?) When I read Milton Friedman, I was always startled at the studied fierceness coming from a figure supposedly so mild.

[anne]

http://www.juancole.com/2009/01/thousands-protest-israel-us-in-kabul.html

January 3, 2009

Thousands Protest Israel, US in Kabul

Thousands of Afghans rallied on Friday against the Israeli attack on Gaza. * Three thousand protesters in Kabul burned Ehud Olmert and George W. Bush in effigy, chanted death to Israel and death to infidels, and demanded that the 30,000 US troops in Afghanistan depart.

That is what the US really needed at this juncture, was to lose new propaganda points away to the Taliban.

* http://www.google.com/hostednews/afp/article/ALeqM5geAMqY-swsw4kBkaLf_U8RMsDO-Q

-- Juan Cole

[Bruce Wilder]

"Kochtopus"

!

[anne]

There was recently a complaint about immigrant labor and increasingly unemployment in Oregon, but a look to the data shows that seasonally adjusted unemployment in the state was as low as 5.4% in February and April, and 5.5% in June, before rising quickly and ominously to 8.1% in November 2008. Immigrant labor would seem to have nothing to do with the quick increase in unemployment after steadiness about 5.5% from January 2006 on.

says...

"Where is the evidence..."

Check out the median 401k balance, and the long term decline of the national savings rate. People cannot supplement their Social Security on current 401k balances. People with heavy lifting jobs cannot work until they are 65, let alone add more years.

[anne]

"People cannot supplement their Social Security [effectively] on current 401k balances."

Agreed; Jamie Galbraith mentioned the failure to gain sufficiently from private retirement accounts just in the last days and suggested an increase in Social Security benefits. This however has nothing to do with inflation being a disincentive to save-invest which is simply wrong. Inflation is an incentive to save-invest.

[John V]

Interesting article on Cowen.

If you read libertarian blogs like I do, you kind of know the truth in a lot that. Those truths are:

1. Cowen is a apparently a very bright guy and likable guy...something I see repeatedly stated by those who know him personally.

2. Cowen is somewhat convoluted in his views and stands somewhat apart from his colleagues at GMU and libertarian economist peers at other universities with some of views. He once admitted on his blog to being the moderate "centrist" libertarian among his department and circle.

3. Cowen does disagree with Austrian economics on many points...like ATOBC. Though he never follows up on responses from economists who disagree with him in the comments section.

4. There is indeed a rift between the Cato and Mises Institutes and yes..it's mainly because of Rothbard and his tone. the M.I. is more doctrinaire and friendly to Rothbard while the C.I. tries harder "to fit in" in a mainstream sense so as to have an influence on policy against establishment think tanks.

That said, I think the article tries to hard to infer some truisms that simply aren't there even though they do state one simple truth in Koch's agenda:

Rothbard with manners

Yes. Indeed.

However, Rockwell is right about Hayek:

His views on central baking and its supposed wisdom are not much more "DC friendly" than Rothbard's or Mises's. Hayek was simply more diplomatic and more appealing to larger audience.

That said, The Mises Institute is not exactly a transparent of purveyor of Hayek's views either.

Overall, I find the article's attempt to paint the Austrian School and/or Koch (at the same time)with a negative brush somewhat uncalled for and unfounded. Academia and DC economic wisdom has long been dominated by a self-perpetuating Keynesian and Keynesian-esque mindset. Attempts to infuse a different POV should not be seen as sinister.

BTW, if the author of the article was looking for critical responses to Cowen's views on Austrian tenets, he didn't look very hard.

I'm not saying Cowen is right or the other are right. I'm not qualified to do so. However, what little have read on some matters leaves me somewhat puzzled with a lot of Cowen has to say on it on his blog. Then when Austrians with PhD's in Econ come and raise very basic objections to what Cowen says (with no response from Cowen), my puzzlement seems somewhat justified.

Overall, I like Cowen. He's different. He's fun to read. And I like reading his disagreements with other libertarian economists. However, I wouldn't call him statist in the same sense as it is used in for other economists.

says...

"Inflation is an incentive to save-invest."

Inflation is only an incentive to buy inflation hedges. People are told repeatedly not to put debt instruments in their 401k plans, lest they be inflated away. Check out the guide books that companies give to their employees. They almost all advise staying away from debt. 401k fled to stocks as an inflation hedge, but stocks could not support everyone. The dividend yield went down to 1% in Y2K, and stocks have lost ground to inflation since then.

Bank savings accounts generally have negative real interest rates, so people buy homes instead of saving in the bank. The recent bubble showed the problem with that.

[anne]

"Inflation is only an incentive to buy inflation hedges."

The problem with Austrians (the economists not people of the country) is how utterly boring they are. Buying inflation hedges amount to saving or investing, but who cares what clam-minded Austrians do with money anyway?

[anne]

The Vanguard long-term investment grade bond fund has returned 8.50% yearly since July 1973, but Austrians (economists not the people of the country) evidently are incapable of understanding what that means. Happily, I understand along with others. Nice return for the last 35 years. Duh.

[anne]

The Vanguard S&P index has returned 10.03% yearly since September 1978. (Remember, Austrians, must not save or invest, never ever.)

[Bruce Wilder]

From Atrios:
Economists Behaving BadlyIt is a puzzling thing about my former profession that after spending many years in graduate school and beyond, economists are happy to let the public face of the profession be the first 50 pages of an Econ 101 textbook. It isn't some crazy area of the profession where various forms of market failure are discussed. You can even get it in the 2nd 50 pages of a typical Econ 101 textbook!

Heckuva job!

“Most academics are really reluctant to take part in the public dialog, because the public dialog requires you to have an opinion about things you can’t really be sure about,” says Mr. Rajan. “They fear talking about things where everything is not neatly nailed in a model. They stay away and let the charlatans occupy the high ground.”

I think this is too nice. Economists do offer opinions about things you can't really be sure about, they just don't usually offer ones which deviate from an Econ 101 framework. Those things aren't "known," they're just easy.

To most people, academic economics is indistinguishable from Larry Kudlow.

I don't know that economists, speaking in the public sphere, don't go to the second 50 pages. But, many do tend to go to the simplest, easiest formulations, even when they know those simple formulations to be wrong or misleading.

Rajan is wrong to imply that it is timidity or an excessive desire for certainty, because these simple, easy verities are not certain -- frequently, they are not even right.

anne mentions the Chicago school's fierceness -- and there is a lot of bullying, within academia, especially in defense, frankly, of bad arguments -- the minimum wage issue is just one example; I have scars from disputes over resale price maintenance. But, outside, in the public, political discourse, the really remarkable thing about people like Friedman, Mankiw or Tyler Cowen is the willingness -- indeed the eagerness -- to cooperate with stupidity by silence, or by adopting a simple argument known to be wrong, or just by an artless combination of confused, confusing and obtuse.

How did Friedman migrate from his scholarly critique of Fed policy, 1928-32, to giving wink and nod support to those, who would abolish the Central Bank, who advocate the gold standard?

Is it just bad judgment? Is it a poor choice of worldview reasserting itself, when switching from a narrow, technical focus of mind, to the broad brushstrokes frequently required in public policy?

[anne]

So that we understand that bond returns from a fairly constant duration bond fund cannot be inflated away, remember that as the price of a portfolio declines the interest rate increases so that over the duration period the additional interest earned will make up for any share price loss. The Vanguard intermediate-term investment grade bond fund has a yield that is 6.77% currently and a duration of 5.1 years. An investor should understand that a return of about 6.77% a year can be expected over the coming 5 years, and if that seems reasonable buy the fund.

Bond portfolios over time do protect against inflation, though there are various protections of various relative attraction. Recently Warren Buffett wrote of personally buying stock as the most attractive hedge against inflation.

[anne]

"I have scars from disputes over resale price maintenance."

Much ignored, by the way, is the Supreme Court decision, setting aside a law from the time of Teddy Roosevelt, allowing retain price fixing by producers. So, Apple is allowing Wal-Mart to sell the iPhone 3G, but the phone will be priced by Wal-Mart literally within 1 or 2 dollars of the price charged by any other seller.

[anne]

Correcting, so the comment really makes sense:

Much ignored, by the way, is the Supreme Court decision, setting aside a law dating from the time of Teddy Roosevelt, that had prohibited retail price fixing by producers. So, Apple is allowing Wal-Mart to sell the iPhone 3G, but the phone will be priced by Wal-Mart literally within 1 or 2 dollars of the price charged by any other seller.

This by a conservative Supreme Court majority.

[anne]

The last 10 years have seen what is surely the greatest gain of bonds over stocks in any such period since the Depression. So where the Vanguard S&P stock index return was -1.46% yearly, the Vanguard long-term investment grade bond index return was 6.65% while the Treasury portfolio returned 7.83% showing the astonishing premium placed on safety.

The 10 year inflation rate was 2.59%

[anne]

http://www.nytimes.com/2009/01/04/world/middleeast/04mideast.html

January 4, 2008

Israeli Ground Forces Push Into Gaza
Escalation of 8-Day Assault on Hamas
By ISABEL KERSHNER and LIZ ROBBINS

Israeli troops backed by tanks and helicopters advanced into Gaza on Saturday in the first ground action of an offensive against Hamas.

[Why are we not demanding a ceasefire as we immediately demanded not when Ossetia was attacked by Georgia but when Russia responded to the attack against Russians and Ossetians along the Russian border?]

[anne]

http://www.nytimes.com/2009/01/04/world/middleeast/04mideast.html

January 4, 2009

Israel Shells Gaza and Drops Leaflets, Seemingly to Prepare for a Ground Offensive
By TAGHREED EL-KHODARY and ISABEL KERSHNER

GAZA — Israeli artillery started shelling open areas in the northern Gaza Strip on Saturday afternoon, witnesses and Israel news media reported, in what was seen as a possible precursor to a ground attack.

A mosque in northern Gaza was hit on Saturday during evening prayer time. At least 11 worshipers were killed and about 30 wounded, according to Palestinian hospital officials. The Israeli military had no immediate comment....

[anne]

That there are no Republican or Democratic demands for peace in Gaza, for immediate peace, is beyond shameful. We are a people for whom war will always suffice, when we have demonized another people sufficiently and we have demonized the Gazans.

[anne]

Remember how quickly Barack Obama supported Georgia, how quickly Joe Biden traveled to Georgia in support of Georgian war making after Russia began to put an end to the Georgian war making. We will hear nothing of peace from either now, the question being choosing sides and not choosing peace.

[anne]

Obama speaks of 1 President at a time, but Obama was willing to condemn Russia (however falsely) even before being elected President. There was 1 President then.

[gordon]

I want to thank Anne for leading us away from sterile discussions about the charming personalities of well-known economists towards a discussion of the real issues of the day.

[Barkley Rosser]

anne,

I, like most of the US-based professional economists who follow this blog, am in San Francisco at the annual meetings where personally I am tied up all day long with professional matters. I know that this is a pointlessly provocative question, but, while I do not like at all what they are doing, what should the Israelis have done about the constant firing of rockets into their territory from Gaza? Retreat and drown in the Med, which is the official and unequivocal demand of Hamas?

[hapa]

once they committed to barricading gaza, they were committed to invasion. "choices" were made a while ago but all the PR training you need now is proper pronunciation of "hoocoodanode."

[anne]

"I know that this is a pointlessly provocative question...."

No, only more pointless war-mongering rottenness. Now to Somalia, now to Afghanistan, now to....

[anne]

"I know that this is a pointlessly provocative question...."

Iraq? There was really pointless provocation.

says...

"Recently Warren Buffet wrote of personally buying stock as the most attractive hedge against inflation."

Warren B was out of stocks in his personal portfolio from about Y2K until this last fall. The average citizen has no idea how to market time like this. I do agree that it is possible for those who are adept at investing to beat inflation, but the average person does not have this ability. Unless there is a safe FDIC insured type of savings account with a guaranteed positive after tax, after inflation return, the average citizen will just stay away.

Thus we have a few investment savvy individuals with plenty for their retirement, and the great majority with very little.

[gordon]

I can't do better than note with approval the views on Palestine put forward in this post at Angry Bear.

[The Baron]

Vanguard 500 Index Fund
Returns before taxes
1 Yr: –37.02%
3 Yr: –8.44%
5 Yr: –2.29%
10 Yr: –1.46%
Since Inception: 10.03%

While yes, the Vanguard since inception, along with ANY OTHER stock investment shows gains over 30 years (the 80's and 90's were remarkable), over even ten years it is a loss, and that isn't even including inflation in the last 10 years.

[anne]

The Vanguard long-term investment grade bond fund has returned 5.62% a year over the last decade, while the long term Treasury fund has returned 7.83%. The difference in returned between stocks and bond for the decade has been easily the greatest I have record of since the Depression. Inflation averaged about 2.59% a year.

[calmo]

I want to thank gordo for puttin a small earthquake under my chairI want to thank Anne for leading us away from sterile discussions about the charming personalities of well-known economists towards a discussion of the real issues of the day.leading me away from the damn monitor and it's charming personalities to the real issues...on the floor: dirty socks AND dishes including one fryin pan sorrily missed this morning as I had to change course on the scrambled eggs for want of an implement. The breakfast recession is soon to be ova. You know it.

[gordon]

I didn't think it was possible to get dirty socks and dishes into a single confusion. Impressive.