links for 2009-01-12

• New York Fed Meets to Weigh Its Next President - NYTimes.com
• Exogenous tax cuts and treatment interactions - Andrew Gelman
• Demolition as Stimulus - Calculated Risk
• Irrational Policy - knzn
• Rational Policy - knzn
• Outliers, Opportunity, and Luck - Lane Kenworthy
• Obama’s shot in the arm is too small - Clive Crook
• Our Capitalist Government - The American Prospect
• The New Deal Didn't Fail - NYTimes.com
• Bush Lead During Weakest Economy in Decades - washingtonpost.com
• Obama’s shot in the arm is too small - FT
• Confirmation bias and the Einstein myth - Information Processing
• Signs of a thaw - Econbrowser

Comments

[Beezer]

"In both these new roles, the government is less a regulator of the private economy than a knowing participant, a market actor providing both liquidity and incentives to make markets work for the common good. In both cases there are dangers. There's a thin line between being the patient investor and becoming the "last sucker" who will buy an asset after everyone else has figured out that it's worthless. And it's easy to foresee private insurers pushing sicker and older customers onto the public plan, making it more expensive and unwieldy." American Prospect link above.

The government should provide basic health care for all, including the sicker and older. As for those private insurance companies that will push to govt. these "worthless" assets, the remedy is to tax the crap out of them.

[anne]

By chance, I happened to be watching French television on the evening in August when Georgia began a merciless and needless bombardment of Ossetia, a bombardment of Russian peace-keepers and Russian and Ossetian civilians along the Russian border in preparing to invade Ossetia. I watched later, when Russia responded to the Georgian bombardment and invasion in a measured way in clear defense of Russians and Ossetians. To my surprise however even when it was clear Russia had to respond, America and Britain began to officially criticize Russia, not Georgia but Russia. The criticism of Russia by government and by Democrats and Republicans in Congress and be foreign policy analysts was as a chorus and continuous, completely oblivious to the Georgian invasion.

[anne]

Now, with Israel attacking Gaza day on day, with terrifying civilian casualties, with terrifying destruction to the structure of Gaza, simply watching and hoping for an American call for a ceasefire from government, from Congress, from Barack Obama and Joe Biden, who immediately supported Georgia and condemned Russia, from foreign policy analysts save a very, very few, there has been only support for more of the war on Gaza.

The absence of concern for peace, when war plays to our prejudices is simply frightening.

says...

CR..."Second, how about a tax credit for demolishing residential housing units?"

Sometimes I wonder if economics requires suspension of common sense. There are so many people in the bottom half who want affordable homes, and economics answer is to increase the price even further beyond their reach.

Task the unemployed to rehab the empty homes, and offer them for sale at $50k or so. Eliminate the property tax on them. The bottom half will then have an affordable place to live. Follow up by policing the neighborhoods effectively to eliminate violent/property crime. Enough with making the lives of the bottom half harder with constantly increasing prices. The bottom half can't afford current price levels, let alone higher levels.

[Bruce Wilder]

"The New Deal Didn't Fail" is just as effective in reinforcing the right-wing meme, hypnotically, as the Right-wing propaganda itself. The discussion is legitimated. The uncritical mind accepts that there must be something to this talk of New Deal failure.

It's sad really, that earnest liberals are forced to play this losing game -- and it is a losing game, all around. History, and experience are lost. All the good reasons for rejecting plutocratic domination are forgotten.

But, the forgetting of history, which is, ironically, such a critical element in conservative propaganda, has its comical side. Matthew Yglesias » Unleashing Chiang

[anne]

http://angryarab.blogspot.com/2009/01/lesson-of-day.html

January 11, 2009

Lesson of the day

"A million and a half Palestinians are learning the hard way that democracy isn't so good if you vote the wrong way. In 2006, they elected Hamas when the US and Israel wanted them to support the more-moderate Fatah. As a result, having long ago lost their homes and property, Gazans have endured three years of embargo, crippling shortages of food and basic necessities, and total economic collapse." *

* http://www.csmonitor.com/2009/0112/p09s01-coop.html

-- As'ad AbuKhalil

says...

"The government should provide basic health care for all..."

They do in all other advanced nations. Why should the US be the only nation that spends twice as much per capita, and still doesn't cover everybody. Task the unemployed to switch the nation over to an efficient national health care system so that the US can spend as much per capita as other advanced nations. That will give everyone basic health care at affordable prices, and go a long ways toward solving the predicted future Medicare cost crises.

says...

Econbrowser..."The primary change last week was a reduction in the Treasury's accounts with the Fed."

I guess that is all that they could sell on the world market. The crucial situation will arise when they run out of treasuries, and have to start selling private debt on the world market to stabilize the money supply. If there is still no market for currently illiquid private debt, Treasury will either have to borrow more to compensate (putting them on deposit at the Fed), or the dollar may spiral into free fall that prevents future overseas borrowing. The free fall/no more foreign credit scenario could be real trouble.

says...

Econbrowser..."More than half of that reduction came from a reduction in the volume of term auction credit outstanding."

Still, this is indeed a very encouraging first step.

[Beezer]

The Washington Post piece describing Bush's miserable record on growth and unemployment was interesting. But it made me wonder about how we've been defining growth.

For example, what's Obama's record going to look like with the same metrics being used? It could be horrible, even if he's successful in laying that "foundation" for the future.

A sustainable economy could be a relatively low growth one. It should have high levels of employment, and less income disparity, but that top line number may not move very much.

Rather than GDP, I think our nation's economic health should be measured on how many people are employed, and how many people are below the poverty line. If everyone's got a job, and no one's below the poverty line, then that economy is probably going to "feel" pretty good, irrespective of whether it's growing or not.

says...

Japan had low unemployment during their "lost decade". GDP growth was low, but this is only what one would expect with a rapidly aging population, and low immigration. GDP growth is a function of both productivity growth and population growth. The aging Japanese citizens at least had the blessing of very low inflation, so their standard of living could be maintained as they grew too old to work.

[im1dc]

I suppose the following can be viewed as the first bit of positive news in the USA economy:

Hallelujah: Stocks Finally Undervalued (Shiller)

Henry Blodget | Jan 12, 09

Yale professor Robert Shiller, whose 2000 book Irrational Exuberance called the stock market crash (and whose 2005 updated version called the housing crash) has updated his 140-year data series for the S&P 500.

The bottom line? Stocks have finally dropped below fair value...for the first time in 17 years.

As we've often noted, Shiller's valuation method--cyclically adjusted price-earnings (CAPE)--is one of only two long-term stock valuation measures that have meaningful predictive ability (the other is a measure of replacement value called "Tobin's Q"). CAPE averages 10 years of trailing earnings and thereby mutes the impact of the business cycle, which otherwise distorts price-earnings ratios.

For the past 17 years, according to Professor Shiller, stocks have remained persistently overvalued, sometimes violently so. In the past two months, however, they have finally fallen below their long-term average.

Specifically, the average cyclically-adjusted PE for the past 130 years has been 16X. At the end of December, the S&P 500 was trading at 15X.

So does that mean stocks are going to go straight up from here? Absolutely not. As the last 17 years have shown, the gravitational pull around fair value over the short-term is weak. After past market peaks of this magnitude, prices have usually spent decades below fair value, and we expect we'll likely see the same pattern here.

As the accompanying chart shows, however, over the long haul, the reversion around the mean is powerful. And it suggests that, over the next couple of decades, the S&P 500 will deliver an average long-term return (6%-7% real).

Chart at: http://clusterstock.alleyinsider.com/2009/1/hallelujah-stocks-finally-undervalued-shiller

[im1dc]

On the other hand nothing has changed Wall Street's too big to fail friends of Bush-Bernanke-Paulsen: (aka 'Why I Despair for my Country')

How Citi Can Make $10 Billion Out Of Thin Air

John Carney | Jan 12, 2009 2:43 PM

Throw your assets into a joint venture, take some cash from your partner and shazam! You've just erased three quarters of 2008 losses in one deal.

http://clusterstock.alleyinsider.com/2009/1/how-citi-can-make-10-billion-out-of-thin-air

[im1dc]

Are we having fun yet?

Citi Says Bank of America Faces $3 Billion Loss
John Carney | Jan 12, 09 4:32 PM

Can you imagine being a Citigroup banking sector analyst? Every time you speak about the doom of banks, do you think "I wonder how long I still be employed?"

Today Citi analyst Keith Horowitz wrote a note to clients doubling his fourth-quarter mark-to market loss estimate on Bank of America to $3 billion and said that the bank will need to raise more capital in two to five years. (It would need it earlier but TARP will hold off the need for private capital for a bit longer.

Part of the problem is that Bank of America has probably already written down 33% of the credit losses embedded on its balance sheet. The lads at FT Alphaville quote from the note:

With $55 bil of charges taken so far, we estimate Bank of America is 33% through the cycle. By looking at cumulative losses and comparing them to charges taken, we can estimate how far along we are into this cycle. Based on our estimates, BAC has $165 billion of embedded credit losses on its balance sheet, of which it has taken about 33% of the hit either through the loan loss provision or the purchase accounting marks related to CFC.

As FT Alphaville point out: Mr. Pot, meet Mr. Kettle.

http://clusterstock.alleyinsider.com/2009/1/citi-says-bank-of-america-faces-3-billion-loss

[Farrar]

Probably a good idea, but I doubt it will catch on.
Israel: Boycott, Divest, Sanction
By Naomi Klein - January 8th, 2009
"It's time. Long past time. The best strategy to end the increasingly bloody occupation is for Israel to become the target of the kind of global movement that put an end to apartheid in South Africa"
http://www.naomiklein.org/main

[Bruce Wilder]

It would be interesting to compile a list of industries, which have been, or can anticipate being, significantly transformed or downsized due to the internet and related technological developments:

1.) Travel agencies
2.) Music distribution
3.) Movie and television
4.) Bookstores
5.) Newspapers
6.) Photography
7.) Catalog sales
8.) Magazines
9.) Retail sales

This thought was prompted by driving past the Kodak Theatre in Hollywood (where the Oscars are awarded), and wondering how many young movie-fan tourists have any inkling of what an icon Kodak was.

There's a howling wind of deflationary creative destruction passing through the land. That's part of the present moment, just as much as the distant challenge of global warming. That's the context in which corporate business investment was low, even before the financial crisis developed in the wake of the housing bubble bursting.

I was just noticing how much retail space has been developed in the Hollywood area in the last decade -- some fairly big shopping malls were developed, where, basically, there was nothing much for a long time before. I imagine some of those shopping malls will change ownership now, but I wonder if many will actually fall into disuse or a different use.

[KThomas]

im1dc, good posts. Much of what I have assumed would result has a tendency of getting validated later, by you. Thank$.

[Patricia ShannonP]

Around here, there has been a lot of vacant shopping center space. Despite that, developers have continued to cut down woods and build more shopping centers and strip malls that remain mostly vacant. At least part of this is due to tax laws that allow useful tax writeoffs. Perverse results.

[im1dc]

Genuine enuflection to Barry Ritholtz:

Citi-Morg

That’s what you get when you merge Citigroup and Morgan Stanley...

By Barry Ritholtz - January 12th, 2009, 1:50PM

[im1dc]

Thank you KThomas, but I honestly wish the posts could be positive not shrilly negative.

[Patricia ShannonP]

http://www.ajc.com/opinion/content/shared-blogs/ajc/bookman/

Israeli Arab parties barred from election

By Jay Bookman | Monday, January 12, 2009, 02:33 PM

The Atlanta Journal-Constitution

This does not bode well for the future, in ways too numerous to quickly count:

from Haaretz:

“The Central Elections Committee on Monday banned Arab political parties from running in next month’s parliamentary elections, drawing accusations of racism by an Arab lawmaker who said he would challenge the decision in the country’s Supreme Court.

The ruling, made by the body that oversees the elections, reflected the heightened tensions between Israel’s Jewish majority and Arab minority caused by Israel’s offensive in the Gaza Strip. Israeli Arabs have held a series of demonstrations against the offensive.

Knesset spokesman Giora Pordes said the election committee voted overwhelmingly in favor of the motion, accusing the country’s Arab parties of incitement, supporting terrorist groups and refusing to recognize Israel’s right to exist. Arab lawmakers have traveled to countries listed among Israel’s staunchest enemies, including Lebanon and Syria.

The 37-member committee is composed of representatives from Israel’s major political parties. The measure was proposed by two ultranationalist parties but received widespread support…..Roughly one-fifth of Israel’s 7 million citizens are Arabs. Israeli Arabs enjoy full citizenship rights, but have suffered from discrimination and poverty for decades.

Arab lawmakers Ahmed Tibi and Jamal Zahalka, political rivals who head the two Arab blocs in the Knesset, joined together in condemning Monday’s decision.

“It was a political trial led by a group of Fascists and racists who are willing to see the Knesset without Arabs and want to see the country without Arabs,” said Tibi.

Together, the Arab lists hold seven of the 120 seats in the Knesset.”

[Patricia ShannonP]

People's emotions and attitudes are so easily manipulated by labels.

Two articles in the Sat., Jan. 10, 2009 AJC (Atlanta-Journal Constitution) really show this. They both begin on the first page of the Metro section.

One is on the state fining gas stations who "gouged" consumers during the gas shortages when hurricanes Gustav & Ike hit last Sept. Now, I don't have a problem with anti-gouging laws, but it is obvious that they are anti-capitalistic. We have been taught to worship "capitalism", or at least worship the word, in opposition to "socialism". One of the tenets of capitalism is that you are free, or even "should" charge as much as your customers will pay. Not allowing a business to do so obviously curtails their "freedom", another useful work for manipulating opinion. But most people fine with anti-gouging laws because it benefits them.

In contrast is an article on a Republican forum on the planned changes to trash pickup in my county of Gwinnett Georgia. The plan will enforce residential trash collection and promote recycling. The county had planned to make recyling mandatory. According to the articel, many audience referred to the mandatory recycling plan, suspended by court order, as "little more than 'trickle-down socialism'" because it mandated recycling. (The county is under state mandate to reduce its share of trash going to landfills.)

I've lived long enough to know that many or most of those who oppose mandatory recycling, will enthusiastically support anti-price-gouging laws. In other words, socialism is fine when it helps their pocketbook, but evil when it helps their community, state, country, and world. So I would say the correct label for them is "unpatriotic".