Wednesday, December 21, 2011

Saying goodbye to my landlord's husband

The passing of Vaclav Havel silences an important voice for truth and morality in public life. The writing of Timothy Garton Ash, who watched the historic events of 1989 first hand with Havel, says it far more eloquently than I could ever hope to scribble:

Havel was a defining figure of late 20th-century Europe. He was not just a dissident; he was the epitome of the dissident, as we came to understand that novel term. He was not just the leader of a velvet revolution; he was the leader of the original velvet revolution, the one that gave us a label applied to many other non-violent mass protests since 1989.
Havel was one of many. The women and men who brought about the great peaceful change that swept across Europe and pushed aside the corrosive effects of communist dictatorship. Havel's genius was in defining for us what that era meant, or rather what living in that era cost those that needed to trade their humanity to avoid persecution. They lived the lie. This is how he described it in Living in Truth...

not on soldiers of its own, but on the soldiers of the enemy as it were—that is to say, on everyone who is living within the lie and who may be struck at any moment (in theory, at least) by the force of truth.
But in perpetuating the lie, we make the persecution real in society as a whole. A generation before Orwell saw and warned of the same thing. John Jay writes about his in his reflection on Havel in the FT.

The central figure of his famous dissident essay, The Power of the Powerless, was a greengrocer with a placard in his window saying: “Workers of the World Unite!” Havel asked an apparently simple question: what is the purpose of this display?

We might console ourselves that this sloganising is characteristic of their totalitarian societies, not our liberal democracies. But are we sure? Are corporate mission statements, or motivational displays in offices and factories, really spontaneous demonstrations of sincerely felt sentiments? Or do people say these things or hang them on the walls with the same indifferent resignation as the greengrocer? Is there much distinction between official exhortations to drive well, recycle conscientiously and to celebrate diversity, and official exhortations to redouble efforts to build a workers’ paradise? Would a visitor from Mars find it easy to distinguish commercial advertisements from political slogans? Is the capitalist assertion that the client always comes first more honest, or more informative, than the socialist proclamation of the unity of the workers of the world?

We face this issue constantly in American public life. When is a lie not a lie? Does it matter if the offense is related to health care for seniors? Or does it have to be a major issue like "voter fraud"? Havel would contend that you do not let the small issues become big ones. I have confidence that he would scoff at the contention of Politifact that you can call something Medicare and have it be that based on the title. War then becomes peace, if you declare it so.

We can't let the reminders of the moral force of truth elude us because those who tried to promote truth are gone. Truth is not an easy pursuit. Even Havel missed it sometimes, joining others supporting the Bush Administration's reckless adventure in Iraq. He forgot that Central Europe has been a tool of the great powers. The lens of those who recruit you into war isn't concern for your people or truth, but rather there own policy and political ambitions.

The Czech's experienced this in the 20th Century. First it was the waning days of the Hapsburg domination. Then self-determination for a period (sort of, did Masaryk push too much into CZ?). Then the Nazis came and split the country into parts. The Soviets came and put it back but at a great expense forty years of persecution and stagnation.  Finally 1989, preceded by the heady days of 1968. Is it too much to hope that they have the peace and cooperation dreamed of for all of Europe? Yet, with the leadership of Merkel and Sarkozy and the indifference of Cameron; the European project is threatened in a way that will cause the smaller states to be exposed to economic and political danger. In Hungary we see that immediately, democracy is endangered by what could be a throwback to the bad old days of their interwar years. Where is the clear voice of European truth now? Who will pick up the mantle and speak for the powerless to prevent sliding back into the haze of authoritarianism?

I had the pleasure of renting an apartment from President Havel's widow. I still have the lease with the signature of Dagmar Havlova. It was a pleasant connection to my landlord and her husband. His writings live on and should be a welcome refuge to those who want reinforcement against the onslaught of lies in public life. We (in the US) are deep in an election year now and could use that type of clarity. Sometimes the rhetoric confuses us about the goal. It is Christmas, Hanukkah and the New Year. It is a time to focus on peace and self determination. We certainly deserve it.

Saturday, November 26, 2011

Krugman on the basic macro challenge of the Euro Zone

Mysterious Europe -

He hits the issue on the head. The trade gap and government deficits are related. Germany prospers off their lending to Greece, Italy, Spain and Portugal. What will happen to Germany during the coming recession? They may find out there are worse things than 5% inflation.

Monday, July 18, 2011

New Economic Perspectives: The Sector Financial Balances Model of Aggregate D...

Brilliant analysis...New Economic Perspectives: The Sector Financial Balances Model of Aggregate D...: "By Scott Fullwiler As Stephanie Kelton has recently published two excellent pieces explaining the sector balances in the context of govern..."

Friday, July 8, 2011

Raising Medicare Enrollment Age is a Very Bad Idea

In brief...

...this will kill both Social Security and Medicare. Who can afford to retire on Social Security without Medicare? Not a soul (all your Social Security would go to pay for private insurance). So raising the Medicare age to 67 will make people work longer. Older workers on private health insurance plans will increase the insurance rates for those plans. A dollar "saved" by the government will be a dollar plus spent by private and public employers with their insurers. This will rock public employers that depend on retirees going on medicare to save money.

The Medicare costs per enrollee will rise as you will have removed the lowest cost enrollees in Medicare. So while overall costs will go down it will make Medicare look less efficient than in the past. Fewer people on Social Security, fewer on Medicare means less political support for these critical programs. Means testing just leads to everyone wanting to kill the programs. (By the way, Medicare is already means tested as the more you earn the more you pay in tax).

Wednesday, June 29, 2011

Structural Problems

When we discuss Macroeconomics in class I try to make sure that students come to understand the difference between cyclical and structural challenges. There is no better description of the structural challenges we face than flipping through the Business Section of today's NY Times...

Here bankers are praising the prospects of Linked In, the social networking company for adults based on contacts around employment and professional interests.

Here the AFL-CIO talks about a commitment to inject $10 Billion in union pension funds into infrastructure construction over the next few years.

The financial sector concentrates on the speculative investment in a firm whose competitive advantage is a marketing concept. It falls to the organization for workers to increase societal investment in social infrastructure. The Obama Administration proposal for a national infrastructure bank languishes in Congress so effort must be made to move the idea along. And the bubble in social networking related stocks continues....from the WSJ...

Without government spending we will not move this economy forward except from bubble sparked consumption spending just like last decade.

Friday, May 27, 2011

Great take on revenues and outlays

Uwe E. Reinhardt: The Case for Higher Taxes -

Confusion on a Friday

Why is Microsoft offering a free XBOX to college students who buy a PC this summer? Shouldn't they offer some books or something that promotes learning? I guess Bill Gates likes education only to the extent it doesn't get in the way of a good marketing idea.

Sunday, March 6, 2011

RIP Arnost Lustig

The great Czech writer who lost most of his family in the Holacaust dies this week. His book House of Returning Echoes moved me greatly. His life and work were documented in a film called, "Fighter". NYT: Arnost Lustig, 84, Dies; Wrote

Wednesday, February 16, 2011

Reich on the Truth about Social Security

Read this piece by Robert Reich (if you read nothing else) about Social Security. It explains why the last thing we should be looking to do is raise the retirement age.

Jeffrey Sachs on Leadership Failures

Jeffrey Sachs, Director of the Earth Institute at Columbia and noted economist, takes two Bloomberg anchors a bit by surprise in this interview on the federal budget. His ideas are signficant. In recent years Sachs has made a substantial contribution to the worldwide discussion of global poverty and disease. He offers the idea that the budget cuts are too high and government is too tilted toward the interests of the wealthy. Watch his video here.

Monday, February 14, 2011

Innovation and Manufacturing

The NY Times gets it right about the inevitable decline of the "innovation economy" if all manufacturing goes off-shore. The do not cite the example but computer networking and communications equipment is a great example. It went overseas for manufacturing and has never come back, not the promised marketing, management or engineering jobs. Only clerks at Best Buy.

Sunday, February 6, 2011

Investment Growing?

Top Stories Points to driver for higher investment ... growing demand.

Great story from The NY Times

Saw a talk by the founder of The Mission Continues a few weeks back. It is heartening to see these various programs that help veterans adjust to civilian life. NYTimes: Helping Veterans Trade Their Swords for Plows

Tuesday, January 18, 2011

Ah...if economics was only static

In today's NY Times, Mark Wu (law professor Harvard) writes that America's trade problem is not caused by the value of the Chinese RMB. He argues that we really do not compete against China because the products the US exports are different than the ones that China exports. He also points out that during the period 2005-2008 the RMB rose in value, but US exports to China did not increase. Parenthetically, the current account trade deficit also increased between the two countries during that period.

However, he ignores some basic economics. First, the change in value of the currency will make Chinese products more expensive in the US market if the Chinese vendors take payment in the RMB, or if they adjust dollar denominated prices to reflect the value of the RMB. It may in fact, be in the long run before the prices of imports adjust as businesses are slow to change prices. In fact the recession was effective at reducing the current account balance between the countries. Viewing the number from 2008 to 2009 the balance declined by over 15%.

Adjusting the currency value will help close the gap which us unsustainable in the long run. Professor Wu also ignores the GDP impact of the trade argument. To offset the current account balance there must be a capital account baalnce, meaning China has to do something with the dollars it gets from trade. Moving the dollars should weaken the dollar against all currencies. But if the Chinese artifically inflate the dollar, then the adjustment will not take place.

Economics is dynamic. You have to account for botht the flows and stocks to measure change. Professor Wu's mistake is not to account for the long term possibilities based on the currency value and to ignore the actions of Chinese government and business to deflate the value of their currency with respect to the dollar.

Wednesday, January 12, 2011

The Leader We Need

Tonight President Obama addressed the nation via the memorial service in Tucson. His words speak for themselves, but consider this passage...

The loss of these wonderful people should make every one of us strive to be better in our private lives – to be better friends and neighbors, co-workers and parents.  And if, as has been discussed in recent days, their deaths help usher in more civility in our public discourse, let’s remember that it is not because a simple lack of civility caused this tragedy, but rather because only a more civil and honest public discourse can help us face up to our challenges as a nation, in a way that would make them proud.
Many of us have criticized the President in months past for a lack of fire in his pursuit of policy goals. While trying to navigate the highly partisan divide in Washington, the President's cool seems like detachment from the struggles of working families. Today we see how valuable his calm can be in helping us through the most painful moment possible. I hope this moment leads to "a more honest and civil discourse" and his leadership continues to soar.

Monday, January 10, 2011

New Term of Macro

Back from Denver and going right into the classroom to kick-off a new term in Macro. Based on discussions at the AEA in Denver I will have a few different ideas to share with students tonight and at various times during the term.

A Good Discussion Article on Monetary Policy

NYT: Fed Pays a Record $78.4 Billio

Saturday, January 8, 2011

Robbing Banks

William K. Black of UMKC, former regulator and author of The Best Way to Rob a Bank is to Own One, opened the conference with an ASE keynote. He took us back to the last banking crisis - the savings and loan debacle of the 80's. The crisis was brought about by interest rate risk caused by the big run-ups in rates from the FED trying to wrench out inflation.

The high rates gave s and l's incentive to create high returns in order to eke out any profit. Some took it as a license to commit fraud. The most popular stories are the Keating (Lincoln Savings and Loan) and (Oklahoma stories) retold in Funny Money.

Black recounted the salient fact that federal regulators made thousands of referrals to criminal authorities during the s and l debacle. As far as we know there have been none as a result of our current crisis.

Friday, January 7, 2011

I go to Denver but the biggest economic news may be out of Boston...

NYT: Massachusetts Court Voids Fore

Securitization of mortgages the bad penny (well trillions of them) that keep on returning.

Panel on economic inequality

This morning began with an interesting panel discussion regarding the relationship between economic inequality and the recent financial crisis. The main presenter was Prof Rajan from Chicago who reviewed the notion that the reaction to growing inequality in our society led to policies that fed the housing bubble. Discussants were Profs Acemoglu and Glaeser.

Acemoglu grabbed my attention by quoting from Robert Dahl and Who Governs...but he tried to politely refute the hypothesis from Rajan. As always, Glaeser had strong numbers showing the weather related connection between housing boom and bust.

In follow-on discussion Prof Glaeser had the insight of the day. That education is the path to improved performance and equality in society. However he recognizes that the policy must be put forward as a matter of national strength and security as inequality is a political non-starter. While I believe we do need to address inequality not necessarily in the context of education.

Wednesday, January 5, 2011

Decline in Small Business Failures?

NYT: Six Companies That Did Not Survive 2010

While still too high the numbers indicate that small business failures declined from first quarter 2009 to first quarter 2010. These are interesting numbers to watch.

Monday, January 3, 2011

Transparency in Economics

The American Economic Association (AEA) has its annual meeting this week in Denver. The Executive Committee is considering a code of ethics to guide members that do work outside their academic or research institution requiring disclosure of the information. While this sounds like a great idea; readers of academic papers, textbooks and students in the classroom have the right to know that their professors are in the pay of other institutions, the impetus for this action is fascinating.

According to The New York Times:

The proposal, which has not been announced to the public or to the association’s 17,000 members, is partly a response to “Inside Job,” a documentary film released in October that excoriates leading academic economists for their ties to Wall Street as consultants, advisers or corporate directors.
That's right. It was not the financial meltdown per se (and the participation of members of academia in its cause), but rather a documentary film that made certain members of the profession look bad.

I will be in attendance at the conference and will be interested to see if this is discussed and adopted.

Sunday, January 2, 2011

Krugman, Okun and the Level of Unemployment

One of the concepts I stress to Macro students is "Okun's Law". Created by famed Brookings Institution economist Arthur Okun, the Law states simply that for each percentage above the natural rate of unemployment, the economy is losing 2% of potential output. So in round numbers, if the unemployment rate is 10% and the natural rate is 5% (both are probably lower right now, but the spread is the same...about 5%) then the economy is losing 10% of potential output. Roughly speaking then we have a recessionary GDP gap of 10%. In a 14 Trillion dollar economy that means we are down about $1.4 Trillion in output.

Paul Krugman blogged over the holiday about this point and illustrated his analysis with data from the Federal Reserve Bank of St. Louis.

NY Times

The illustration shows that when economic growth is negative, unemployment shoots up. When economic growth is strong (in the neighborhood of 3.5 to 5% on an annual basis) then the unemployment rate will slowly reduce. My conclusion is that based on the low levels of growth projected in 2011 and without significant stimulus from government spending the unemployment rate will stay very high. The tiny stimulative effect of the tax changes signed into law could be overwhelmed by state and local cutbacks and federal reductions in spending. While cutbacks may make good political theatre, they endanger the tepid recovery from the very traumatic events of 2008 and the housing and financial bubbles.

Saturday, January 1, 2011

Happy New Year

Today is our seventh wedding anniversary in addition to being a holiday. We have had a very enjoyable break and tomorrow i will be back to regular updates. I wish everyone a healthy and prosperous 2011.