Saturday, May 26, 2012

Lagarde unguarded in the Guardian

Mister Burns, er, a freakishly tan IMF chief Christine Lagarde gave a fascinating interview on, among other things, her views about the Greek debt crisis.

Here's a great excerpt:

So when she studies the Greek balance sheet and demands measures she knows may mean women won't have access to a midwife when they give birth, and patients won't get life-saving drugs, and the elderly will die alone for lack of care – does she block all of that out and just look at the sums?

 "No, I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens." 

She breaks off for a pointedly meaningful pause, before leaning forward. "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." 

 Even more than she thinks about all those now struggling to survive without jobs or public services? "I think of them equally. And I think they should also help themselves collectively." How? "By all paying their tax. Yeah." 

 It sounds as if she's essentially saying to the Greeks and others in Europe, you've had a nice time and now it's payback time. "That's right." She nods calmly. "Yeah." 

And what about their children, who can't conceivably be held responsible? "Well, hey, parents are responsible, right? So parents have to pay their tax."

Wow, ok. So taxes fix every thing eh, Christine?

And, while the sentiment on poor children in Niger is quite noble, the IMF doesn't do squat about education in Niger. A restructuring/forgiveness of Greek debt is not going to cut aid to Niger.

The IMF was asleep at the wheel as Greece loaded up on debt and became totally uncompetitive. The IMF was asleep at the wheel as the Eurozone drifted into untenability. Now its head is blaming the Greek people and implying that if they'd just do the right thing and pay their taxes, there would not be a problem.

And that's pretty much a pile of horsesh*t.


Great speech by Charles Plosser. It starts with a nice concise history of the evolution of mainstream macro  which leads into a set of suggestions for research on monetary policy.

Well worth reading in its entirety, but here is the money quote:

Fourth, and related, macroeconomists need to consider how to integrate the institutional design of central banks into our macroeconomic models. Different designs permit different degrees of discretion for a central bank. For example, responsibility for setting monetary policy is often delegated by an elected legislature to an independent central bank. However, the mandates given to central banks differ across countries. The Fed is often said to have a dual mandate; some banks have a hierarchal mandate; and others have a single mandate. Yet economists endow their New Keynesian DSGE models with strikingly uniform Taylor-type rules, always assuming complete credibility. Policy analysis might be improved by considering the institutional design of central banks and how it relates to the ability to commit and the specification of the Taylor-type rules that go into New Keynesian models. Central banks with different levels of discretion will respond differently to the same set of shocks.

 Let me offer a slightly different take on this issue. Policymakers are not Ramsey social planners. They are individuals who respond to incentives like every other actor in the economy. Those incentives are often shaped by the nature of the institutions in which they operate. Yet the models we use often ignore both the institutional environment and the rational behavior of policymakers. The models often ask policymakers to undertake actions that run counter to the incentives they face. How should economists then think about the policy advice their models offer and the outcomes they should expect? How should we think about the design of our institutions? This is not an unexplored arena, but if we are to take the policy guidance from our models seriously, we must think harder about such issues in the context of our models.

Shout it from the rooftops!

Friday, May 25, 2012

Computer Audio

Loyal reader Gerardo asks,

"If you hadn't made the jump to digital music beyond CDs, how would you go about doing it"?

Let me start by saying that I'm an analog guy. I use a home-made 2 watt vacuum tube amp. I have a record player and hundreds of LPs.

I made the jump to no-CDs by burning all my CDs onto an external hard-drive. Because a lot of music that I like doesn't come in a lossless digital format (i.e. digital downloads are often MP3), I still buy CDs, burn them onto my hard drive and then get rid of them. Until uncompressed downloads are routinely available, I will probably stick to this ritual. If you are OK with MP3s or are willing to limit yourself to music available as either uncompressed CD quality or higher resolution downloads, then you can get away from having any physical items except a hard-drive.

It drives me nuts that LPs are offered for sale with a free MP3 download instead of a FLAC download.

If you are planning to make the jump to computer based audio, the Well-Tempered Computer is an excellent resource and the Computer Audio Asylum is a lively forum. There are places to get hi-rez downloads, like HD Tracks.

You basically have two choices:  (A) Put together your own system with storage, computer, playing software and DAC, or (B) buy an all in one music server device, like the SB touch or the J-River

The "audiophiles" seem to prefer putting their own systems together based on a computer. Mac minis are popular; I use a Macbook and prefer Pure Music for playback software.  I learned a lot about computer audio from this guy.

Joy to the fishes in the deep blue sea

From the KPC request for posts pool:

"If you were the supreme ruler of the USA, what would be the top 5 things you would do?"

1. Increase the inflow of immigrants, especially skilled immigrants.

2. Increase school choice, especially for lower income families.

3. Big tax reform with a broad base, low rates, and a carbon tax included in the mix.

4. Use a combination of size limits, leverage limits, and capital requirements that move with size/leverage to reduce the frequency with which finance blows up the economy (instead of trying to micro-manage a la Dodd-Frank / Volcker rule).

5. De-porkify the Federal Government (Dept. of Agriculture, Ex-Imp bank, small business administration,   military procurement).

Other priority items would be work to privatize public universities,work for a "trade not aid" approach to developing countries, and work on patent reform.

I shudder to think what Tom will think of it, but that's it; that's my list!

Thursday, May 24, 2012

but enough about you...

....let's talk about me!

Over at MR, folks are peppering LeBron with requests for posts.

One request that really struck me was, "What’s the most important economics question you ever asked?"

At a facile level, it's, "why are some nations so rich and others so poor?", but I can't claim any originality there as it was asked many, many times before I got there. I'm guessing the commenter meant an original question.

The next contender would be, "why do macroeconomists ignore politics?". Here I was a little less un-original, but several others were before me.

I guess the closest thing to an original economics question I've asked is, "if we want to study growth, why are we throwing away information by using cross-sectional averages instead of panels?"

p.s. if you have requests for posts from Mungo or me, please put them in the comments and we'll see what we can do. At least here, your odds of getting chosen are much much higher!

Wednesday, May 23, 2012

Hey Hobo!

Y U NO write me back?

Peter Orzag wants to sell you a bridge

Over at Bloomberg, Orzag assures us that stimulate now, cut later is a realistic strategy because it has worked well in the past.

The piece is titled, "History Shows the US can Stimulate Now, Cut Later"!

His examples? Well there's really only 1 given:

"From 2017 to 2022, Social Security’s normal retirement age is scheduled to gradually increase to 67. And I’ll bet that not only happens as planned, but does so with little fanfare -- which is pretty much what happened several years ago when the age rose from 65 to 66."

Oh, man. I stand corrected. A phased in over 5 years one year increase in the normal retirement age is going to happen? Well of course we can run a big stimulus now and pay for it with cuts later!

People, this is just so wrong in so many ways. First, this is a tiny "cut". Second, it wasn't part of a deal that included increased spending in the present. Third, as Krugman and others have pointed out recently, the US Congress is the most polarized it's been in recent history. Fourth, that example is a pretty thin reed on which to base "History Shows".

Orzag goes on to cite a 2009 study showing Medicare cuts were largely implemented. But they weren't implemented as part of a deal to allow increased current spending nor was there a long time delay between the legislation and the enactment.

Current Congresses cannot bind future ones. Sure the filibuster or veto threat can create some status quo bias, but a law saying let's spend a bunch more right now but don't worry, we'll cut in 10 years in basically just a con game.

I am not aware of any examples in peacetime (sorry I know we have "wars" going on vs. drugs and terror) US history where the Federal government rationalized an immediate spending increase of 500 billion to 1 trillion dollars in a time where the deficit was already over 1 trillion dollars by promising to cut spending 5 to 10 years in the future and actually did it.

I am pretty sure if Peter Orzag actually knew of such a case, he'd have mentioned it in his piece.

Tuesday, May 22, 2012

stimulus in a backpack

A friend, who was in a military unit in central Iraq some years ago, sends this photo.

Those are $100s.  Approximately $1 million US.  Actual real American simolions. 

My friend took this pic just before they stuffed this into a backpack, and went to go give it away in a village.  This was supposed to buy loyalty.

I submit that the military enlisted personnel are not well suited to carry out this task.  And that the task itself is asinine, because one-time "payments" like this are no more likely to cause growth, or loyalty, then the idiot Keynesian "stimulus" policies in the US.  Both of these policies are just political payoffs to friends, with no prospect of benefit to the nation, or to the taxpayers who are footing the bill.

Still, it had to be fun to have a thousand large in a backpack, walking on the streets of [city in central Iraq].  They should have invested in brown paper bags, to make the Mafia comparison even more realistic.

Monday, May 21, 2012

Hobo hears from 2T

Came, Saw, Bailed

Okay, so I clearly waited three weeks too long.

But I liquidated all the stock in my retirement accounts today.  It was only 25%.  But now it is 0%.

I sincerely hope that I did this at the bottom, and that things get very much better, quickly.  You can all laugh at me.

But I doubt it.  Because Spain cannot survive another month.  And banks and financial institutions in England have truly massive exposure.  This is the end.  Boom.  Not like economic boom.  Like really loud heavy object hitting a floor boom.

UPDATE:  LeBron describes capital flight from the wreckage of the EuroZone.  The comments are quite funny.

UPDATE 2:  Mr. Overwater asks, "Why?"  Not the volatility thing, volumes have not been that high lately.  In fact, holy shinola, volumes have fallen through the floor:

We are at 1999 levels of volume, even allowing for the Facebook IPO and etc.  Yikes!  I hadn't even seen that.  Damn.

No, the problem I see (before I scared myself with this volume picture) is the bets that so many banks have made on Euro bailouts.  It's not just JP Morgan and MF that did it, they just got caught first.  Many banks, worst in England, but bad elsewhere also, took huge net long positions in sovereign debt from Eurozone nations, betting that the bailout woud happen.  To the extent that the bonds were selling at a discount, and you end up getting par, that's a good bet.

The problem is that these banks are taking long positions with customers' money.  There were not hedges, they were net bets, big ones. 

Banks should be bookies, not bettors.  Bookies lay off bets and use the line (whether it's points, or odds, or whatever) to adjust the market so they get equal amounts of exposure on either side.  A bookie who himself takes a net position on a game, a horse race, or Greece is called (technically) an "idiot."  Bookies take bets on both sides, and make money on the vig, and cash in on volume of trades.

Well, it turns out nearly every bank you can think of is an "idiot."  They do NOT have equal positions betting for and against a Euro-zone sovereign debt bailout.  They all bet the bailout would happen.  As Louis XV said, "Apres (JP) MOIrgan, le deluge."

The End of College?

Not sure if I am the problem, the solution, or just confused.  But I'm a "member" of five departments:  Duke Econ, Duke Poli Sci, Duke Public Policy, UNC Poli Sci, and UNC Public Policy.  That's not really a silo.  A two-part series in Bloomberg.  Interesting.

Part I: Competition Kills Colleges

Part II:  The College Cave Age

Sunday, May 20, 2012

We like to party

Saturday morning we heard the sound of a large truck in our rustic cul-de-sac. Since that is big doings in these parts, Mrs. A looked out the window to see a dump truck depositing a large load of topsoil onto our neighbors' driveway. We speculated about how this load would be employed, but we never got anywhere near the answer.

People, the dirt pile was the entertainment at a kid's birthday party! I've heard of clowns, magicians, ponies, & pinatas, but this was a first in my limited (no kids) experience.

What's the strangest kids party that you've seen?

(clic the pics for even more glorious images)