Fareed Zakaria GPS

Fareed Zakaria’s new-this-summer show on CNN, Fareed Zakaria GPS (as in Global Public Square) isn’t always the most exciting hour on TV, and I find his interviewing style somewhat annoying. But from time to time the interviews are terrific, whether it’s because Zakaria is a better interviewer than I can recognize, or because he finds some great guests.

For starters, watch his Sept 28 interview with Chinese Premier Wen Jiabao, and an earlier one with Singapore’s Lee Kuan Yew (I don’t know that the whole Lee Kuan Yew interview is online).

Suppose Obama wins—what then?

A meditation by David Kaiser.

A new era?

Obama, however, will if he wins take over the government of the most divided country since 1860—in some ways, more polarized even than at that time.

…

The Republican Party will remain after November perhaps the most rigidly disciplined and narrowly based party in American history. Even the opposition crises in the two previous great crises in American life included a much broader range of opinions than today’s Republicans.

…

Just yesterday the Wall Street Journal editorial page lamented that the Democrats may be stronger than they have been since 1933 (they should have said 1935) or 1965, and suggested that the country would not vote them back if they realized this. In fact they will not be that strong—their majorities were much larger then—but in any case we will not be going all the way back either to the beginning of the last crisis (when 25% of the population was unemployed) or to the end of the last High. Obama is winning above all because he wants to usher in a less ideological age. That is a gamble, but so far he is winning it. But if he succeeds as President it will be with new measures, new men and women, and new rhetoric. No past, however glorious, returns—because the new generations that make the future do not remember it or revere it. The great crisis will lay the old order to rest and create a new one. That is the way of all organic life.

What, me? Tasteful?

Well, so says the estimable and eclectic Jorn Barger of Robot Wisdom, characterizing Pragmatos as a “Tasteful econ and lit blog” (for which thanks).

Frankly, it’s the the way I would have described it, but looking back on my recent postings, I’m obliged to admit that it’s a fair cop.

As to the econ aspect, Jorn’s mention spurs me to observe that there’s an abundance of good and accessible economics writing on the net these days, from a wide range of more-than-respectable economists who are prepared to make their work comprehensible to a general readership. An interest in matters economic seems to be a prominent part of the 21C Zeitgeist, and the fact that good economists can’t seem to agree on even simple propositions makes the discussion more interesting. Economics isn’t physics, but its debates bear more than a passing resemblance to some of the outer reaches of current physics (cosmology springs to mind; there are other topics as well). Economists can’t agree on the effect of a rise in the minimum wage? Well, medical researchers can’t agree on the role of salt in hypertension. These are complex subjects.

Some of my favorites are blogger and NY Times columnist Paul Krugman; Dean Baker; Mark Thoma; Brad DeLong; James Hamilton; and several others, including a number of posters at Angry Bear.

Joseph Stiglitz and James Galbraith don’t blog regularly (if I’m wrong, please let me know), but their stuff shows up frequently in other forums, and is generally linked by one of the above blogs

Which reminds me: this is a community of interest, with cross-blog debates and lively and even informed comments.

Oh, and charts. Economists like illuminating charts, and so do I. Here’s one from Zubin Jelveh, via Kevin Drum: S&P 500 final-hour volatility.

S&P 500 final-hour volatility

Anyway, thanks, Jorn.

A raw deal?

Joe Stiglitz isn’t exactly thrilled with Paulson’s Plan B.

Joseph Stiglitz: Paulson tries again

Britain showed at least that it still believed in some sort of system of accountability: heads of banks resigned. Nothing like this in the US. Britain understood that it made no sense to pour money into banks and have them pour out money to shareholders. The US only restricted the banks from increasing their dividends. The Treasury has sought to create a picture for the public of toughness, yet behind the scenes it is busy reassuring the banks not to worry, that it’s all part of a show to keep voters and Congress placated. What is clear is that we will not have voting shares. Wall Street will have our money, but we will not have a full say in what should be done with it. A glance at the banks’ recent track record of managing risk gives taxpayers every reason to be concerned.

For all the show of toughness, the details suggest the US taxpayer got a raw deal. There is no comparison with the terms that Warren Buffett secured when he provided capital to Goldman Sachs. Buffett got a warrant – the right to buy in the future at a price that was even below the depressed price at the time. Paulson got for the US a warrant to buy in the future – at whatever the prevailing price at the time. The whole point of the warrant is so we participate in some of the upside, as the economy recovers from the crisis, and as the financial system starts to work.

The Paulson plan responded to Congress’s demand to have something like a warrant, but as a matter of form, not substance. Buffett got warrants equal to 100% of the value of what he put in. America’s taxpayers got just 15%. Moreover, as George Soros has pointed out, in a few years time, when the economy is recovered, the banks shouldn’t need to turn to the government for capital. The government should have issued convertible shares that gave the right to the government to automatically share in the gain in share price.

Ecstatic complexity

Isn’t that a nice turn of phrase?

Lombardi was indeed an enthusiastic student of information design, a reader of Edward Tufte and a collector of the charts of Nigel Holmes. But if the goal of information design is to make things clear, Lombardi’s drawings, in fact, do the opposite. The hypnotic miasma of names, institutions, corporations and locations that envelop each drawing demonstrates nothing if not the inherent — the intentional — unknowability of each of these networks. Like Rube Goldberg devices, their only meaning is their ecstatic complexity; like Hitchcockian McGuffins, understanding them is less important than simply knowing they exist.

That’s Michael Bierut in his essay Mark Lombardi and the Ecstasy of Conspiracy; I’ve been reading his collection of design-related essays, and it turned out this one is online at his blog (lots of other nice posts too, and great images).

I wish I could do that. My all-time favorite adjective-noun phrase is dusty death, but I’d settle for being able to come up with “ecstatic complexity”. I specifically mean the interplay of senses, rather than the sound (I’ve never see the attraction of cellar door, by the way), though Shakespeare of course manages to do both at once.

The bailout, explained in pictures

D0F8262D-3A29-44B8-811E-ECA73AD7CE4E.jpg

Sinfest, via Barry Ritholtz

See also cactus at Angry Bear:

Welfare Queen

Some thoughts on the bail-out:

1. Goldman’s market cap is about 50 billion. The gubmint is gonna buy $10 billion worth of (non-dilutive, non-voting) shares, for which it gets essentially, well, nothing. Nothing at all. Goldman will go about its business. So… Goldman is getting an infusion equal to 20% of its worth, plus a guarantee that the gubmint will replace whatever excrement it purchased with something of value. And somewhere along the line, you can bet that the gubmint will also end up doing the same favor to everyone who bought excrement Goldman sold. Even a company that sold wedgies would make a mint with that sort of gubmint help.

2. The bail-out will succeed only, repeat, only in the sense that the US succeeded in Iraq in 2003 and 2004 when Simone Ledeen and the rest of the Heritage interns were running around the country handing out trash bags full of money and giving Halliburton money for services it would never begin to render. There will be less yabbering of silly catchphrases like “but what about all the schools that were painted?” this time around, though, because the schools will be exploding when GW is no longer in office. To be extremely precise, this is what I think the success will look like: shady, undeserving characters will be enriched, young versions of the idiots who got us into the mess will launch successful careers (can you say “Kashkari”?), and the promised benefits to the American public, the schmucks footing the bill, will never materialize.

3. The reason the bail-out won’t succeed, like Iraq, is that it doesn’t address a real problem. Banks going under is not a problem. Bankers having incentives to make risky decisions is a problem, and this bail-out will do nothing to stop it. (Non-voting shares, remember?) My guess is that we’ll find some entities (and I would bet money Goldman Sachs will be on that list) will be found to be gaming the system. There will be a tsk-tsk when that comes to light, but they will not have to pay back the gubmint for gaming the system.

4. The bigger problem, that there was a housing bubble, and that home prices cannot and should not stay as high as they have been is not addressed by the bail-out. If it ever does get addressed, it will be addressed in a counter-productive way.

5. The even bigger problem, that the American public has been stretched thin financially for years now and can’t afford the sort of consumption that makes up about two thirds of the economy is also not going to be addressed by the bail-out.

I hope I’m wrong, because I don’t see this coming out well. I do have a proposal, a small one. I figure if the gubmint doesn’t get any say in how banks do business (exactly why is it so important to keep the “talent” that created this mess in the first place?) and foots the bill, can we at least require every bank that takes government money to include the words “Welfare Queen” in its name? I think it would be a very useful thing if Goldman Sachs were forced to call itself Welfare Queen Goldman Sachs. It might make a few members of the voting public realize exactly how the system work.
_____________________________
by cactus

California Proposition 11: Yes, but…

Proposition 11: Redistricting. Constitutional Amendment and Statute.

Creates 14-member redistricting commission responsible for drawing new district lines for State Senate, Assembly, and Board of Equalization districts. Requires State Auditor to randomly select commission members from voter applicant pool to create a commission with five members from each of the two largest political parties, and four members unaffiliated with either political party. Requires nine votes to approve final district maps. Establishes standards for drawing new lines, including respecting the geographic integrity of neighborhoods and encouraging geographic compactness. Permits State Legislature to draw lines for congressional districts subject to these standards. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Probably no significant increase in state redistricting costs. (Initiative 07-0077.) (Full Text)

I’ll be voting yes on Prop 11, but with no particular enthusiasm. Peter Schrag, writing in the Sacramento Bee, gets it pretty much right:

California’s Proposition 11, which would take the power of drawing legislative districts out of the hands of the politicians who are most vitally interested in it, won’t do much to reduce partisanship in Sacramento or solve most of California’s other problems.

But let’s pass the thing so we can get this old saw off the agenda and attend to some reforms that might make a real difference.

My list of reforms (proportional representation and public campaign financing are at the top) isn’t the same as Schrag’s, but we come to the same conclusion. I’ll vote for Prop 11, but I won’t lose any sleep if it fails.

The Psychological Consequences of Money

I’ve had this post waiting in draft form for quite a while (the article in question appeared almost two years ago). It seems apropos to my last post, so no more procrastinating (on this post, anyway).

In a fascinating paper published at the end of 2006 in Science, Kathleen Vohs et al report on nine experiments regarding the influence of money on our behavior. The rather dry abstract doesn’t begin to do justice to the content.

Money has been said to change people’s motivation (mainly for the better) and their behavior toward others (mainly for the worse). The results of nine experiments suggest that money brings about a self-sufficient orientation in which people prefer to be free of dependency and dependents. Reminders of money, relative to nonmoney reminders, led to reduced requests for help and reduced helpfulness toward others. Relative to participants primed with neutral concepts, participants primed with money preferred to play alone, work alone, and put more physical distance between themselves and a new acquaintance.

The article itself is, I think, available only to AAAS members; one of the experiments will give a better idea of what the rest of the article is about.

In Experiment 5, we wanted to give money-primed participants a helping opportunity that required no skill or expertise, given that the help that was needed in the two previous experiments may have been perceived as requiring knowledge or special skill to enact. The opportunity to help in the current experiment was quite easy and obvious, in that it involved helping a person who spilled a box of pencils.

Participants were randomly assigned to one of three conditions that were manipulated in two steps. Each participant first played the board game Monopoly with a confederate (who was blind to the participant’s condition) posing as another participant. After 7 min, the game was cleared except for differing amounts of play money. Participants in the high-money condition were left with $4000, which is a large amount of Monopoly money. Participants in the low-money condition were left with $200. Control condition participants were left with no money. For high- and low-money participants, the play money remained in view for the second part of the manipulation. At this step, participants were asked to imagine a future with abundant finances (high money), with strained finances (low money), or their plans for tomorrow (control).

Next, a staged accident provided the opportunity to help. A new confederate (who was blind to the participant’s priming condition) walked across the laboratory holding a folder of papers and a box of pencils, and spilled the pencils in front of the participant. The number of pencils picked up (out of 27 total) was the measure of helpfulness.

The result? “Even though gathering pencils was an action that all participants could perform, participants reminded of financial wealth were unhelpful.” And this was the consistent result across nine rather imaginative experiments.

In one of the experiments, all it took to create the money-primed selfish bias was exposure to a poster of currency on the wall (controls saw a poster of a seascape or a flower garden). In another, subjects “happened” to be in front of a computer screen while filling out a questionnaire.

Participants in the money condition saw a screensaver depicting various denominations of currency floating underwater . Participants in the fish condition saw a screensaver with fish swimming underwater. Participants in the no-screensaver condition saw a blank screen.

As Sharif Abdullah says, “we are lined up at the same trough”; we can’t help ourselves.

What might prime us in the other direction, I wonder?

The real problem is…

Via Bob Morris, a fine piece by Sharif Abdullah.

…What is the real problem? (You may not like my answer.)

The problem is NOT mortgage-backed securities, credit default swaps, collateral debt obligations, or any of the other gobbledygook cobbled together by Wall St. whiz kids. Yes, they have created a wall of opacity compounded by incomprehensibility. But, that’s not the problem. The problem is not even “greedy” corporate CEO’s with golden parachutes.

The real problem is… you and me. I say this for 3 reasons:

1. We have created a society that profits from greed and waste. Wall St. didn’t create it, we ALL are complicit in its creation. (Yes, some of us are more complicit than others, but that does not change the fact that almost all of us participated in this orgy.) Every one of us who bought a bigger than needed car or house (“We just needed a little more room”), who lingered over those advertisements for the $80,000 car or the $10,000 watch (even if you didn’t BUY it, your lingering created the ALLURE, the DESIRE of the unattainable) contributed to the “you can have it all” mentality. We look at these huge Wall Street hogs, all lined up at the trough. Although we are just little piglets, we are lined up at the same trough.

2. We have created a nation of debt. We ALL created it. Our political and economic leaders have mortgaged our children’s future to pay for their addiction-induced wild partying. (In my book, “Creating a World That Works for All”, I talk about money addiction as the only form of addiction where the supply of the addicting substance is completely controlled by the addicts themselves.) But, our leaders are US. Don’t you run your household on a debt basis? Don’t your credit cards, car bills and mortgage greatly exceed your fixed assets? That bubble had to pop at some point in time. What you’re seeing is simply the check that has finally come due.

3. We maintained the silly belief that we could grow forever, without any consequences. In Nature, the only entity that grows forever is cancer. And that is only until it kills its host. But, we said, “We’re different.” Now, as it turns out, we’re not.

The real problem is not an economic or financial crisis. Our real problem is a moral and spiritual crisis that has manifested itself, this time, in the financial arena. And, in these troubling times, we lack the moral and spiritual leaders and institutions to even address it – most of our “religious” institutions are just as complicit in this crisis as we are. Our “religious” leaders looked the other way as the collection plates filled up and the “churches” get larger, fancier — and richer. It’s hard to denounce greed and money addiction when you are the direct beneficiary of it.

…

Amen (and mea culpa), Brother Sharif.

J’accuse!

Émile Frank Schaeffer, 2000 supporter of John McCain, writes in the Baltimore Sun:

John McCain: If your campaign does not stop equating Sen. Barack Obama with terrorism, questioning his patriotism and portraying Mr. Obama as “not one of us,” I accuse you of deliberately feeding the most unhinged elements of our society the red meat of hate, and therefore of potentially instigating violence.

At a Sarah Palin rally, someone called out, “Kill him!” At one of your rallies, someone called out, “Terrorist!” Neither was answered or denounced by you or your running mate, as the crowd laughed and cheered. At your campaign event Wednesday in Bethlehem, Pa., the crowd was seething with hatred for the Democratic nominee — an attitude encouraged in speeches there by you, your running mate, your wife and the local Republican chairman.

Shame!
…

Obama’s an Arab?

John McCain: “No, ma’am, he’s a decent family man.”

Good to know. Sheesh.

Update: Here’s Juan Cole.

That confused woman probably did not mean “Arab” but “Muslim.” (She later said she was afraid America would become a Muslim country.)

But Arab is a linguistic identity whereas Muslim is a religious one. Not all Arabs are Muslims. The Copts in Egypt (6% of the population) speak Arabic but are Christians. Likewise the Maronites in Lebanon and many Chaldeans and Assyrians in Iraq. About 7,000 Jews living in Morocco speak Arabic at home.

If not all Arabs are Muslims, only a minority of Muslims is Arab. Iranians (70 million strong) are not Arabs. Turks are not Arabs. Pakistanis are not Arabs. Malaysians and Indonesians are not Arabs. Nigerians and Senegalese are not Arabs. But all these national or ethnic groups are predominantly Muslim.

Worse than the lady’s confusion between Arab and Muslim were her further obvious confusion between Muslim and dangerous.

Mr. McCain, Arab-Americans and Muslim-Americans are decent, family-oriented citizens. The only thing wrong with calling Obama by either of these modifiers is that it would be incorrect. He is not an Arab ethnically, but rather northern European and Luo (Nilotic). He is not a Muslim but a Christian.

McCain’s insinuation that “Arabs” (whether he and his friend actually meant “Muslims” or not) are not decent and not family-oriented and not citizens is obscene.

Ralph Nader, one of McCain’s rivals for the presidency, is an Arab-American, and McCain owes Mr. Nader and all Arab-Americans, indeed, all Americans, a huge apology.

John Maynard Keynes

Via Brad DeLong, a lovely (and rather depressing) passage from John Maynard Keynes’s 1936 General Theory:

Investment based on genuine long-term expectation is so difficult to-day as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave; and, given equal intelligence, he may make more disastrous mistakes. There is no clear evidence from experience that the investment policy which is socially advantageous coincides with that which is most profitable. It needs more intelligence to defeat the forces of time and our ignorance of the future than to beat the gun.

Moreover, life is not long enough; — human nature desires quick results, there is a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate. The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.

Furthermore, an investor who proposes to ignore near-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money — a further reason for the higher return from the pastime to a given stock of intelligence and resources.

Finally it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally…

Doing the right thing?

If you listened to the This American Life episode that I recommended the other day (if you didn’t, it’s not too late), and even if you didn’t, you’ll find this development interesting—and encouraging.

Paul Krugman: Doing the right thing?

A tentative cheer: Paulson may have been dragged kicking and screaming into doing the right thing to rescue the financial system:

Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

Let’s give thanks to Chris Dodd, who insisted on the provision that makes this possible — and to Gordon Brown, for showing the way.

Update: Nouriel Roubini has some of the back story on how the TARP came to include provisions that could be used to recapitalize banks. From early on, there was indeed a feverish push by a number of economists, myself included, to get some channel for public capital injections in return for equity stakes into the plan. I reluctantly called for passage of the final bill because it did include such a channel, although it didn’t require that Paulson use it. There were a lot of accusations against those of us who took that position — claims that we were caving in, or trying to have it both ways. But the equity issue was crucial — and may now be the thing that turns a useless plan into something that really does a lot of good.

There’s no easy way out of the bubble

Vernon Smith, professor of economics and law at Chapman University and 2002 Nobel laureate in economics, in the WSJ:

There’s No Easy Way Out of the Bubble

Housing Bubble

To the extent that the bailout shores up existing home prices and its paper, it delays the inevitable. It does not assure the early return of buyers. Look at the course of home prices since 1987 in the nearby chart. Do you think the price decline has run its course since it turned the corner in 2006, then plummeted in 2007-2008?

Shoring up prices to prevent a further debasement of overly generous loans is not designed to bring back buyers of homes and mortgage paper. But there is good news: homes, stocks, crude oil, copper, corn, soy beans, wheat, lumber and even ethanol are now cheaper.

The five worst Supreme Court decisions of the past 50 years

Jack Balkin.

The Five Worst Supreme Court Decisions of the Past Fifty Years

David Savage of the L.A. Times asked me to list the worst Supreme Court decisions of the past fifty years—dating back to 1958. It’s hard to say what makes a decision bad. It could be an incorrect reading of precedent, a mangling of history, or a failure to exercise judgment and understand the long-term consequences of a decision. In any case, here is a list of five decisions that I think, for various reasons, are the worst of the past half-century, and why I think they were bad.

click for the list