Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Mon Nov 24th, 2014 at 12:20:30 PM EST
Vicious Circle(s) 2.0 While trying to sever the sovereign-banking link, we may be disregarding vulnerabilities from banks' mutual interconnectedness Silvia Merler Breugel H/T NC
Since the beginning of the crisis - and more so since 2010 - Europeans have been looking at the sovereign-banking "vicious circle", tying the dismal fates of States and banks together. This has emerged as a characteristic disease during the euro crisis, and one of the stated objective of the European Banking Union project was precisely to remedy it. The idea was basically to achieve this goal in a twofold way, ex ante and ex post. On one hand, by imposing stronger and harmonised supervisory requirements (e.g. on capital) and by empowering a third-party, independent and hopefully high-quality, supervisor to oversee their fulfillment, thus rebuilding trust in supervision and in the financial sector's health. On the other hand, if a crisis turned out to be unavoidable, the second principle consisted in limiting recourse to taxpayers' money as much as possible therefore preventing doubts about the damage that bank rescue would inflict to the state of public finances.
The first principle was translated into practice by the creation of a Single Supervisory Mechanism (SSM) under which, on the 4th of November, the ECB took over supervisory responsibility for banks in the euro area. The second principle concretized by the introduction of the Bank Recovery and Resolution Directive (BRRD) which gives a framework for resolution of troubled banks, and by the creation of a Single Resolution Mechanism (SRM), who should ensure consistent and homogeneous application of it. Among the other provision, the BRRD contains a set of rules for the application of bail-in in bank resolution, strengthening the involvement of private creditor that de facto is already introduced by the amended State Aid framework.
Hence, there has been a remarkable shift in the European mindset about banking crisis, from a first phase in which bail-in was a taboo, to a second one in which it is considered as a new normal and welcome practice. And there is in principle nothing bad about this idea, but the question is whether in rapidly overturning the approach, European policymakers have not overlooked important weaknesses that still exists in the system and could have important consequences in the perspective of applying these new rules.
Twenty percent of EU banks' capital has as counterparties other EU banks and in Italy and others much of the state debt is held by its private banks.
Thu Nov 20th, 2014 at 04:15:28 PM EST
New York Fed, Goldman in Criminal Investigation for Sharing Confidential Information Yves Smith Naked Capitalism
A New York Times story manages to bury the lead, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman....What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn't until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.
The overview: a former New York Fed employee who had been assigned to work with banks obtained confidential information about a bank client that amounted to impermissible sharing of privileged regulatory information. As the Times states at the very end of the story:
Goldman determined that the spreadsheet contained confidential bank supervisory information. Federal and state rules classify certain records, including those generated during bank exams, as confidential. Unless the Federal Reserve provides special approval, it can be a federal crime to share them outside the Fed.
But proving that someone "willfully" violated the rules, as is required for a criminal prosecution, could be difficult. The rules are vague and even contradictory about which documents must remain confidential -- and when regulators are allowed to share them.
Some of [Goldman employee] Mr. [Rohit] Bansal's information, the lawyers said, may have come from Jason Gross, who worked at the New York Fed at the time.
Mr. Gross's lawyer, Bruce Barket, said, "We are cooperating with the federal investigation to the best we can."
They put the worst nine paragraphs down, beneath the copy from three reporters, apparently hoping that few readers will get that far. At least they published the story. It gets better.
It would seem time to change the status of The New York Federal Reserve Bank by abolishing it board and making it directly responsible to the Federal Reserve Board of Governors and the Chairman. That would obviate the possibility for Jamie Dimon or another powerful Wall Street Banker to have an inside position as a member of the New York Fed's board. Most Open Market Operations by the Fed are implemented by the NY Fed. Determing what to do about the New York Times and other MSM publications is more difficult.
Tue Oct 7th, 2014 at 02:12:55 AM EST
Since those with great wealth hold most of the debt issued by the US Government in the form of bonds, and since they have disproportionate influence on Congress via large campaign contributions they could insist that the government buy back their bonds and retire them. But they don't because that is not what they really want. The main reason they hold this debt is that there are no alternative investments they find attractive. The USA desperately needs to build a renewable energy and transportation infrastructure before the cost of fossil fuels makes such an investment much more expensive, and building that infrastructure now would cap the cost of electricity, as there is no fuel cost for renewables, so renewables come on line first, per the Merit Order Effect. But this would cut into the profits from their fossil fuel holdings. The real reason they are pushing this faux debt crisis is to provide a reason to cut program they despise - namely anything that benefits the average citizen: food stamps, long term unemployment, Social Security and Medicare.
Sat Apr 26th, 2014 at 01:13:40 PM EST
Putin, Petrodollars and Canada's Useful Idiot Counterpunch
by MURRAY DOBBIN (H/T melo for the original post in the weekend newsroom.)
Stephen Harper's embarrassing behaviour regarding the crisis in Ukraine -- demonizing Vladimir Putin and upping the rhetoric -- must be welcomed in the U.S. which created the crisis in the first place and apparently believes it still has something to gain by isolating Russia. But it is not clear that Harper even realizes -- or cares -- what the larger game is. And that game may include a Russia-driven shift in global currency allegiance that could devastate the economies of the U.S. and Canada.
It is arguable that push for the petroruble is a global issue many times more important to the U.S. than anything that happens in the Ukraine, but American efforts to isolate Russia is actually accelerating the process. The desire is also driving Russia to look to the east instead of Europe for its future prosperity -- aligning with China as both a market for its gas and a partner in undermining the petrodollar. China is already headed there. Its yuan is the second most used currency, ahead of the euro, in international trade settlements. China recently "opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt."
The emerging economies of Brazil, Russia, India, China and South Africa are grouped under the acronym BRICS. According to journalist Peter Koenig: "Other countries, especially the BRICS and BRICS-associates (BRICSA), may soon follow suit and join forces with Russia, abandoning the `petrodollar' as trading unit for oil and gas. This could amount to tens of trillions in loss for demand of petrodollars per year." In which case, "leaving an important dent in the U.S. economy would be an understatement," says Koenig. "Along with the new BRICS(A) currency will come a new international payment settlement system, replacing the SWIFT and IBAN exchanges, thereby breaking the hegemony of... the Bank for International Settlements (BIS) in Basle.
Fri Apr 18th, 2014 at 10:39:38 AM EST
Ukraine: Is Obama Channeling Cheney? Yves Smith
In this Real News Network report, Michael Hudson discusses the news blackout in the US as far as critical developments in the Ukraine are concerned, and how the distortions and gaps in reporting exceed those in the runup to the Iraq War. From the top of the interview:
Late last week, the German television program ARD Monitor, which is sort of their version of 60 Minutes here, had an investigative report of the shootings in Maidan, and what they found out is that contrary to what President Obama is saying, contrary to what the U.S. authorities are saying, that the shooting was done by the U.S.-backed Svoboda Party and the protesters themselves, the snipers and the bullets all came from the Hotel Ukrayina, which was the center of where the protests were going, and the snipers on the hotel were shooting not only at the demonstrators, but also were shooting at their own-at the police and the demonstrators to try to create chaos. They've spoken to the doctors, who said that all of the bullets and all of the wounded people came from the same set of guns. They've talked to reporters who were embedded with the demonstrators, the anti-Russian forces, and they all say yes. All the witnesses are in agreement: the shots came from the Hotel Ukrayina. The hotel was completely under the control of the protesters, and it was the government that did it.
So what happened was that after the coup d'état, what they call the new provisional government put a member of the Svoboda Party, the right-wing terrorist party, in charge of the investigation. And the relatives of the victims who were shot are saying that the government is refusing to show them the autopsies, they're refusing to share the information with their doctors, they're cold-shouldering them, and that what is happening is a coverup. It's very much like the film Z about the Greek colonels trying to blame the murder of the leader on the protesters, rather than on themselves.
Now, the real question that the German data has is: why, if all of this is front-page news in Germany, front-page news in Russia-the Russian TV have been showing their footage, showing the sniping-why would President Obama directly lie to the American people? This is the equivalent of Bush's weapons of mass destruction. Why would Obama say the Russians are doing the shooting in the Ukraine that's justified all of this anti-Russian furor? And why wouldn't he say the people that we have been backing with $5 billion for the last five or ten years, our own people, are doing the shooting, we are telling them to doing the shooting, we are behind them, and we're the ones who are the separatists?
I strongly suggest you watch the interview in full, or read the transcript here.
Mon Mar 31st, 2014 at 10:49:45 PM EST
George Soros` INET: An institute to improve the world or a Trojan horse of the financial oligarchy? from Norbert Haering (H/T Edward Fullbrook)
Let's assume that there is a financial oligarchy which exerts strong political influence due to the vast amounts of money it controls. Let's further assume that this financial oligarchy has succeeded in having financial markets deregulated and that this has enabled the financial industry to expand their business massively. Then, in some near or far future, their artfully constructed financial edifice breaks down, because it cannot be hidden any more that the accumulated claims cannot be serviced by the real economy That might be due, for example, to millions of people having bought overly expensive houses on credit without having the income necessary to service this debt. This is the kind of situation we are interested in.
If such a situation occurs, the leading figures of that financial oligarchy might recall that there has been a financial crisis in the 1930s of similar origin, and that during and after this crisis, laws were passed which broke the power of the financial oligarchy and taxed their profits steeply. They might remember that it took their forbearers decades to reestablish the favorable state of the late 1920s, with deregulated finance and very low taxes on incomes and estates, even huge ones. The financial oligarchy might also recollect that economics is their most important ally in shaping public opinion and policies in their favor. To prevent a loss of power as it happened hence, they might want to make sure first that economics will not challenge the notion of leaving financial markets mostly to themselves and will continue to downplay the role of money and the power of the financial oligarchy, and of power in general.
However, the economic mainstream itself will have lost credibility due to its obvious failure to promote the public good and its rather obvious alliance with the interests of the financial oligarchy. Students will not so gullibly trust their professors and their textbooks any more. Young and bright researchers, who have not yet invested too much into the old discredited theories and methods, might turn to the question of the financial industry can be made to serve the public interest. This would contribute to turning public opinion against the interest of the financial oligarchy. Thus, it will be important for the financial oligarchy to identify the brightest and most influential critics and leading figures of reform initiatives and to neutralize them.
Mon Mar 17th, 2014 at 11:58:19 PM EST
Russia, Crimea and the Consequences of NATO Policy by Jeffrey Sommers & Michael Hudson (H/T Yves Smith) Originally published at Counterpunch
Discussing the peaceful breakup of the Soviet Union the authors note:
Part of the reason that this went off with such little violence was due to the mutual desire of President George H.W. Bush and Mikhail Gorbachev to end the Cold War's threat of Mutually Assured Destruction (MAD). Gorbachev for his part recognized that the Warsaw Pact nations needed to be let go, in order to free resources to build up a more middle class consumer economy. Demilitarization was to be achieved by disarmament, all the more remarkable in view of the largest human losses suffered in world history from military invasion had occurred just two generations earlier. Germany became the focus, pending its reunification in 1990. It had invaded its neighbors every generation or so since the Franco-Prussian War of 1870. In World War II it laid waste to the USSR and left 25 million of its people dead. Other East European nations, including Romania (and, along with victims of Stalinist oppression, e.g., the Baltics and Ukrainians, welcomed the Nazis and fought against Russia). The NATO alliance thus remained the main threat that had held the Soviet Union together
So Russia had vital security concerns that could only be met by assurances that NATO would not move into the Warsaw Pact states, where so much Soviet blood had been shed in World War II. President George H. W. Bush (#41) made assurances that if the Soviets were to dissolve the Warsaw Pact, Russia must be assured that the NATO would not fill the vacuum. But his successor, Bill Clinton, broke this promise by quickly taking the
former Warsaw Pact states into NATO, and then moved into territory formerly occupied and incorporated into the USSR with the Baltics.
It should have been foreseen - and probably was inevitable - that these new entrants wanted NATO, given their own experience with Soviet occupation. But the eagerness of a triumphalist United States to surround Russia militarily rather than disarm led Russian leaders to feel betrayed by the US breaking its word.
Jeffrey Sommers seems to be the likely source for the observations about the tacit agreement between G.H.W. Bush and Gorbichev and I would like some sourcing, which may be in some of his publications, but it seems right. And Clinton's Wall Street support came from many of the same people who later were 'advising' the Russians on 'reforms'.
Mon Mar 10th, 2014 at 01:13:47 PM EST
The ideological structure of a legitimated scam
by LAWPROF at Inside the Law School Scam (H/T epochepoque)
"Ideology" can mean a number of things. I'm using it here in the sense of the received consciousness of a particular social order, which legitimates that order and helps reproduce it. The lawyer and sociologist David Riesman aptly described how ideological modes of thought produce a kind of "sincere" mental state that allows someone to habitually believe his own propaganda. A dominant ideology generates a set of views that distort social reality in a particular way: in a way which advances the economic interests of the dominant group, without the members of the group becoming conscious of the fact that they believe what they believe because it is in their self-interest to believe it.
A simple example might be how the ideology of free enterprise capitalism in early 21st century America creates a sincere belief in the mind of a hedge fund manager that paying himself a salary of one billion dollars, which is then taxed at a lower rate than the salary of the average American full-time worker, is wealth maximizing for society as a whole, and therefore by definition a good thing.
Indeed! How is our present world anything but competing legitimated scams? (More below the fold.)
Sat Jan 25th, 2014 at 12:08:36 AM EST
Education has become a political football in the USA. An appalling number of students emerge with high school diplomas that don't really prepare them for anything practical. Conservatives want to hold the teachers accountable. We have had a changing series of standards and criteria that have succeeded in focusing efforts on preparing students for college. But the support available for college education for those whose families cannot afford to support them has been cut in favor of loans, debt from college loans has exceeded $1 trillion and college graduates are having increasing difficulty finding jobs that will enable them to pay their loans. This situation was the subject of a recent report on the PBS Newshour.
Meanwhile manufacturers, who offer living wage jobs with benefits, are frustrated that a high school diploma is no guarantee that an applicant can adequately perform most tasks in entry level positions. What are these skills? Per Bill Hoffer of Hoffer Plastics Corporation: "They need to be able to read blueprints. They need to follow procedures, document what they're doing. And that's all very important." A high school diploma, even with good grades in math, is no guarantee that the candidate has the needed skills for the job. College prep is not job prep it seems.
Per the PBS segment employers in the Illinois-Indiana area are turning to Work Keys, a program developed by ACT, Inc. It was developed specifically to test for skills employers found necessary and consists of three components - job skills assessment, job analysis and skill training - and the assessment covers twelve areas described in the link above. Why can't high school math teachers teach these skills?
According to teacher Laurie Nehf of Elgin High School in Indianopolis:
"I'm not told to have them job-ready. I'm told to have them college-ready. I'm focusing on linear functions, quadratic functions, polynomial functions, higher-level types of questions from WorkKeys. Is it important that they know that a negative under a square root creates an imaginary number? No, that's not really that important."
But figures from Elgin High and schools throughout the USA indicate that fewer than 25% of our students are graduating proficient in math according to current standards, focused as they are on college preparation. Says Laurie Nehf:
"They just shut down. They get very frustrated. We won't accept meeting kids where they're at and helping them where they're at.
I would love to spend all my time working on percentages, fractions, all that stuff with number sense. That number sense skills is what matters in the real world.(Emphasis added.)
Some have argued that the US should have a Plan B for students not going to college. But with only 25% graduating with math proficiency the USA does not even have a Plan A, just a brutal hazing of teachers and students administered by a failed series of plans for "excellence" and programs for "accountability". It is the politicians who need to be held accountable. It is time to end the pretense that every student should be, or even can be, prepared for college, whether then want it or not.
Mon Dec 9th, 2013 at 11:16:36 AM EST
How to Exit Austerity, Without Exiting the Euro Rob Parenteau New Economic Perspecitves
First of all, if a government stops having its own currency, it doesn't just give up `control over monetary policy'...If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market, in competition with businesses, and this may prove excessively expensive or even impossible, particularly under `conditions of extreme urgency'...The danger then is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.
So wrote the late Wynne Godley in his August 1997 Observer article, "Curried Emu". The design flaws in the euro were, in fact, that evident even before the launch - at least to those economists willing to take the career risk of employing heterodox economic analysis. Wynne's early and prescient diagnosis may have come closest to identifying the ultimate flaw in the design of the eurozone - a near theological conviction that relative price adjustments in unfettered markets are a sufficiently strong force to drive economies back onto full employment growth paths.
Rob Parenteau notes that countries caught in the deflationary vise brought about by the EMU and the associated policies would face a high cost for exiting the Euro and proposes an alternative.
(Corrected name for Syriza leader)
Mon Oct 28th, 2013 at 01:09:51 AM EST
The UK at the heart of a renewed globalisation
Mark Carney, Governor of the Bank of England gave a speech linked above at an event to celebrate the 125th anniversary of the Financial Times, London, 24 October 2013. Perry Mehrling posted that speech and a Bloomberg article (see below) about the Federal Reserve's proposal on his Money and Banking discussion forum, asking for discussion. My response is below:
It seems like both the Fed and the BoE are planing to significantly increase capital reserves well ahead of current Basel III deadlines. This will put pressure on the EMU banks and on European national central banks that have been resisting such increases, as they are far below even the current US and UK reserve requirements. Paris and Berlin will likely complain, with some justification, that they have different systems and should not be held to the same requirements. What will Spain, Greece, Portugal, Italy and Ireland do and how can they comply? The periphery has trouble complying with the current requirements and the ECB is hamstrung by Germany when it comes to helping them and is not a true central bank to begin with. Nor is there a real EMU wide fiscal authority.
Mark Carney of the BoE made by far the most significant and revealing claims. In effect, he proposes to make the BoE the dealer of last resort for banks and market makers operating in the UK, very much like what Perry Mehrling has proposed and described, in this case with unlimited support in British pounds and significant standing swap agreements with other foreign central banks for other major currencies, including soon the Chinese Renminbi. To me the clear implication is that such backstop would be provided to UK domiciled branches of foreign banks, perhaps via the BoE discount window, but it is hard enough to parse Fed statements, let alone BoE statements.
To me the revealing part consisted of the following:
"And in times of actual or prospective stressed conditions we stand ready to provide cheap, plentiful money through more frequent auctions."
"Cheap, plentiful money" seems a large step beyond Bagehot's "Lend freely at a high rate against good collateral." It sounds like in times of stress there will be QE for the world. Of course the current overnight rate from the BoE is 0.5%, so the "cheap" money commitment seems more like forward guidance. To me this indicates that the BoE are still flummoxed at their inability to increase economic activity through the monetary policies available to the central bank, and, of course, they are saddled with the gratuitous 'austerity' program of the current Tory/LibDem Coalition. Given the dependence of the British economy on the financial sector the prospect of the global economy slipping into deflation must surely terrify the BoE, if not George Osborne. David Cameron might not know enough to be terrified.
It will be interesting to see how the proposed policy for resolving failed international banks will develop. That has to be the most difficult part of all. The other shoe to drop will be how the implicit extension of regulation by the BoE to non-Bank market makers unfolds. Will this require action by Parliament and will such action be forthcoming?
Criticisms and additional thoughts are appreciated.
Wed Sep 25th, 2013 at 01:30:20 AM EST
There is great suffering in the peripheral countries of the Euro zone and the existing 'austerity' policies are gratuitously inflicting economic damage and destroying lives, especially in Greece and Cyprus, but also in Portugal, Spain and Ireland. At present, Germany has no motive to change anything and is the chief beneficiary of the existing crisis. This seems likely to continue so long as German workers accept their reduced circumstances and blame them on 'lazy southerners'. Germany is adamant about maintaining a hard money Euro and keeping all debts segregated by nationality while refusing to approve any surplus recycling mechanism within the Eurozone. These positions seem unlikely to change any time soon. Splitting the EMU into two monetary unions could provide a path to a resolution.
Sun Sep 8th, 2013 at 12:15:58 AM EST
This diary was prompted by the ongoing discussion in Chris Cook's Credit, Currency and Other Animals and specifically, by Drew Jones' comment below:
How are the outcomes any different from other fixed currency regimes? You're still fixing the currency to a "commodity" whose value is disconnected from your country's macroeconomic needs in the name of achieving some imaginary "true" value.
We got away from fixed currencies for a reason. The Eurozone is currently engaged in a fine display of why we did so.
The problem is that so few people understand money, banking or 'money and banking'. Early 20th century monetary economists such as Irving Fisher, John Maynard Keynes and Allyn Young clearly understood the problems of the gold standard. The UK only really came out of the Long Depression when large quantities of gold started coming out of South African mines. Then prices started rising again. It was the financial collapse of 1873 which led Walter Bagehot to write Lombard Street
, describing how the banking system of the day worked to assure that cash flows were available to meet cash demands.
Part of the problem we have in understanding the current ongoing crisis is that we have taken our eyes off the money. Another perhaps related part is that we have no generally acknowledged set of rules for managing the money supply of individual currencies, let alone rules for managing a global financial system. Still another part is that this lack of rules is loved by some very wealthy individuals and organizations and they have learned to exploit it to their advantage. This all makes solving this problem more difficult and can render even discussions of the subject fraught.
Thu Jul 11th, 2013 at 02:52:29 AM EST
From the Bubble Economy to Debt Deflation and Privatization Michael Hudson naked capitalism
The Federal Reserve's QE3 has flooded the stock and bond markets with low-interest liquidity that makes it profitable for speculators to borrow cheap and make arbitrage gains buying stocks and bonds yielding higher dividends or interest. In principle, one could borrow at 0.15 percent (one sixth of one percent) and buy up stocks, bonds and real estate throughout the world, collecting the yield differential as arbitrage. Nearly all the $800 billion of QE2 went abroad, mainly to the BRICS for high-yielding bonds (headed by Brazil's 11% and Australia's 5+%), with the currency inflow for this carry trade providing a foreign-exchange bonus as well.
This financial engineering is not your typical bubble. The key to the post-2000 bubble was real estate. It is true that the past year and a half has seen some recovery in property prices for residential and commercial property. But something remarkable has occurred. So in this new debt-strapped low-interest environment, Hedge funds and buyout funds are doing something that has not been seen in nearly a century: They are buying up property for all cash, starting with the inventory of foreclosed properties that banks are selling off at distress prices.
Something else that has not been seen for almost a century is the USA on a gold standard. Under a gold standard it was common for banks to call in loans in bad times and then buy up the assets those loans had financed on the cheap. TPTB have figured out how to accomplish the same thing with fiat currency in the hands of a compliant monetary authority by pretending that we labor under the same constraints as those imposed by a gold standard. So this time we are being crucified on a virtual cross of gold.
Wed May 29th, 2013 at 08:30:12 AM EST
In their paper Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach Nathaniel Cline and Nathan Cedric Tankus illustrate the power of carefully looking at economic history while illuminating some of the limitations of economic and monetary theory, in this case that of MMT, and clarifying factors that affect the abilities of different societies to create a truly sovereign state.
(Warren) Mosler argues that in the mid 1990s he thought, "the theory of the monetary circuit was correct to the point of being entirely beyond dispute". However, he also argues that the theory "could be further enhanced by starting from the beginning". This beginning for Mosler was of course why the workers accepted the units of a currency as payment for their labor services. His answer (which is quite well known among heterodox economists by now) was that imposed debts denominated in that unit of account, give it's units value; in other words taxes. This is an important part of the story, but we would argue it is in fact not the beginning. The true beginning to the circuit is the question of where people and organizations gain the ability to tax.
Thu May 16th, 2013 at 03:10:20 PM EST
Beta: Universal Basic Income Calculator New Deal 2.0 Mike Konczal
Click here to try a new Universal Basic Income calculator. You can click on which programs you'd like to turn into a UBI, and what taxes you'd be willing to put into motion, and it will tell you how large of a UBI can be supported with those resources. You can also type in your own numbers if you are interested.
[editor's note, by ARGeezer] Inserted blockquotes around first paragraph.
Sun Dec 16th, 2012 at 03:17:30 PM EST
While perusing an INET article on risk, "Choice Under Uncertainty": A Misnomer by Raphaële Chappe, (someone to keep an eye on), I saw another reference to Frank Knight, one of the founders of the Chicago School of economics and his 1921 work on risk. I knew of Knightian uncertainty but decided to find out more about Knight. Wiki to the rescue:
Knight is best known as the author of the book Risk Uncertainty and Profit, (PDF) based on his Ph.D. dissertation at Cornell University. In that book, he carefully distinguished between economic risk and uncertainty. Situations with risk were those where the outcomes were unknown but governed by probability distributions known at the outset. He argued that these situations, where decision making rules such as maximising expected utility can be applied, differ in a deep way from "uncertain" ones, where the outcomes were likewise random, but governed by an unknown probability model. Knight argued that uncertainty gave rise to economic profits that perfect competition could not eliminate.
While most economists now acknowledge Knight's distinction between risk and uncertainty, the distinction has not resulted in much theoretical modelling or empirical work. (emphasis added)
Well, fancy that! Who could'a imagined? Perhaps one of the perks of being the guy who first described a field is the opportunity to systematically ignore the implications when those implications were awkward. I can hear his ghost responding to an accusation that his life's work paved the road to the biggest financial calamity since the Great Depression whilst ignoring Knightian uncertainty: "Don't harangue me about risk! I wrote the book."
This seems to be the focus of Raphaële Chappe's academic work and one her background well equips her to investigate with authority.
Thu Nov 29th, 2012 at 05:38:35 AM EST
From The Federal Reserve Bank of San Francisco Economic Letter #2012-35 of November 26, 2012:
(Cascading Hat Tips to Migeru Shimbun and Economist's View)
Highway Grants: Roads to Prosperity?
By Sylvain Leduc and Daniel Wilson
Federal highway grants to states appear to boost economic activity in the short and medium term. The short-term effects appear to be due largely to increases in aggregate demand. Medium-term effects apparently reflect the increased productive capacity brought by improved roads. Overall, each dollar of federal highway grants received by a state raises that state's annual economic output by at least two dollars, a relatively large multiplier.
Increasing government spending during periods of economic weakness to offset slower private-sector spending has long been an important policy tool. In particular, during the recent recession and slow recovery, federal officials put in place fiscal measures, including increased government spending, to boost economic growth and lower unemployment. One form of government spending that has received a lot of attention is public investment in infrastructure projects. The 2009 American Recovery and Reinvestment Act (ARRA) allocated $40 billion to the Department of Transportation for spending on the nation's roads and other public infrastructure. Such public infrastructure investment harks back to the Great Depression, when programs such as the Works Progress Administration and the Tennessee Valley Authority were inaugurated.
Thu Nov 1st, 2012 at 02:08:25 AM EST
It is hardly surprising that we have heard so little about this in the media.
Here is a transcript of Arny Gunderson on Democracy Now on the concerns about nuclear plant safety in the storm:
AMY GOODMAN: Can you talk about what you feel needs to happen right now? And talk about nuclear power plants in Connecticut, in Vermont, your main concern.
ARNIE GUNDERSEN: Yeah. The biggest problem, as I see it right now, is the Oyster Creek plant, which is on Barnegat Bay in New Jersey. That appears to be right about the center of the storm. Oyster Creek is the same design, but even older than Fukushima Daiichi unit 1. It's in a refueling outage. That means that all the nuclear fuel is not in the nuclear reactor, but it's over in the spent fuel pool. And in that condition, there's no backup power for the spent fuel pools. So, if Oyster Creek were to lose its offsite power--and, frankly, that's really likely--there would be no way cool that nuclear fuel that's in the fuel pool until they get the power reestablished. Nuclear fuel pools don't have to be cooled by diesels per the old Nuclear Regulatory Commission regulations. I hope the Nuclear Regulatory Commission changes that and forces the industry to cool its nuclear fuel pools, as well.
This time of year, there's a lot of power plants in refueling outages. And all of those plants will be in a situation where there's no fuel in the nuclear reactor; it's all in the fuel pool. Systems have been shut down to be maintained, including diesels, perhaps even completely dismantled. And in the event that there's a loss of offsite power from the high winds from this hurricane, we will see the water in the fuel pools begin to heat up.
Wed Oct 24th, 2012 at 12:06:56 PM EST
The president vows debt-cutting "grand bargain, immigration reform in 2013"
The conversation had initially been off-the-record, but the White House gave the daily permission to publish it after editor Rick Green penned an unusual public complaint.
"It will probably be messy. It won't be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I've been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs," Obama said.
And we can easily meet -- 'easily' is the wrong word -- we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years, and we can stabilize our deficit-to-GDP ratio in a way that is really going to be a good foundation for long-term growth. Now, once we get that done, that takes a huge piece of business off the table," he went on to say.
Does Obama really believe debt reduction will work? (I don't think he is talking about credit writedowns.) Or is he counting on, say, 'debt reduction' of $1 trillion over ten years as a justification for $400 billion of stimulus now? Nor, given his record, do I think he is counting on additional savings at the expense of the health insurance industry - or any other part of the financial sector for that matter, and that is where most of the savings could be made that would not impact the quality of delivery of health care to the public.
Update [2012-10-24 12:22:13 by ARGeezer]: Edited portion in the blockquote.
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