Endgame
Make it all seem worthwhile:
— “If we could guarantee 5 percent NGDP growth for several years, it would be great.”
— Barack Obama’s not-so-hot plan to beat a GOP congress.
— Gas tax.
— Tweaking the area median income formula doesn’t change the fact that you need to increase supply to make housing cheaper.
— How elite are you? I got 13 “elite” answers.
Husker Du does “Love Is All Around” (aka the Mary Tyler Moore Show theme song).
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What Price Bananas?
I really want to teach Scott Sumner to write shorter blog posts, because this throwaway paragraph embedded in a larger argument I don’t really agree with is great on its own:
[S]uppose we had been gladly importing Ecuadorean bananas for decades, naively thinking that any country named after the equator must be warm. Then we found out that the weather in Ecuador was actually quite cool (due to high altitude), and that bananas could only be grown there because the government was heavily subsidizing production in greenhouses. Of course most red-blooded Americans would be outraged by this discovery, as it would indicate that we were a bunch of patsies who had been victimized by the Ecuadorean “dumping” of subsidized goods. A few economists might argue, however, that if cheap bananas are good for the US, it doesn’t really matter why they are cheap.
Incidentally, I have in fact seen a government-subsidized greenhouse in Iceland where they were growing tropical flowers and citrus fruit:
I hope—but don’t dare assume—that the Icelandic government is rethinking some of its agricultural policies in the wake of their bubble collapse. The US has some irrational approaches in this regard, but it’s nothing compared to what they were up to.
NBA Season Preview
First off let me start by thanking Wizards owner Ted Leonsis for correcting my error in an earlier post. I wrote “Pollard family” when it should have been “Pollin.” The Pollins have been pillars of this community since long before I lived here, so I feel unusually bad about this typo.
More broadly, I’m afraid I’m going to have to say that the outlook for the Wizards as the NBA season begins is extremely bleak. Projections for this to be a somewhat below-average squad involve being (a) unduly optimistic about the recovery of Gilbert Arenas’ knees, (b) unduly optimistic about the performance of John Wall, and (c) probably too optimistic about how good Arenas ever was. Last year’s team was bad, and we’ve now lost a lot of players who were solid contributors. Wall would have to do something totally unprecedented to raise this team to anywhere other than awful. I should note that I say this not out of specific John Wall skepticism, but simply to note that now that very talented prospects don’t stay in college for very long rookies tend to be pretty bad. LeBron James and Kevin Durant both lived up to the hype—eventually—but as rookies were just guys who took and missed a ton of shots.
Beyond that, I agree with Arturo Galletti that the injury to Mike Miller is a bigger blow to the Heat than might be clear at first glance. The way this squad is put together there’s very little room for error. I think questions about LBJ, Wade, and Chris Bosh “coexisting” are overblown. The Eastern Conference playoffs will, however, give us a good look at how much matchups matter since I don’t see anyone on this team who’s going to defend Dwight Howard successfully.
The other thing I think people are kind of sleeping on is the Portland Trailblazers. This was a good team last year—fifty wins—and I don’t think their injury situation is going to get worse. What’s more, this is a squad that, if healthy, has the size and depth to match up with the Laker bigs.
We Are All Pointy-Headed Elites
Via James Downie, it turns out that not only is Charles Murray generally full of it, but elitism is on the rise as NASCAR ratings mysteriously plummet:
“The simple fact is that people just are not tuning in,” said Julie Sobieski, ESPN’s vice president of programming and acquisitions. “We’re looking at everything to find out why.”
Top ESPN executives, including president George Bodenheimer, traveled to Charlotte for the fifth race of the Chase, the Bank of America 500, and engaged NASCAR executives during several meetings. A team of ESPN’s top editorial staff, including Rob King, ESPN digital media editor-in-chief, and Glenn Jacobs, senior coordinating producer of SportsCenter, also attended the race and were given a three-day, behind-the-scenes immersion into NASCAR operations.
Obviously, Barack Obama’s sharia socialism is to blame here. Decent people worry that if they watch NASCAR, their parents will be sent off to the death panels.
Meanwhile, David Frum has a good post on Murray and the real American elite.
The Reagan Precedent
This is a bit of an aside in a column that’s primarily about legislative strategy, but I think Mark Schmitt is expressing a widespread tendency to take an undue level of comfort from the precedent of Ronald Reagan’s first term:
Many of the White House’s political troubles can be entirely explained by the economy, of course, since they are exactly comparable to Ronald Reagan’s unpopularity with similar levels of unemployment in 1982. But when the economy recovers, as it will, and his presidency regains its footing, Obama — and we — will need a whole new theory about how to make government work without losing the bigger vision.
Check out the level of GDP growth associated with the “morning in America” recovery:
By contrast, the CBO is projecting (PDF) 2.1 percent real GDP growth for 2011. Now it’s true that CBO’s estimate is on the pessimistic side. We might well do better than that. But the point I would make is that there’s nothing inevitable about a robust catch-up recovery. We entered the early 80s recession with high inflation and very high nominal interest rates. When Paul Volcker was satisfied that inflation was whipped, he implemented sharp reductions in nominal interest rates and growth came roaring back. But ever since nominal rates hit zero, the Fed’s been stumbling around, real rates are still pretty high, and nobody seems to have any politically feasible ideas about how to do better.
Insider Trading
Andrew Ross Sorkin takes a look at some newly expansive definitions of insider trading:
Late last month, the Securities and Exchange Commission brought an unusual and colorful insider-trading case: It accused two employees who worked in the rail yard of Florida East Coast Industries and their relatives of making more than $1 million by trading on inside information about the takeover of the company.
How did these employees — a mechanical engineer and a trainman — know their company was on the block?
Well, they were very observant.
They noticed “there were an unusual number of daytime tours” of the rail yard, the S.E.C. said in its complaint, with “people dressed in business attire.”
He summarizes the new attitude as “the S.E.C. is no longer just making sure that employees are not abusing their position and breaching their fiduciary duty; it is focused on making sure the markets ‘feel’ fair.”
This doesn’t strike me as change for the better. There are two kinds of functions equity markets serve. One is that they aggregate information and channel capital to useful activities. The other is that they serve as casinos that generate a “take” for various brokers and the like. You can make the case that some kinds of restrictions on insider trading are necessary in order to help equity markets serve their former function. But the latter function isn’t something the government should be getting involved with.
Of course if I were running the stock market I would want small investors to “feel” that the market is fair. But the market is not, in fact, fair. And no quantity of S.E.C. policing is going to make it fair. If you want “fair” you should buy an index or some government bonds. The most valuable role the government could play would probably be to slap a giant “you probably shouldn’t invest here” sticker around the whole thing. Then firms and the stock market itself would face the somewhat challenging problem of inspiring investor confidence in the integrity of their operations, rather than getting the government to do it for them. Something like the observant railroad employees, by contrast, is exactly the kind of aggregation of information that we’re looking for in markets.
School Quality is Hard, Even in Early Childhood
I mentioned this once before, but I think that people sometimes exaggerate the contrast between what we know about charter schools and what we know about pre-kindergarden. In both cases, what we have are examples of highly effective intervention alongside other examples of lower-quality intervention and continued debate over what really works.
For a taste, check out Sara Mead on pre-K teacher quality:
These concerns are underscored by developments over the past several years. On the one hand, an important 2007 study found limited correlations between pre-kindergarten teacher’s educational credentials and observed classroom quality or child outcomes, raising questions about the established orthodoxy in the field. At the same time, new models–most notably the Classroom Assessment Scoring System (CLASS)–have emerged that offer valid and reliable measures of pre-k instructional quality based on what teachers actually do in the classroom–and are correlated with student learning outcomes. And there is also evidence that certain types of professional development are effective in improving the skills and effectiveness of pre-k teachers, whether or not they have a bachelor’s degree–such as high-quality coaching linked to CLASS and the combination of professional development, coaching, and progress monitoring provided through the Texas Early Education Model.
None of that is to say that pre-K boosters are wrong. On the contrary, they’re completely correct. High quality pre-K programs appear to have large benefits. But the situation is no different from the one facing K-12 education—high quality is both extremely valuable, somewhat hard to come by, and best obtained if we judge providers on their results rather than by assuming we know which inputs are the best.
Yes, China’s Currency Policy is a Problem
(cc photo by cliff1066)
I think a lot of the discussion of the issue has somewhat overstated the extent to which Chinese currency manipulation is a problem for the United States. So I guess it’s John Cochrane to the rescue with an op-ed that manages to wildly understate the issue. He starts with the odd premise that we should do a libertarian analysis of trade with a large dirigiste economy with a state-controlled banking sector:
How does anyone know if a currency is “undervalued” or not? The economists hidden away in the sub-basements of the IMF may try to decide what currencies “should be” worth across vastly different countries, but this is a hopeless task. Is $2 a day the “right” wage in China, or should that be $2.20 per day because the currency is “undervalued?” Good luck.
Indeed. Why not just leave the valuation of the currency up to the market? But has Cochrane not heard of the Chinese capital controls that are the crux of the issue here? The reason we don’t just leave this up to the market is that the Chinese government doesn’t let the market set the value of its currency. Instead the government sets the price. So while IMF economists can’t get the “right” value as well as markets might, they can still say “this price-setting is being done in a distorting way.”
Next graf, though, it seems Cochrane understands this perfectly well:
Why push China to manipulate its currency upward, but ignore its capital and exchange controls? We should push China to abandon those controls instead. A freely pegged currency is a great idea, especially for a fast-growing, trade-based economy with a weak central bank like China.
Why push China to manipulate its currency upward, but ignore its capital and exchange controls? Because nobody is doing this. What we’re asking China to do is to relax those controls. Should we push China to “abandon” those controls instead of asking them to relax them? Well, it’s hard to say what difference that would make.
To motivate the idea that there’s a disagreement here, Cochrane then finds himself bizarrely denying that Chinese bond purchases are an effort to manipulate their currency level. Like Brad DeLong I would urge him to discuss this with someone. Go to China. Talk to their Commerce Ministry. Talk to their Foreign Ministry. Ask a businessman. Nobody is confused about this. The policy is export-led growth and that means not allowing the currency to appreciate too rapidly.
Fed Succeeding in Boosting Inflation Expectations
The thing you need to understand about the anomalous negative interest rates on inflation protected bonds is that this is the plan. Given the state of the economy we need negative real rates to produce growth. People have become extremely risk-averse, and we need to find out exactly how risk-averse they are. If the returns on risk-free investments are guaranteed to be negative, then suddenly riskier investments—i.e., investments in growing “real” economic activity—start looking better.
Meanwhile, I noted yesterday that I think Paul Krugman tends to overestimate how difficult it is for the central bank to generate inflation. And, indeed, today he says he’s puzzled by why markets are reacting so strongly to the QE2 talk and suggests they’re making a mistake.
Maybe they are, but I think what we’re basically seeing is the potency of the communications channel. In a case like this, if the markets converge on a higher expectation of inflation then that can easily become a self-fulfilling prophesy through the “bootstrap” mechanism described in his 1998 paper (PDF) “It’s Baaaack! Japan’s Slump and the Return of the Liquidity Trap.”
If the central bank can credibly commit itself to pursue inflation where possible, and ratify inflation when it comes, it should be able to increase inflationary expectations despite the absence of any direct traction on the economy via current monetary policy. Indeed, if one views monetary policy in terms of nominal interest rates, a credible commitment to inflation can seem to be a pure bootstrap policy: interest rates never actually need fall, all that is required is a promise not to raise them when the economy expands and prices begin to rise.
He then observes, correctly, that “How to actually create these expectations is in a sense something outside the usual boundaries of economics.”
This is an interesting research issue crossing over social psychology, political science, and economics that I think we don’t know very much about. But we should at least be open to the possibility that it’s very easy to generate these expectations as long as you actually want to. The key question now is will the powers that be try to “reassure” markets of their commitment to fighting inflation, or will they embrace an increasing price level as part of the solution to our problems.
Will Divided Government Lead to Deficit Reduction? Will It Lead to Anything?
At first blush “divided government” seems like a recipe for endless gridlock. At second blush this isn’t really correct. A lot of significant legislation, from No Child Left Behind to the creation of a Medicare prescription drug benefit to the Balanced Budget Agreement of 1997, the 1996 Telecommunication Act, “welfare reform,” etc. happened in the 1990s and 2000s under conditions of divided government. And David Mayhew’s book Divided We Govern surveys the 1946-2002 period and finds that this is generally the case. It’s not that divided government is the same as unified government, but either way entrepreneurs in congress and in the executive branch have found ways to pass lots of important laws across the partisan divide.
Jackie Calmes writes in the New York Times, however, that she thinks it’s unlikely a new GOP majority in the House of Representatives would lead to a bipartisan coalition for deficit reduction. She paints this picture in fairly broad terms whereby “incumbents otherwise inclined to make deals are now wary, Republicans say privately, mindful of colleagues who lost primary challenges from Tea Party candidates.”
I think we should assume that Calmes is right, but I would put forward another hypothesis about this. There’s unlikely to be a bipartisan deficit reduction deal because conservatives don’t care about the deficit. Dealmaking is possible when people from both sides care about aspects of an issue. No Child Left Behind, for example, appealed to key Democrats like Ted Kennedy and George Miller who thought it was an important tool for focusing educational resources on poor kids and minorities. Many conservatives liked the fact that teacher’s unions didn’t like it. Bipartisan appeal = bipartisan legislative outcome. Similarly, there’s strong support in both parties for a “don’t let major banks collapse” agenda, so the Fannie/Freddie nationalization and TARP got done even under difficult circumstances for cooperation.
But conservatives don’t favor deficit reduction. They favor tax cuts. When the budget was in surplus, both George W. Bush and Alan Greenspan defined the existence of the surplus as a problem for public policy—one that should be solved with tax cuts. You can’t compromise without some element of common purpose.
Cheap Finnish Health Care Is Built on the Back of Low-Paid Doctors
Kevin Drum and Bob Somerby are annoyed that journalists talk about the strong performance of Finland’s school system but don’t mention its highly efficient health care system. Specifically, the US spends $7,285 per year to Finland’s $2,900:
Finland’s test scores let a bunch of know-nothing journos push a preferred press corps narrative: Our public schools are a mess! (Maybe we need to privatize! It’s all the fault of the unions!) Finland faces none of the daunting educational challenges we face, of course. But so what! All pundits on deck!
By way of contrast, the press corps’ deference to corporate interests seems to make it shy from the topic of health care spending. Does Finland achieve good health care at a very low price? This topic can’t be discussed!
I dunno, when I went to Finland to learn about their school system I came away writing, among other things, about their highly cost-effective health care system and their health-enhancing school lunch initiatives. To be honest, in my experience something like 97% of commentary on Finnish education involves taking note of their generous and effective Nordic welfare state, so I feel like Drum and Somerby are mostly being cranky here.
But rather than counter-crank, let’s ask the question why is it that Finland is able to keep its health care spending so low? As best I can tell, it’s all pretty standard stuff. One huge factor is that their doctors make way less money $3,177 per month to $8,189 per month in the United States. They have pharmaceutical price controls. And according to a Harvard Business School analysis (PDF) “Within the municipal health care system, patients have had very limited freedom to choose their health care providers or physicians.” Specifically “There is great variability across municipalities in terms of patients’ ability to choose their primary care physicians” and for specialists:
A referral from a licensed physician is needed to access municipal specialized care (i.e. hospitals), and patients cannot usually choose their hospital or specialists. Instead, health centres have guidelines listing the providers to which patients with certain symptoms and diagnoses should be referred. Normally, patients are treated in a hospital within their hospital district of residence, and their freedom to choose their physicians within the hospital depends on factors including the organization of departments and the number of specialists.
This all seems to me to work well-enough. At a minium, it’s cheap! But who here thinks that running on a platform of drastic cuts in medical professionals’ salaries combined with restricted provider choice and large-scale government rationing is going to be a big winner? There’s more than “corporate interests” at issue here. Among other things, as long as doctors are about a million times more trusted by the population than are politicians, it’s going to be extremely difficult for politicians to ever enact measures that reduce doctors’ incomes. But it’s extremely difficult to imagine how a more efficient health care system could avoid reducing doctors’ incomes.
Endgame
You should know better:
— Latinos getting more enthusiastic about voting.
— “The Finnish Health Care System: A Value-Based Perspective” (PDF).
— Web journalism needs workable price discrimination system.
— Physician salaries around the world.
— Government should publish monthly GDP data.
AOL thinks “California Gurls” is the best song of 2010 whereas in fact it’s not even the best Snoop Dogg / pop collaboration of 2010. Check out Robyn,
Incidence of Federal Housing Subsidies
The large-scale subsidies to the housing sector is one of the least market-oriented aspects of the American economy, and as Mike Konczal observes they’re also hugely regressive, making it unlikely that the politicians who like to rant and rave about free markets will actually do anything about it:
Ridiculous. Phasing out the home mortgage interest tax deduction would be one of the very best measures we could take to reduce the long-term deficit.
Parking Reform in Greater Boston
(cc photo by gracefamily)
A number of readers have sent me Paul McMorrow’s article about parking reform in the Boston area and I’m glad you did:
When Boston development officials recently handed permits to the developers of Waterside Place, they did so despite neighborhood concerns that the developers wanted to build far more apartments than parking spots. On A Street, the Boston Redevelopment Authority is close to green-lighting a 21-story residential tower. The tower’s developer had originally planned to build one parking spot for every two residential units, an abnormally low supply; BRA officials are pushing the developer to push that ratio even lower by replacing a whole floor of parking with innovative workforce housing units.
These permitting decisions are not happening in a vacuum. Government-imposed floors on the number of parking spots required at new developments are falling across the city, and beyond. Somerville, for instance, is increasing zoning density and lowering parking requirements along the route of the planned Green Line extension, with an eye toward spurring new transit-oriented development. But the change is especially pronounced in the Seaport, where developers are working with as close to a blank canvas as you’ll find in any major American city.
Regulators pushing developers to build less parking than they want is much, much, much better than the near-universal practice of regulators mandating minimum levels of parking. But I do think the message is clearer and the potential political coalition bigger if parking reformers just stick to the idea that this should be left up to the market. Cars are useful, and people who have cars need to park them. So there’s nothing wrong with building parking. But urban space is expensive, and parking spaces take up space, so people should weigh the costs and benefits of building/buying more parking against other possibilities. Getting to market-determined levels of parking construction and parking space pricing would be a huge victory, and it’s not particularly necessary to go beyond that.
TARP and Commercial Paper
Dean Baker denounces the “hoary lie” that TARP was needed to prevent the collapse of the commercial paper market, arguing:
Bernanke was deceiving Congress with his discussion of the commercial paper market because he single handedly possessed the ability to support the commercial paper market. In fact, the weekend after Congress voted for the TARP he announced that he would create a special Fed lending facility to directly buy commercial paper from non-financial companies.
If Bernanke had been honest with Congress he could have told them of his plans to create such a facility before they voted on TARP and explained that the commercial paper market could be sustained whether or not they approved the TARP bailout.
This is worth mentioning now because this hoary lie keeps popping up. Let’s be clear, it was important for the Fed/government to take steps to sustain a working financial system. But these steps could have included conditions that made Wall Street pay a huge price and change its mode of operation forever.
The “keeps popping up” link is to my post from this morning on the money-money market run and I don’t really see that Baker and I disagree. To quote myself:
It would be silly to say that the policies adopted in response to this—TARP and the AIG bailout, primarily—were the only possible responses. But absent some kind of (nominally) costly and unpopular bailout we would have had a costly and unpopular sequence in which people’s “safe” money market accounts were wiped out, to say nothing of perfectly solvent firms being suddenly unable to meet payroll.
So I say: We didn’t need to follow the Paulson/Bernanke/Geithner script precisely, but we did have to take some kind of dramatic and unusual action. Baker says that we did have to take some kind of dramatic and unusual action, but we didn’t need to follow the Paulson/Bernanke/Geithner script. I don’t see these as particularly divergent points of view, but it is worth understanding the issue from both perspectives. Back in the winter of 2008-2009 I thought Baker’s point was the most important one, but from the perspective of the fall of 2010 I think the bigger problem is that a growing number of people have persuaded themselves that there was never any kind of real problem here.
Is It Hard to Inflate?
Reading Paul Krugman’s post today on I “Sam, Janet, and Fiscal Policy” I get the sense that he thinks it would be difficult for willing policymakers to create temporarily elevated inflation expectations.
To me, it seems like this would be easy. Note, for example, that increased Fed chatter about quantitative easing seems to have successfully reversed a downward trend in the TIPS spread:
When considering the whole issue, I think a lot of economists tend to underrate the potency of the “communications channel,” perhaps because it’s hard to model. But I think that if Ben Bernanke announces a new round of quantitative easing after the election and comes out and says “I’m doing this QE because I want to raise the price level and I’ll do more if it doesn’t go up fast enough” that the impact will be enormous. By contrast, if he keeps assuring people that he doesn’t want to see inflation peak over 2% under any circumstances, then recovery will be restrained.
This is, I freely concede, very much a media person’s way of looking at things rather than an economist’s. But in economic terms, a lot of financial markets activity has the qualities of a Keynesian beauty contest and clear communications guidance from policymakers can shift the coordination point. Then those financial activities have an impact on real activity.
How Much Racial Displacement Really Happens?
I used to live in DC’s U Street neighborhood and was fascinated by the local history. Essentially it was a key commercial main street for the city’s black community during the Jim Crow era, then fell apart under the triple pressures of riots, desegregation, and urban disinvestment and then has been reinvented since the opening of the U Street Metro station as a substantially whiter neighborhood. Lydia DePillis’ profile of Sandra Butler-Truesdale ads a lot to my understanding and also prompted some further research with this remark:
Butler-Truesdale has a multifaceted take on gentrification. On the one hand, she mourns the loss of African American cultural dominance on U Street. When developer Chris Donatelli—whom she calls “my good friend”—built the Ellington apartments, she asked him whether anybody who looked like the building’s namesake would be able to live there. At the same time, however, she doesn’t blame white people for black displacement.
“People say a lot of stuff, and half the time they don’t really know what’s happening,” she says. “You have to look at the fact that most of this is about the economy. It’s about the fact that we live in these neighborhoods and did not actually buy property…When you do that, you have no real anchor, and people can do what they want to do to you.”
You certainly do see a lot of displacement on a micro level. But I wonder on a bigger scale how much racial displacement really happens. Here’s some DC demographic trends:
It seems to me that by far the largest degree of black population decline happened during the 1970-2000 era when the white population was slowly falling from an already low level. It’s true that the 2000-2007 period saw a small increase in the white population and a small further decline in the black population, but this “displacement” phase looks like a tiny blip in the scheme of things. The 2007 white population is about even with the 1970 white population, but the city contains about 100,000 fewer African-Americans than it did then. Those people aren’t gone because anyone displaced them. I assume they’re gone largely because declining housing discrimination made it much more possible for black people to move to the suburbs.
At any rate, the striking fact about DC is that, like many older American cities, it has many fewer residents in 2010 than it had 50 or 60 years ago even though the overall population of the country has increased dramatically. Given appropriate policies, there should be plenty of room for large net increases in population and not just displacement. But that requires continued investments in transit infrastructure and updated zoning codes that allow developers to build high density structures and no more parking than the market demands.
A Call for Judgment
Over the weekend at the behest of Reihan Salam and Steve Teles, I read Amar Bhidé’s A Call for Judgment: Sensible Finance for a Dynamic Economy. From a progressive perspective, this is a sort of odd book. You basically get an argument familiar to the left—wiz-band modern finance isn’t actually useful, largely constitutes the shifting around of rents, and is based on gambling with taxpayer guarantees—but wrapped up in lots and lots and lots of conservative-sounding rhetoric. A liberal might make this argument with some reference to the misfortunes of workers or poor people, Bhidé instead worries that the backlash against super-rich princes of Wall Street may lead to unfair castigation of the super-rich princes of the real economy. The name “Hayek” appears over and over and over again as if repeating this incantation will trick you into not noticing that the substantive proposal at the end is for a revival of heavy-handed midcentury regulation of the financial industry.
The main prescription is essentially a new version of Glass-Steagall with the default switched around in order to make it more secure against erosion. Insured depository institutions will be given a menu of permitted functions and told they’re not allowed to do anything else. Bhidé then proves his conservative bona fides by pairing this populist suggestion with the idea that financial firms outside this sphere of guarantees should be completely deregulated, which presumably will be paired with the Ben Bernanke swearing a “cross my heart and hope to die” oath not to undertake any future bailouts.
The goal of all this is to accept that certain kinds of bubbles and manias are inevitable, but to seek to ensure that future ones play out more like the dot-com bubble rather than the deleveraging cascade of 2007-2008. The model banker is either the old-school mortgage lender who’s really asking is this guy going to pay back his debts or else the new-school venture capitalist who’s moving capital into the hands of specific entrepreneurs he has some faith in. The theme here is that the only risk-management strategy that really works is judgment and research not quantitative hedging models that Bidhé deems inherently unworkable for Taleb-like reasons.
At any rate, even though I thought the ideological self-positioning of the author got a bit annoying I do think everyone should read this book. For one thing, though Bhidé doesn’t seem super-interested in pursuing this line of inquiry, I think that if it’s correct it fills in the microfoundations missing from the argument of Hacker and Pierson’s Winner-Take-All Politics by producing a plausible account of how developments in the financial sector could produce both super-inequality and middle class stagnation through the misallocation of resources away from real economy innovators.
As with many of the better post-crisis books, I wish a bit less time had been spent on the author’s backward-looking narrative and a bit more on considering counterarguments and possible problems with his proposal. Can the government credibly withdraw guarantees from the non-bank financial sector? Isn’t this especially problematic in a political system where large legislative reforms are inevitably incremental? If it can, will the result be distorting misallocation of capital into those few fields that the newly restricted guaranteed banks are allowed to invest in? Will this proposal merely shift shady behavior into other countries while still leaving the US vulnerable to systemic risk shocks? I don’t think these are knock-down objections but they’re not totally trivial either.
Psychological Foundations of Political Belief
(cc photo by moira)
The political science literature about what drives election outcomes is kind of at odds with the conventional wisdom among campaign operatives and reporters. But the emerging research on the psychological foundations of individual political belief is downright weird. Peter Liberman and David Pizarro, for example, have a good piece in the NYT about the link between disgust and conservatism:
Subtle cues about disgust and cleanliness can affect social and political judgments as well. In an experiment conducted recently by Erik Helzer, a Cornell Ph.D. student, and one of us (David Pizarro), merely standing near a hand-sanitizing dispenser led people to report more conservative political beliefs. Participants who were randomly positioned in front of a hand sanitizer gave more conservative responses to a survey about their moral, social and fiscal attitudes than those individuals assigned to complete the questionnaire at the other end of the hallway.
In another experiment one of us (Dr. Pizarro) was involved in, a foul ambient smell — emitted, unbeknownst to test subjects, by a novelty spray — caused people answering a questionnaire to report more negative attitudes toward gay men than did people who responded in the absence of the stench. Apparently, the slightest signal that germs might be present is enough to shift political attitudes toward the right.
I think it remains to be seen how these kind of dynamics play into macro-scale political phenomena, but suffice it to say that people aren’t making up their minds about political issues based purely on judicious consideration of the evidence.
Iranian Bribes? They Gonna Come Talk to Me About Iranian Bribes? In Afghanistan?
Hamid Karzai responds to allegations that his chief of staff is the beneficiary of large Iranian bribes:
Afghan President Hamid Karzai said Monday that once or twice a year Iran gives his office $700,000 to $975,000 for official presidential expenses – and that Washington also provides “bags of money” because his office lacks funds. Karzai’s comments come a day after The New York Times reported that Iran was giving bags of cash to the Afghan president’s chief of staff, Umar Daudzai, to buy his loyalty and promote Iranian interests in Afghanistan.
On a serious note, Iran and Afghanistan are adjacent to one another and a large number of Afghans—including Hamid Karzai—speak a version of the Persian language. The United States and Iran have a decades-long grudge match mostly over events that transpired in the Carter and Eisenhower administrations. It would be exceptionally foolish for the government of Afghanistan to deal with Teheran primarily through the lens of that dispute.
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