Grasping Reality on TypePad, by Brad DeLong

1) Nick Rowe: What is it with Microeconomists?:

They are certainly not stupid. And they are certainly not ignorant either. I know that the ones I'm complaining about are smarter than me, and more knowledgeable than me. And that includes economics smarts and knowledge. Some of them make me feel totally inadequate on a daily basis (I read their blogs daily). Some of my best friends are microeconomists. But they just don't get macro! I'm talking about money wages and employment. I can't be bothered to link to the posts I'm complaining about. And I can't be bothered to go through those posts and explain why their reasoning is wrong. Others have done this, and have failed. Or at least, have failed to make any impression on the 'microeconomic miscreants'. They seem to be preaching to the choir; and the choir is composed of macroeconomists. I want to try a different tack. I'm not going to try to show that they are wrong. I want to try to understand why they keep going wrong.... They don't understand monetary exchange.... It is monetary exchange (or rather, the high transactions costs of barter that make monetary exchange essential) that is the root of all deficiencies in aggregate demand.... To demand apples is to supply money in exchange. And if people want to hang onto their money, rather than buy apples with it, the demand for apples, and the demand for labour, will be deficient.... A deficiency of aggregate demand is a deficiency of peoples' willingness to get rid of money.... The Aggregate Demand curve is a locus of points at which people in aggregate are just willing to hold the stock of money they do hold. If microeconomists don't think about monetary exchange they can't think about aggregate demand. Cuts in wages will improve or worsen unemployment due to deficient aggregate demand if and only if they increase or reduce people's willingness to get rid of money...

2) Alma Guillermoprieto: Bolivia's Parched Future:

For whatever reason—global warming seems to be one—Bolivia’s Chacaltaya glacier, whose runoff provided water for the contiguous cities of La Paz and El Alto for centuries, is now gone.... I hadn’t really understood the water poverty of the altiplano until a few years ago, at a celebration sponsored by several farming villages some twenty miles from Lake Titicaca on the border between Bolivia and Peru. By Bolivian standards this was a privileged community, located not far from both a major thoroughfare and an important water source. The festivity was a big event; a rededication of one of those imposing churches the Spanish missionary orders used to build in the middle of nowhere.... Soon the midday meal was served, and only a city tourist like me could have doubted that it was a magnificent spread: proudly, the campesinos rolled out two strips of black plastic on the ground, and then emptied on them many sacks of cooked potatoes of every color, size and taste: little potatoes left to freeze underground in the winter, larger blackish potatoes left to freeze in the streams, pink and yellow and white freshly-harvested boiled potatoes. Coarse salt was provided as an accompaniment, along with small amounts of a venomously hot chile sauce and quite a bit of white cheese that tasted of equal parts salt and curd. This, for campesinos in what was until recently the poorest country in South America, was a banquet, produced by scratching the earth with sticks and hoes and guiding the available water to each potato plant by means of backbreaking labor. Life seemed so desperately hard in the shadow of that church. The urgent question now is how a population with almost no water will deal with even less water when the ice has finished melting...

3) Ed Luce: He’s not perfect but Obama deserves at least a B:

By adopting a tone of civility and respect towards those who may often disagree with America, from the mosques of Cairo to the street cafés of old Europe, Mr Obama has cut a lot of ground from under those who always hate America... that is a revolution in global opinion. What Mr Obama will do with it remains to be seen. But it is a promising start.... [Obama] did what was necessary to stave off a global depression.... Pumping hundreds of billions of dollars into institutions that were instrumental in bringing about the crisis offended people’s sense of justice. So too do the obscenely large bonuses Wall Street is now paying out. Posterity may also judge Mr Obama to have squandered this “defining moment in history” to overhaul the contract between Wall Street and America. Against that, however, it is worth considering what could have gone wrong. During his campaign John McCain argued that the best stimulus would be to cut spending. He also argued that big institutions should be allowed to fail. The first was illiterate. The second reckless.... [H]e did what was necessary to prevent this crash from becoming a disaster. And for that much credit is due (no pun intended). In addition to getting scant acknowledgement for these accomplishments, Mr Obama is taking the blame for trends not of his making.... [M]any of the criticisms aimed at Mr Obama are fair. Of these the most damaging is that he seduced voters into believing he would change the way business is done in Washington. It is the oldest betrayal in the book. You campaign in poetry and govern in prose...

4) Paul Smalera: Lehmann, Taibbi, others moonlighting in business journalism: Get it right:

Taibbi admits he confused two Jamie Rubins in his Rolling Stone article on Obama economic team, but in his correction, he says, “there is indeed a factual error in the piece — a minor biographical detail that identifies Bob Rubin’s son Jamie as a former Clinton diplomat.” Yes, but. The mistake is one that someone familiar with the territory in DC wouldn’t have made.... Taibbi is in over his head, and his chosen weapon to fight his way out is snark and hyperbole.... The problem with this approach was beautifully illustrated by The Awl’s Chris Lehmann. A political reporter getting into finance, starting with an attack on The Big Money’s Heidi Moore.... That’s because Lehmann got a basic fact in his story very wrong. In essence, he used the wrong number. A number that anyone who knew their subject matter well would’ve never confused with the correct number.... Lehmann corrected himself not by saying, “I used the wrong number” but instead by saying, “Gee, I was so tripped up by Moore’s writing that I conflated two numbers that have nothing to do with each other and now I’m going to make it sound like it wasn’t totally my fault even as I apologize.” That’s a pretty weak way to issue a correction. What’s also galling is when Lehmann says people with Moore’s decade of financial writing experience might be part of the problem, since she and they are, “instigator[s]... of widespread public miseducation in financial matters.” He says established financial journalists like Moore are threatened by upstarts like Taibbi.... I haven’t been at this as long as Heidi, but finance is absurdly complicated and you need years of experience, regular talks with analysts and experts, regular study of the news and ideally a newsroom full of similarly focused people to work with, to even BEGIN to write knowledgeably on finance, let alone to make it clear to the average non-technical reader...

5) Andrew LaVallee: How Many Kindles Does It Take to Top Amazon Sales?:

Amazon.com said Monday that the Kindle is having its best month ever. As always, however, it didn’t say how many sales that amounts to.... The news also comes as Kindle’s competition struggles to get devices into consumers’ hands in time for Christmas. Barnes & Noble said Sunday that its Nook reader won’t be available in stores until Dec. 7, and noted earlier that only customers who ordered one before Nov. 20 would receive it for the holidays. Sony said two weeks ago that it would ship its Reader from Dec. 18 to Jan. 8 but couldn’t guarantee the delivery date. As many have noted, those delays are good news for Amazon. The company, however, is notoriously cagey about Kindle sales.... The lack of a numeric figure hasn’t deterred analysts from speculating on Kindle sales and the health of the e-reader market overall. In October, Forrester said it sees Kindle sales of 900,000 during the holiday season and 3 million for the year — up from an earlier estimate of 2 million. Piper Jaffray is expecting 750,000 Kindles to be sold in the fourth quarter, citing Amazon’s advertising and “fading” competition. Goldman Sachs said that its holiday spending survey found that 6% of U.S. consumers plan to give an e-reader as a gift this year, and Nomura said it sees U.S. e-reader sales reaching 20 million units by 2014.

6) Paul Carr: NSFW: Free as in “my publisher will disown me after I pirate my book on TechCrunch”:

“So that’s your advice is it? As my agent? On the week my book comes out in paperback, I should produce my own pirated version and give it away free? Why don’t I just punch my publisher in the face? That would be less work.” My agent rocked back in his chair (a chair bought with 15% of my earnings) and laughed. “I didn’t say it was my advice, I just said there’s nothing they can do to stop you.” Before our meeting had taken its subversive turn, we had been talking about ebooks: a subject that’s on every publisher and agent’s mind this week after the decision by Stephen R. Covey, author of The Seven Habits of Highly Effective People, to make his books available exclusively on the Amazon Kindle. Covey’s move has caused a highly effective shit-storm because he made it in direct defiance of his paymasters at Simon & Schuster who won’t see a penny from the deal.... Covey claims that the electronic rights remain with him to do with as he wishes. Simon & Schuster, perhaps unsurprisingly given that they sold 136,000 paperback copies of the book this year, disagree – arguing that Covey’s contract precludes him from publishing any ‘competing works’. “Our position is that electronic editions of our backlist titles belong in the Simon & Schuster catalog, and we intend to protect our interests in those publications.” said an S&S spokesman, ineffectively.... For Covey, the problem with Simon & Schuster’s digital strategy seems to be largely financial. The company that he has chosen to publish his new Kindle edition – Rosetta Books – has made a big play of the fact that they’re paying him a significantly higher royalty on sales than he was previously making on ebooks. Meanwhile Amazon has promised a huge site-wide promotional campaign for the titles.... I can’t fault my publisher on money: Weidenfeld & Nicolson has paid me not one, but two generous advances to write books about myself, and I’m certain I’ve cost them the same again in lawyers’ fees thanks to the legal threats I seem to attract prior to publication. I earn a decent royalty on ebook sales in the UK and Europe and, because I still own the US rights to my books, I was free to produce my own Kindle edition – limited to US customers – and take 100% of the profits. Equally, I can’t fault W&N on supporting my principles: largely because I don’t have any. No, the reason I found myself in my agent’s office earlier this week bitching about my publisher’s digital strategy was something even stronger than money and principle: my monstrous ego.... I now have more people reading my words each week in North America than I do in the UK.... [B]arely a day goes by without someone telling me they tried to find my book in the US, only to be disappointed that – due to publishing’s ridiculous obsession with territories – it’s only available outside North America. “It’s available on the Kindle” I say. “Pft” they reply, “I don’t have a Kindle”. In most cases I end up emailing them a PDF – a distribution model that doesn’t really scale...

7) Felix Salmon on Bill Lockyer as State Treasurer: California issuing:

Who does Bloomberg think has the appetite to wade through 4,000 words on a single Californian bond deal in October? The answer is “probably no one” which means that most of the people reading Michael Marois’s article will read the first five paragraphs, conclude that California got royally ripped off by the troika of JP Morgan, Citigroup, and Goldman Sachs, and move on. If you read the whole thing, however, it’s not nearly as simple as that: the bond deal in question was in many ways perfectly timed, from the point of view of a major issuer, coming right when interest rates were at their low point. And it was huge — $4.14 billion — which is far too big to do an auction deal where the issuer sells to the banks directly, rather than using them to underwrite an issue aimed at real-money investors. What’s more, California sold the vast majority of the bonds it wanted to sell, while other states, like Maryland and Minnesota, sold as little as 25% of their intended issuance.... I kept waiting for the other shoe to drop — to read some piece of information which indicated that California could have done better than it did. But it never quite got there.... [B]anks made fat fees... for no more than a couple of weeks’ work and no real risk. But... California got 30-year bonds away at 7.23%, even after paying a steep 325bp spread over Treasuries. When the state came back to the market in November, the spread had come down to 300bp, but the yield was still slightly higher. Clearly this deal isn’t going to win any awards — it had to be shrunk from $4.5 billion to $4.14 billion; it priced significantly higher than the banks had led California to expect; and it soured the entire national market for municipal bonds.... I get the impression that the main criticism of the deal is that the banks persuaded California treasurer Bill Lockyer to sign on to a monster bond issue on the grounds that they could build a lot of buzz around a super-jumbo deal and that it would be a blowout success. The implication is that Lockyer — and the muni market as a whole — would have been much better off just saying no. There might be something to that — but at the same time the bond market had to turn at some point: interest rates never fall forever. And the less that California issued at those low rates, the more of a backlog it would have, and the more it would end up having to issue at higher rates...

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Jacob Davies: A conversation that has happened more times in my career than I care to mention:

Someone else: "How long of a title shall we allow? 32 characters? 64?" Me: "FOR THE LOVE OF GOD WHY DO WE NEED TO SET A MAXIMUM LENGTH? IS THIS 1952???" Someone else: "But what if they put in a really long title and fill up the database?" Me: "THE VERY NEXT FIELD - THE 'CONTENTS' FIELD - IS A FREE-TEXT FIELD WITHOUT A LENGTH CONSTRAINT SO IF THEY WANTED TO FILL THE DATABASE THEY COULD DO IT THERE ANYWAY." Someone else: "Won't it waste space if we allow a variable-length string in the title?" Me: "OH MY GOD YES A TERRIFYING LOSS OF ABOUT 3 BYTES ON A RECORD THAT IS A MINIMUM OF 1024 BYTES LONG AND OFTEN OVER A MEGABYTE, YOU ARE SO RIGHT." Someone else: "Yes but every other system has a length constraint for titles." Me: "YES AND I SUPPOSE IF EVERYONE ELSE WAS JUMPING OFF A BRIDGE YOU'D DO IT TOO." etc. Computer programmers are subject to some kind of strange mental degeneration in which they rate the potential waste of 0.00001% of the capacity of a modern hard disk as more important than the ability to enter titles longer than 32 characters in length.

9) STUPIDEST THING I'VE READ TODAY: Outsourced to DanieL Larison: Eunomia » Fighting To Make Iran More Powerful:

Victor Davis Hanson... one line that was so strained and desperate.... Hanson: "Iran... many argued, was supposed to be have been empowered after we removed its nemesis Saddam Hussein. And, indeed, it sure looked that way when Iranian agents were stirring up violence in Iraq. Yet this year, a million Iranians went out in the streets to demand free and fair elections of the sort they hear constantly about across their border. In other words, perhaps the democratic experiment in Iraq — where Shiite Muslims enjoy freedom — will prove destabilizing in the long term to the Iranian theocracy." Deposing Hussein did increase Iranian influence and power in the region. That is simply what has happened. Groups that have long received official Iranian state backing, such as ISCI, have become major players in Iraqi government.... It would be refreshing if Iraq war supporters could at least attempt to make an argument that greatly expanded Iranian influence was an acceptable price to pay for whatever goods they think the invasion brought about, but they simply cannot allow that their war was strategically disastrous for U.S. interests according to their definition of those interests. These are the same people who are terrified when Iran tests a medium-range missile... but Iraq war supporters won’t own up to making the Iranian regime they detest far more powerful in the region. Why would anyone conclude that Iraq’s political experiment, which has so far yielded mass sectarian bloodletting, political deadlock and an ongoing foreign military presence that is only gradually coming to an end, would recommend itself to Iranian voters?...

10) FROM THE ARCHIVES: Brad DeLong: Kennedy School Conference:

Back when I started out as an economist there were several years during which it seemed that most of the articles I wanted to write had, I discovered, already been written in the previous decade by Barry Eichengreen. He reports that when he started out he found himself subject to the same phenomenon--only with respect to Charlie Kindleberger. So I spent part of last weekend rereading Kindleberger's (1978) Manias, Panics, and Crashes, looking for places where Kindleberger had already said what I think before I thought it, and had expressed it better than I can. I found a number of such places: Kindleberger's declaration that in the last analysis the making of international economic policy under such circumstances "is an art" and that that "says nothing--and everything." And there was Kindleberger's summary that the rescuer of the system, the "lender of last resort", "should exist... but his presence should be doubted.... This is a neat trick: always come to the rescue in order to prevent needless deflation, but always leave it uncertain whether rescue will arrive in time or at all, so as to instill caution in other speculators, banks, cities, or countries.... some sleight of hand, some trick with mirrors... because monetarist fundamentalism has such unhappy consequences for the economic system" when expectations converge on the "unfavorable" equilibrium. Kindleberger's declaration that he does not wish to "contravert" the claim that the "presence of a lender of last resort weakens the self-reliance of the banking system and increases its likelihood of falling into excesses of overtrading, revulsion, and discredit," even though this argument "has overtones... that there is no use providing the poor with housing since they will only keep coal in the bathtub" and the possibility that the known existence of a lender of last resort causes expectations to converge on the favorable equilibrium: that it does not "increase speculation and overtrading" but "calms anxieties when overtrading occurs." That finding the point of balance for all these conflicting issues and concerns is very difficult, and keeping the point of balance is almost impossible, is very clear in Kindleberger's "on the one hand... on the other hand" argument. That finding the point of balance is very difficult was also my thought on listening to Allan Meltzer this afternoon. This afternoon we have heard the Meltzer Commission Meltzer: the Meltzer who fears the growth of moral hazard, who thinks that large-scale lenders of last resort create by their very existence the crises they then are forced to handle, the one who believes that a lean IMF is a good IMF and that it is important that speculators fear mightily that they might get burned. But if you read your Financial Times last May 10, you would have heard a different Allan Meltzer, one who seeks a much larger and stronger IMF with enhanced powers. He proposed that the IMF commit in a crisis to buy any and all government bonds that private investors wish to sell, albeit at a discount to the IMF's estimate of their post-crisis market value. Sooner or later, however, in some crisis or other, the IMF's discounted estimate is going to turn out to be higher than the market's estimate. The IMF is going to need the resources to make good its commitment. And not even Stanley Fischer has asked for the IMF's funding to be topped up to the point where it could buy the entire national and provincial government debt of Argentina and Turkey, plus Brazil, Indonesia, and Korea--even at fire sale prices...