Andrei Shleifer is offering an justification for what Federal Reserve Chairman Ben Bernanke calls “credit easing.”... It is, Shleifer argued at a presentation at the American Economic Association in Atlanta, the best way to get banks to resume lending. In a crisis, the price of securities — mortgage-backed, Treasury debt, packages of loans, etc. — fall to fire sale prices, well below fundamental values.... Banks with the wherewithal to make new loans... prefer to buy securities because the opportunity for profit is so tempting.... “Because asset prices are out of whack,” he said, “injecting capital into banks doesn’t restart lending.” Banks simply use the money “to buy underpriced securities… to speculate.” “Financing of new investment by banks [via lending to business] is always competing with speculation. If speculation is more attractive, it is going to draw the attention of banks,” he argued.
The solution: The Fed or the government should buy a lot of securities, so many of them that the price rises and the banks no longer find them attractive for speculation and lend instead...
A spokesman for AT&T, which provides service exclusively for the iPhone, said the large numbers of people using smartphones at CES clogged up the network. “In preparation for CES, we optimized our network in Las Vegas by significantly augmenting our network capacity. However, at an event such as CES, where large numbers of people in a dense area are using smartphones over finite spectrum, periods of network congestion can occur. Our network engineers on site continue to take steps to optimize our network as needed for the large number of mobile broadband customers at CES.”
Why isn’t there more inflation in China? We looked at that on December 28th. On January 6th, Brad Delong wrote: "Every month the People’s Bank of China pays 200 billion renminbi to China's exporters to buy up the dollar-denominated assets they have accumulated and so prevent those assets from generating upward pressure on the value of the renminbi. It gets those 200 billion renminbi by borrowing them from the good burghers of Shanghai. By now the central bank owes the good burghers of Shanghai some 16 trillion renminbi. To them, this wealth is nearly as good as cash. It has been piling up for years — and because it is nearly as good as cash, the good burghers of Shanghai should be spending it."... Professor DeLong then links to James Hamilton, who suggests that the reason is that monetary growth in China leads to asset price inflation rather than goods-and-services price inflation.... The PBOC kept its huge growth of reserves from leading to a huge growth in high-powered money via... illiquid bonds that the PBOC basically ordered the banks to hold.... [and] government income (likely from state-owned enterprises, but I’m not sure that it matters) that was deposited with the central bank rather than spent. Those two mechanisms mopped up most of the growth in high-powered money. In 2007 and 2008... high-powered money started to grow like gangbusters. So why didn’t inflation get out of control?... China let the value of the renminbi rise.... The rise in the renminbi helped keep a lid on import prices.... Fast forward to 2009. The renminbi is no longer rising, so that can’t explain the lack of inflation.... High-powered money isn’t growing. What is growing is the white block at the top, what the PBOC calls “other liabilities.” I have no idea what those are, but they represent currency mopped up by the central bank. In other words, the PBOC is keeping a lid on inflation by taking in liquid renminbi from somebody in exchange for an IOU of some sort. At some point, the PBOC will no longer be able to keep up this balancing act.... But there are reasons to believe — and I should mention that I have changed my opinion on this issue in the last year or so — that the Chinese government and PBOC may be able to keep up the balancing act for some time... as long as Chinese firms remain profitable enough to finance themselves via retained earnings despite the fact that a big chunk of those earnings wind up metaphorically sitting in the PBOC coffers.
Should there be a limit to the tax deductibility of employer-provided health insurance.... My answer is yes, but the final bill should address the criticisms. The argument for limiting the tax exclusion is that the tax break on health insurance encourages over-spending, so limiting it could help in the process of “bending the curve”. More generally, since we think the United States spends too much on health for not-so-good results, it makes sense where possible to pay for expanding coverage from the health sector itself. Both arguments are reasonable. The counter-arguments seem to run along three lines. First, there’s the argument that many “Cadillac” plans aren’t really luxurious — they reflect genuinely high costs.... Second, there’s the argument that any reductions in premiums won’t be passed through into wages. I just don’t buy that.... The last argument is that this hurts unions which have traded off lower wages for better benefits. This would be a bigger issue than I think it is if the excise tax were going to kick in instantly. But it won’t, giving time to renegotiate those bargains.... A last general point: we really don’t know what it will take to rein in health costs, but that’s a reason to try every plausible idea that experts have proposed. Limiting tax deductibility is definitely one of those ideas.
Bottom line: the details of the excise tax should be fixed, but it’s on balance a good idea.
The latest entry in the endless series of columns upbraiding President Obama for doing too much comes from Peggy Noonan.... "The public in 2009 would have been happy to see a simple bill that mandated insurance companies offer coverage without respect to previous medical conditions. The administration could have had that—and the victory of it—last winter. Instead, they were greedy for glory..."
In fact, a bill like that couldn't work at all. If you forbid insurance companies from discriminating on the basis of previous illness, than nobody has an incentive to buy insurance until they get sick. Then rates skyrocket and the individual market collapses. Not only is this not a partial victory, it's a massive step backward.... There are a couple more strange things about this column. Most of the Obama's-doing-too-much punditry has an implicit argument that Obama should place his party's popularity above solving enormous problems -- implicit, because to make that premise explicit would justifiably invite ridicule. Well, Noonan goes ahead and makes it explicit:
If you mention to Obama staffers that they really have to be concerned about the polls, they look at you with a certain... not disdain but patience, as if you don't understand the purpose of politics. That purpose, they believe, is to move the governed toward greater justice...
Perhaps the most startling thing about the new COFER data on reserves released by the IMF is not the declining dollar share in total reserves, but rather the fact that reserves have risen relative to where we thought they were . The change is entirely due to the upward revision in unallocated reserves by emerging market and LDC central banks.... Total reserves were revised up $381 billion in 2009Q2, as were total emerging market/LDC reserves, and unallocated emerging market/LDC reserves. The revision in total reserves constituted a 5.5% change -- quite substantial. A straightforward interpretation of the data also reveals a continued -- and exacerbated -- decline in the identified US dollar share of total reserves...
7) BEST NON-ECONOMICS THING I'VE READ TODAY: Matthew Yglesias: While Economy Burns, Jon Kyl Blocking Treasury Nominees Over Petty BS:
This, ladies and gentlemen, is your modern United States Senate. If there’s some random c--- that nobody cares about, it just takes one Senator with a bee in his bonnet to ruin everything for everyone who would like to live in a country with a properly administered government. There are six Treasury nominees still awaiting action being held up by Kyl.
You might think it would be a good idea to have an Under Secretary for International Affairs. Kyl disagrees. You might think it would be a good idea to have an Under Secretary for Domestic Finance. Kyl disagrees. You might think it would be a good idea to have an Assistant Secretary for International Markets and Development. Kyl disagrees. You might think it would be a good idea to have an Assistant Secretary for International Economics and Development. Kyl disagrees. You might think it would be a good idea to have an Assistant Secretary for Financial Markets. Kyl disagrees. You might think it would be a good idea to have an Assistant Secretary for Tax Policy. Kyl disagrees.
This kind of thing really has to stop, it’s a ludicrous way to run a country. Amidst a global economic meltdown, we can’t get confirmation for the international economics officials. Not because the senate has a problem with them, but because one guy isn’t happy with the delay of some internet gambling regulations.
8) STUPIDEST THING I'VE READ TODAY: Peter Beinart: Profiling Will Never Work:
The normally sensible Stuart Taylor...
9) SECOND STUPIDEST THING I'VE READ TODAY: via Paul Krugman: Jim Cramer (2005): Bubbleheads, Admit Defeat by Housing:
As Toll Brothers (TOL - commentary - Cramer’s Take) cruises through $100, it’s time to hold the bubbleheads accountable. Who are the bubbleheads, in my book? Those are the people who have told you to bet against housing and to be worried about the speculative boom in homes. Here’s where I am coming from. All day, I listen to and read people who say that housing’s got to roll over, that these companies can’t work, that it is just a matter of time. Then I look to see what’s been outperforming these stocks. Is it drugs? I don’t think so. Financials? Nah. Techs? Nope, not at all. Now I want to know when those who have warned us incessantly or told us it can’t last will get their comeuppance.
10) FROM THE ARCHIVES: DeLong: Two Months Before the Mast of Post-Modernism:
I became convinced that Tribe and Foucault were right... only with Ricardo... [was] the economy... seen as something that was important enough, or separate enough, or coherent enough to be something that it made sense to write books about, and, indeed, something that it made sense to be an expert in. David Ricardo was a political economist. Adam Smith was a moral philosopher. To try--as somebody like Joseph Schumpeter was--to grade Adam Smith as if he were engaged in the same intellectual project as Schumpeter was somewhat absurd. Tribe applied this methodology to Adam Smith, his predecessors, contemporaries, and successors. What they were doing... was Political Oeconomy--writing manuals of tactics and policy as advice to statesmen... [on] how to keep public order and create public prosperity. Hence for Adam Smith Book V of Wealth of Nations is the payoff: it tells British statesmen what they ought to do in order to make the nation prosperous, their tax coffers full, and thus the state well-funded. Book IV is a necessary prequel to Book V: it tells the statesmen in the audience why the advice that they are being given by others in other books of Political Oeconomy--by Mercantilists and Physiocrats. Book III is another necessary prequel: it teaches statesmen about the economic history of Europe and how political oeconomy of various kinds has been practiced in the past.
But Tribe's (and Foucault's) methodology collapses when we work back to Books II and I of the Wealth of Nations. For Adam Smith is not the prisoner of the discursive formation of Political Oeconomy. He is not the simple bearer of currents of thought and ideas that he recombines as other authors do in more-or-less standard and repeated ways. Adam Smith is a genius. He is the prophet and the master of a new discipline. He is the founder of economics.
Adam Smith is the founder of economics because he has a great and extraordinary insight: that the competitive market system is a remarkably powerful social calculating and organizing mechanism, and that the sophisticated division of labor to which a competitive market system backed up by secure and honest enforcement of property rights give rise is the key to the wealth of nations...