links for 2010-01-04
The End of Influence: Foreign Policy Excerpt

Ten Economics Pieces Worth Readings: January 4, 2009

1) Felix Salmon: The economic statistic of the decade:

Mike Mandel has four nominees for his “Economic Statistic of the Decade” award, including home prices (obvs), Chinese growth, and global trade. But the most startling one, for me, is US household borrowing. I like the time frame that Mike has chosen here, since it shows not only the huge increase in borrowing during the credit boom and the stomach-churning plunge thereafter, but also, for much of the 1990s, what “normal” should look like. Mike notes that the data for this chart includes domestic hedge funds, so it shouldn’t be taken entirely at face value. But it’s the best visual representation I’ve seen of the credit boom and bust.

The economic statistic of the decade | Analysis & Opinion | Reuters

2) Charlie Stross (September 21, 2009): The future, Indian-style: In a nutshell: India is getting ready to start exporting nuclear reactors. But not just any old reactor. These ones are designed to run on the thorium fuel cycle. As wikipedia puts it, "A thorium fuel cycle offers several potential advantages over a uranium fuel cycle, including greater resource abundance, superior physical and nuclear properties of fuel, enhanced proliferation resistance, and reduced plutonium and actinide production." The Indian Atomic Energy Authority are proposing to sell 300Mw units with a 100-year design life, that produce one-third the high level waste of conventional designs "and has a 'next generation' level of safety that grants operators three days' grace in the event of a serious incident and requires no emergency planning beyond the site boundary under any circumstances." The first AHWR is due to begin construction in 2012, using low-enriched uranium (not suitable for weapons use) and thorium fuel. Okay, so what do you say to a new nuclear power technology that comes with reduced waste, improved safety, reduced risk of weapons proliferation (because it's bad at manufacturing Pu239), and that partly runs on a different fuel that's much more abundant than uranium ore?...

3) Ken Hougton: Today in "Economists Are NOT Totally Clueless":

[A] "teaser" graphic, which I suspect is worth much more than 1,000 words:

Today in

4) Jonathan Chait (December 9): The Deficit Commission Bill Is Here, And It's Insane:

Judd Gregg and Kent Conrad today are introducing a bill to create a bipartisan commission to reduce the federal budget deficit.... “Our Bipartisan Fiscal Task Force is designed to get results,” said Conrad and Gregg. Let me get this straight. You have a commission proposing a package of highly unpopular legislative changes. And, in addition to having to surmount the 60-vote barrier in the Senate, which is nearly insurmountable for major legislation and which was avoided for both of the last two major deficit-reducing bills, it's also going to impose a new supermajority requirement in the House and a 78% threshold in the commission itself? To say that this procedure "is designed to get results" shows a very odd understanding of American political institutions. Conrad and Gregg seem to think that instituting major reforms in the public interest is rare because the threshold for passing legislation is too low.... [If this] fails, maybe they'll conclude the process was too easy. Next time they could also require the commission members to create a cold fusion reactor or retrieve a magical ring from inside a volcano...

5) Jason DeParle and Robert Gebeloff: The Safety Net: Living on Nothing but Food Stamps:

Florida officials have done a better job than most in monitoring the rise of people with no cash income. They say the access to food stamps shows the safety net is working. “The program is doing what it was designed to do: help very needy people get through a very difficult time,” said Don Winstead, deputy secretary for the Department of Children and Families. “But for this program they would be in even more dire straits.” But others say the lack of cash support shows the safety net is torn. The main cash welfare program, Temporary Assistance for Needy Families, has scarcely expanded during the recession; the rolls are still down about 75 percent from their 1990s peak. A different program, unemployment insurance, has rapidly grown, but still omits nearly half the unemployed. Food stamps, easier to get, have become the safety net of last resort. “The food-stamp program is being asked to do too much,” said James Weill....

Food stamps, officially the called Supplemental Nutrition Assistance Program, have taken on a greater role in the safety net for several reasons. Since the benefit buys only food, it draws less suspicion of abuse than cash aid and more political support. And the federal government pays for the whole benefit, giving states reason to maximize enrollment. States typically share in other programs’ costs. The Times collected income data on food-stamp recipients in 31 states, which account for about 60 percent of the national caseload. On average, 18 percent listed cash income of zero in their most recent monthly filings. Projected over the entire caseload, that suggests six million people in households with no income. About 1.2 million are children. The numbers have nearly tripled in Nevada over the past two years, doubled in Florida and New York, and grown nearly 90 percent in Minnesota and Utah. In Wayne County, Mich., which includes Detroit, one of every 25 residents reports an income of only food stamps. In Yakima County, Wash., the figure is about one of every 17...

6) Two quotes:

Lloyd Blankfein: You're getting out of a Mercedes to go to the New York Federal Reserve. You're not getting out of a Higgins boat on Omaha Beach...

Paul Krugman: In... The Longest Day... a German general... preparing for a war game in which he will play the American commander. He tells his aide that he plans to surprise everyone by landing, not at Calais, but in Normandy.... Then, when the invasion begins, he mutters, “Normandy! How stupid of me! Now you know how some of us felt as the current crisis unfolded.... U.S. external debt, although large, is overwhelmingly dollar-denominated. So America didn’t seem vulnerable to a third-generation currency crisis. No worries, then, right? Yet the logic of the models... a vicious circle of deleveraging could arise as easily on the asset side as on the liability side, as noted in Krugman (2002). It should have been easy to put the evidence of a mammoth housing bubble together with the concepts of third-generation crisis theory to see how a nasty deleveraging cycle could occur without the “original sin” of dependence on foreign-currency debt. Sadly, almost nobody – certainly not yours truly – put the pieces together. Even those of us who diagnosed that housing bubble correctly failed to foresee the financial implosion that would follow. Normandy! How stupid of me!...

7) Mark Thoma: Bernanke Corrects Taylor :

Ben Bernanke says Federal Reserve interest rate policy after the bubble burst did not cause the housing bubble, and he delivers a strong rebuttal to John Taylor on that point... the problem was with the regulation of these markets, not the low interest rates after the crash, and based upon this reading of the causes of the crisis, he believes regulation is the key.... This is a big step forward relative to the Greenspan years. Greenspan argued that the Fed could not identify bubbles as they are inflating with sufficient clarity to allow policy to do much about them, he thought the Fed was as likely to do harm from raising interest rates based upon false bubble alarms as it was to prevent problems. And in any case, he believed that cleaning up after bubbles popped would be enough to avoid large downturns.... Greenspan's view... turned out to be incorrect. He also resisted and actively dismissed regulatory interventions intended to keep the financial sector stable... and this, too, was a mistake...

8) BEST NON-ECONOMICS THING I'VE READ: Matthew Yglesias: What Business is The Washington Post In?:

If you sent your kid to the bookstore to get some SAT prep materials, and he came back with a Kaplan book that said there was no need to study math because the SAT doesn’t cover math anymore... [it] would, of course, be devastating to Kaplan’s reputation and thus to a revenue model that depends on students and their parents having confidence that its materials contain accurate information about standardized tests.... If Charles Krauthammer wants to write a column in which he lies about Barack Obama, why would the Post print it? I mean, here’s Krauthammer on January 1: "And just to make sure even the dimmest understand, Obama banishes the term “war on terror.” It’s over — that is, if it ever existed. Obama may have declared the war over. Unfortunately, al-Qaeda has not. Which gives new meaning to the term 'asymmetric warfare'.” And here’s Obama giving an address in May about his policies on al-Qaeda: “we are indeed at war with al Qaeda and its affiliates.”... It makes you wonder what the Post’s owners and editors think the purpose of the product they’re putting out is. Is it supposed to convey accurate information to readers? If that’s what it’s supposed to be doing, they’re not doing a very good job of it. But what’s more, they don’t even seem to be trying.

9) STUPIDEST THING I'VE READ TODAY: Chris Matthews. No, I won't link. But I will link to a response: Culture of Truth: Eschaton:

Chris Matthews, This One's For You:

10) HOSITED FROM THE ARCHIVES: Brad DeLong (May 24, 2005): Housing Bubble:

James Hagerty and Ruth Simon find some people who are certainly acting like they would in a housing bubble. Up until six months ago, I could account for housing prices in terms of scarcity (they aren't building many houses near the California coast any more) and low interest rates. That's getting less possible with each passing day: "As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate: A year ago, Ryan Epstein and his wife had whittled down the mortgage on their four-bedroom colonial house in North Beach, Md., to $130,000. Then Mr. Epstein had a chat with a mortgage broker. The broker helped the Epsteins refinance their home, valued at about $300,000, to take advantage of lower interest rates. He also encouraged the couple to take out extra cash, a popular technique called a cash-out refinancing. The Epsteins used that cash, $25,000, as the down payment to buy a rental property. That purchase swiftly led to others. Today, Mr. Epstein says he has about $1.4 million of equity in nine dwellings -- and $2 million in mortgage debt. Those rapid profits reflect surging house prices, rising at a double-digit rate..."