Paul Volcker lays out his argument in the New York Times today for... Obama's new proposal to rein in "too big to fail'' institutions by limiting the size of banks and keeping them out of riskier businesses.... Volcker starts off well, identifying the core problem of protecting institutions considered too big to fail.... He even invokes Adam Smith, the father of free market theory, as a supporter for keeping banks small. But then there is this jolt: "That approach does not really seem feasible in today’s world, not given the size of businesses, the substantial investment required in technology and the national and international reach required..." Huh? What about Obama's idea to limit the size of the banks, based on the size of their liabilities?... [W]here was that? Nowhere. Volcker simply pivots to the other proposal, on keeping banks out of prop trading. I became even more suspicious by the way Volcker made only glancing reference to other key initiatives that could reduce TBTF--namely, better capital requirements. If you really want to rein in moral hazard and risk-taking associated with the implicit goverment backstop for huge institutions, then your most potent tool is to impose sharply higher capital requirements on the giants....
Let me stipulate: I think Volcker sincerely wants to make big structural reforms, and he is clearly bolder than most of his colleagues. But it's much less clear what the Treasury and White House really want to do...
The long-standing inverse relationship between education and mortality strengthened substantially later in the 20th century.... [B]ehavioral risk factors are not of primary importance. Smoking has declined more for the better educated, but not enough to explain the trend. Obesity has risen at similar rates across education groups, and control of blood pressure and cholesterol has increased fairly uniformly as well. Rather, our results show that the mortality returns to risk factors, and conditional on risk factors the return to education, have grown over time.
Almost every state of any significance in history has aspired to dominate its known world. In the last century, Britain, Germany, Russia and even France aspired to this role, and right now Russia and China are keen to try. Religiosity, militarism, inequality, and governments that do little for their subjects are the norm rather than the exception. Long hours of hard work have been the lot of humankind at least since the arrival of agriculture.
The real exception to all of this is Europe. The largest economic aggregate in world history, it has enough military power to repel any invader, but is deeply uninterested in using this power to any more glorious end. It grows by a process of reluctant accretion, controlled by ever more onerous admission requirements. In all of history, it would be hard to find anything comparable in terms of pacifism, godlessness, equality, leisure for the masses or public provision of services. It’s for this reason that American views of Europe resemble de Tocqueville in reverse. Something so unprecedented, and against the laws of nature, they think, cannot possibly survive, let alone prosper. And yet it does.
This whole mess is basically about duelling supply chain models.... Traditionally the supply chain ran: author -> publisher -> wholesaler -> bookstore -> consumer.... Then the internet came along.... From the point of view of the public, to whom they sell, Amazon is a bookstore. From the point of view of the publishers, from whom they buy, Amazon is a wholesaler. From the point of view of Jeff Bezos' bank account, Amazon is the entire supply chain and should take that share of the cake that formerly went to both wholesalers and booksellers....
The agency model Apple proposed -- and that publishers like Macmillan enthusiastically endorse -- collapses the supply chain in a different direction, so it looks like: author -> publisher -> fixed-price distributor -> reader. In this model Amazon is shoved back into the box labelled 'fixed-price distributor' and get to take the retail cut only.... Amazon are going to fight this one ruthlessly because if the publishers win, it destroys the profitability of their business and pushes prices down....
[T]o customers, Amazon would like to be a monopoly (i.e. the only store in town). To suppliers, Amazon would like to be a monopsony (i.e. the only customer in town). Their goal is to profit via arbitrage, and if they can achieve those twin goals they will own everybody's nuts--the authors, the customers, everyone. They are, in fact, exactly the kind of middle-man operation that the internet tends to squish, gooily....
Amazon, in declaring war on Macmillan in this underhand way, have screwed me, and I tend to take that personally, because they didn't need to do that.
Think of this as a jobs version of cash for clunkers or the homebuyers’ credit. The explicit goal is to get employers to accelerate hiring into this year. An optimist would see this as a plan to jumpstart hiring and accelerate the virtuous demand cycle that usually kicks a sluggish economy into gear.... This proposal would cost between $30 billion and $35 billion for this year alone. The White House won’t say publicly how many new jobs it expects to create, but administration officials expect a minimum of 600,000. The problem with subsidies such as this is that they are exceedingly sloppy. A lot of money goes to those firms that would have hired anyway.... The timing of today’s credit is very different than last winter when Obama proposed a different jobs tax incentive while the U.S. was in the depths of the recession. I was very skeptical then, in part because it was hard to imagine many firms hiring even with a tax holiday. Now, with the economy recovering (GDP grew by 5.7 percent in the fourth quarter of 2009), it is much more likely companies will take advantage of the credit.... To its, um, credit, the White House seems to have carefully designed this version. It set reasonable anti-abuse rules.... CBO recently gave this design a good grade for boosting growth and employment. It concluded that a plan like this would increase GDP by somewhere between 40 cents and $1.30 for every dollar of budgetary cost. That’s not as good as increasing aid to the unemployed, but is comparable to boosting infrastructure spending. Creating new subsidies to jolt the labor market may not be great tax policy. But, if you are a Democratic office holder fixated on the top-line unemployment number, it might be the best option out there for some much desired personal security.
The last time the Chinese authorities attempted to deflate an asset price bubble was in January 2007. At that time interest rates were raised, bank reserve requirements increased, and important officials spoke openly about the need to quell speculation. Several commentators anticipated an imminent collapse of the Chinese stock market, which had doubled over the previous year. The outcome was rather different. Over the following months the Shanghai Composite entered a period of exponential growth. The market finally peaked in October 2007 after five rate hikes and 13 increases in bank reserve requirements since the beginning of the year. Experience suggests that recent tightening in Beijing is unlikely to mark the immediate demise of the frenzied Chinese real estate boom. Nevertheless, it brings that end one step closer.
7) VISUAL OF THE DAY: Harry Kreisler interviews Steve Cohen about our The End of Influence:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Barack Obama: Remarks by the President at GOP House Issues Conference:
I know how bitter and contentious the issue of health insurance reform has become.... If anyone here truly believes our health insurance system is working well for people, I respect your right to say so, but I just don't agree. And neither would millions of Americans with preexisting conditions who can't get coverage today or find out that they lose their insurance just as they're getting seriously ill.... [T]he status quo is working for the insurance industry, but it's not working for the American people. It's not working for our federal budget. It needs to change.
This is a big problem... from the start, I sought out and supported ideas from Republicans. I even talked about an issue that has been a holy grail for a lot of you, which was tort reform, and said that I'd be willing to work together as part of a comprehensive package to deal with it. I just didn't get a lot of nibbles.
Creating a high-risk pool for uninsured folks with preexisting conditions, that wasn't my idea, it was Senator McCain's.... Allowing insurance companies to sell coverage across state lines to add choice and competition and bring down costs for businesses and consumers -- that's an idea that some of you I suspect included... that's an idea that was incorporated into our package.... A number of you have suggested creating pools where self-employed and small businesses could buy insurance. That was a good idea. I embraced it. Some of you supported efforts to provide insurance to children and let kids remain covered on their parents' insurance until they're 25 or 26. I supported that. That's part of our package. I supported a number of other ideas, from incentivizing wellness to creating an affordable catastrophic insurance option for young people that came from Republicans like Mike Enzi and Olympia Snowe.... So when you say I ought to be willing to accept Republican ideas on health care, let's be clear: I have...
9) STUPIDEST PEOPLE I HAVE HEARD ABOUT TODAY: Republicans. Outsourced to Stan Collender:
The following all happened just this week:
1. The Conrad-Gregg commission, which needed 60 votes in the Senate, was defeated 53-46. The amendment creating the commission would have been adopted 60-39 if all of the GOP senators who co-sponsored the amendment voted for it. Instead, seven of the Republican co-sponsors withdrew their co-sponsorship the week before the vote and then voted against it. 2. All Senate Republicans voted against re-establishing the pay-as-you go rules, which would have required that, with certain exceptions, any new mandatory spending or revenue legislation not increase the deficit. The rules were adopted with only Democratic support. 3. With the Conrad-Gregg commission killed, congressional Republicans have been heavily critical of the commission the Obama administration may create by presidential order to consider ways to reduce the deficit. There are growing indications that the GOP House and Senate leadership, each of which would get to appoint three of their own members to the commission, may refuse to name any in the hope that the panel's deliberations will be stopped dead in its tracks without them or that the Democrats will proceed on their own. The stated reason for the GOP opposition is that there's no guarantee that a presidential commission's recommendations will be taken up by Congress even though there's even less of a chance if it's not created. 4. Republican Chairman Michael Steele is saying so often that Republicans are against cuts in Medicare that it's starting to sound like a mantra. Add to that their stated opposition to revenue increases (see #1 above), military spending reductions, homeland security reductions, and the extremely low possibility that, if Medicare is too hot to handle, they'll go anywhere near Social Security, and the deficit reduction math becomes totally impossible.
10) HOISTED FROM THE ARCHIVES: