links for 2010-02-11
New Unemployment Claims Headed in the Right Direction Again

Ten Economics Pieces Worth Reading: February 11, 2010

1) Simon Johnson and James Kwak: 13 Bankers:

13 Bankers describes the rise of concentrated financial power and the threat it poses to our economic well-being. Over the past three decades, a handful of banks became spectacularly large and profitable and used their power and prestige to reshape the political landscape. By the late 1990s, the conventional wisdom in Washington was that what was good for Wall Street was good for America. This ideology of finance produced the excessive risk-taking of the past decade, creating an enormous bubble and ultimately leading to a devastating financial crisis and recession.

More remarkable, the responses of both the Bush and Obama administrations to the crisis–bailing out the megabanks on generous terms, without securing any meaningful reform–demonstrate the lasting political power of Wall Street. The largest banks have become more powerful and more emphatically “too big to fail,” with no incentive to change their behavior in the future. This only sets the stage for another financial crisis, another government bailout, and another increase in our national debt.

The alternative is to confront the power of Wall Street head on, which means breaking up the big banks and imposing hard limits on bank size so they can’t reassemble themselves. The good news is that America has fought this battle before in different forms, from Thomas Jefferson’s (unsuccessful) campaign against the First Bank of the United States to the trust-busting of Teddy Roosevelt and the banking regulations of the 1930s enacted under Franklin Delano Roosevelt.  13 Bankers explains why we face this latest showdown with the financial sector, and what is at stake for America.

2) Carrie Bay: PPIP Funds Purchase $3.4B in "Toxic" Mortgage Securities:

The Treasury released its initial PPIP report Friday, detailing the first concrete progress made under the program since it was announced nearly a year ago as a means of relieving banks of soured real estate assets. So far, the PPIP funds have amassed a total of $24.8 billion to buy up mortgage-backed securities (MBS) – $6.2 billion in private capital, which was matched dollar-for-dollar by the Treasury, as well as another 12.4 billion of debt capital provided by the Treasury. About 14 percent of that-$ 3.4 billion-has been deployed to acquire securities that meet the program guidelines, meaning they were issued prior to 2009 and were originally rated AAA before the real estate crash sent values and loan performance plummeting. As of December 2009, roughly 87 percent of the PPIP portfolio holdings are private residential mortgage-backed securities (RMBS), or $2.97 billion. Thirteen percent of the funds’ bond purchases consist of commercial mortgage-backed securities (CMBS), or $440 million.From <>:

3) Gerald Prante and Patrick Fleenor: Distributional Analysis of President Obama’s Fiscal Year 2011 Budget Policies:

This Tax Foundation Fiscal Fact takes a preliminary look at the distributive effects of President Obama's budget, released last week.... [T]his Fiscal Fact looks at fiscal year 2012 so as to avoid complications that come about as a result of the fiscal-calendar year split of the Bush tax cuts set to expire on Dec. 31, 2010....

Overall, the results show Pres. Obama increasing the level of income redistribution to low-and-middle income families, while families in the top 1 percent of the income spectrum would face higher taxes and therefore more redistribution. The primary driver of this result is Pres. Obama's expiration of the Bush tax cuts for high-income families, as well as his proposed 28 percent value limitation on itemized deductions...

4) Kris Cox: President's Budget Requests $266 Billion to Support Economic Recovery:

In light of the still tenuous nature of the economic recovery, President Obama’s budget request of $266 billion for temporary provisions to support and speed economic recovery is necessary, reasonably sized, and well targeted. Some news outlets, focusing on the budget’s $100 billion for a new “jobs initiative,” have reported that the budget proposes only $100 billion for temporary, economy-boosting measures. But, in addition to the funds for the new jobs initiative, the budget includes $166 billion in temporary extensions of some provisions of the American Recovery and Reinvestment Act (ARRA), which are contributing to economic recovery but will soon expire. (See Table 1.) The size of the President’s request — $266 billion — is consistent with recent estimates by a number of economists.... Mark Zandi of Moody’s recently called for additional measures of about $250 billion. The temporary tax cuts and expenditure increases included in the budget appear well designed to help ensure that the economy averts a double-dip recession and attains (and sustains) a reasonable rate of economic and job growth.

Among the expiring provisions that the President proposes to extend is one that temporarily increases the federal share of state Medicaid costs to help states meet the increased need for Medicaid as people lose their jobs and health care coverage. To make the recovery package as effective as possible, Congress also should devote part of the funding for the jobs initiative to helping states avert layoffs in education and other public services.... The President’s budget does not detail the specific provisions that its new jobs initiative should include. As Congress crafts a package to sustain and create jobs, it should consider using part of the funding to extend ARRA’s State Fiscal Stabilization Fund, which is helping states maintain education and other services such as public safety and law enforcement during the recession...

5) Robert Allen: How Prosperous were the Romans? Evidence from Diocletian’s Price Edict (301 AD):

The paper compares the standard of living of labourers in the Roman Empire in 301 AD with the standard of living of labourers in Europe and Asia from the middle ages to the industrial revolution. Roman data are drawn from Diocletian’s Price Edict. The real wage of Roman workers was like that of their counterparts in the lagging parts of Europe and much of Asia in the middle of the eighteenth century. Roman workers earned just enough to buy a minimal subsistence consumption basket. Real wages were considerably higher in the advanced parts of Europe in the eighteenth century, as they had been in Europe generally following the Black Death in 1348-9.

6) GRAPH OF THE DAY: Robert Allen: Labourer's Wages in the Roman Empire Compared:

7) SECOND GRAPH OF THE DAY: The U.S. Treasury Yield Curve

U.S. Treasury - Daily Treasury Yield Curve

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Rick Perlstein Schools Grover Norquist on the Diane Rehm Show for Tuesday February 9, 2010:

10:00The Tea Party Movement: Some Tea Party activists hope to shift from organizing political rallies to winning elections. What's behind the movement's appeal and its potential political impact.


10) HOISTED FROM THE ARCHIVES: DeLong (2003): A Shiver in My Spine: Chevauchee:

One side effect of having the text of 10,000 books from Project Gutenberg newly-downloaded onto your laptop is that you can read the introduction to Chaucer's Canterbury Tales while proctoring your undergraduate exam. But I just ran across a passage that puts a shiver in my spine, a passage about the KNIGHT'S son, the SQUIRE:

With him there was his son, a younge SQUIRE,
A lover, and a lusty bacheler,
With lockes crulle as they were laid in press.
Of twenty year of age he was I guess.
Of his stature he was of even length,
And wonderly deliver, and great of strength.
And he had been some time in chevachie,
In Flanders, in Artois, and Picardie,
And borne him well, as of so little space,
In hope to standen in his lady's grace.

"...had been some time in chevauchee..." (as it is usually spelled).

Let me tell you how the Hundred Years War (during which Geoffrey Chaucer was an English government functionary) worked. An English army ventures into France. The French have more knights, more horses, and lots of castles. As long as the French harass the English--cutting off detachments, ambushing vanguards, surprising foraging parties--the English will (a) fail to take territory (for besieging castles is difficult and time consuming, and (b) find their army attrited away. Only if the English can induce the French to charge the English longbow archers while they are entrenched behind their wooden stakes can the English win a pitched battle, and in the aftermath of a massive victory like Crecy or Poitiers or Agincourt press forward and pick up the mass surrenders that gain them provinces.

So how can the English kings and princes persuade the French to charge the longbows? The answer the English found was the chevauchee: send your cavalry and your archers (who can march pretty fast) through French provinces, moving as fast as possible, burning and killing everything in their path. Perhaps the destruction will enrage the French enough that they will lose their heads and charge. Perhaps the French will feel that they must fight--whether it is good tactical ground for them or not--out of a sense of duty to their vassals and serfs. Perhaps the English get a pitched battle fought under favorable tactical circumstances. If not, they will come home having suffered few casualties, and laden with at least some booty, having had a merry time burning crops, burning villages, and killing peasants, and extorting valuables from small walled towns that do not want to risk the chance that the English army would halt and attempt a full siege.

That is what's hidden beneath Chaucer's three merry lines:

And he had been some time in chevachie,
In Flanders, in Artois, and Picardie,
And borne him well, as of so little space,

Truly this is the kind of activity after which one can "hope to standen in his lady's grace."

Right now I'm seeing burned French villages and butchered peasants in my mind's eye, and contrasting it with Chaucer's further description of the SQUIRE:

Embroider'd was he, as it were a mead
All full of freshe flowers, white and red.
Singing he was, or fluting all the day;
He was as fresh as is the month of May.
Short was his gown, with sleeves long and wide.
Well could he sit on horse, and faire ride.
He coulde songes make, and well indite,
Joust, and eke dance, and well pourtray and write.
So hot he loved, that by nightertale
He slept no more than doth the nightingale.
Courteous he was, lowly, and serviceable,
And carv'd before his father at the table.

The past is truly another country. (Of course, much of the world in the present is another country--all of the world outside the borders of the U.S.A. is another country, in fact.)