February 28 6:08 AM

 The elasticity of natural disaster deaths with respect to income – Matt Kahn has a good paper (and here) on this topic: Using a new data set on annual deaths from disasters in 57 nations from 1980 to 2002, this paper tests several hypotheses concerning natural disaster mitigation. While richer nations do not experience fewer natural disaster events than poorer nations, richer nations do suffer less death from disaster. Economic development provides implicit insurance against nature’s shocks. Democracies and nations with higher quality institutions suffer less death from natural disaster. The results are relevant for judging the incidence of a Global Warming induced increase in the count of natural disaster shocks.

The Market for Morals – Maxine Udall – Lately, I’ve been thinking about what we obtain from markets: obvious things like goods and services, wages and output, credit and interest. But we get much more than these. Markets are places of reciprocity, of fair exchange, of a sort of equalizing justice. Without money or markets, there would be “no exchange or association. The demand for services that are mutually beneficial is part of what holds society together.  In Aristotle’s time, markets drew people out of their homes and into the marketplace to interact with their neighbors and townsmen and women; to observe the behavior of merchants over time; to develop sympathy for the individuals that they traded with; and to become invested in the welfare of their community. Markets were the warp upon which was woven the social fabric that binds us into community.

Who Will Rein In Those Credit Default Swaps? – NYTimes -“USING these instruments in a way that intentionally destabilizes a company or a country is — is counterproductive, and I’m sure the S.E.C. will be looking into that.”  That’s what Ben S. Bernanke, chairman of the Federal Reserve, said last week when lawmakers asked him about credit default swaps during his Congressional testimony. Concerns are growing about such swaps — securities that offer insurance-like protection and helped tip over the American International Group in 2008 when it couldn’t pay mounting claims on the contracts. Now, there are fears that the use of these swaps may also help propel entire countries — think Greece — to the precipice.  Mr. Bernanke is undoubtedly an intelligent man. But his view that it’s “counterproductive” to use credit default swaps to crash an institution or a nation exhibits a certain naïveté about how the titans of finance operate now.

Business interests and democracy – The central ideal of democracy is the notion that citizens can express their political and policy preferences through political institutions, and that the policies selected will reflect those preferences. We also expect that elected officials will act ethically in support of the best interests of the public. This is their public trust. The anti-democratic possibility is that popular debates and expressions of preference are only a sham, and that secretive, powerful actors are able to secure their will in most circumstances. And in contemporary circumstances, that sounds a lot like corporations and business lobbying organizations. (Here is an earlier post on a report about corrupt behavior at the Department of the Interior.) The January Supreme Court decision affirming the status of corporations as persons, and therefore entitled to unfettered rights of free speech, is the most extreme expression of the power of business, corporations, and money…

Paring the Deficit, by Selling Part of the Radio Spectrum – NYT – HERE’S a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit. Now, suppose that there were a way to deal effectively with all of those things at once, without hurting anyone. And suppose that it would make everyone’s smartphone work better, too. (I’ll explain that benefit shortly.)  I know that this sounds like the second coming of voodoo economics, but bear with me. This proposal involves no magical thinking, just good common sense: By simply reallocating the way we use the radio spectrum now devoted to over-the-air television broadcasting, we can create a bonanza for the government, stimulate the economy and advance all of the other goals listed above. Really.

Mankiw Flogging A Non-Existent Horse – Greg Mankiw often says this: A tax on height follows inexorably from the standard utilitarian approach to the optimal design of tax policy coupled with a well-established empirical regularity. Becuase this is part of his argument against income redistribution.  As I have said before (and see a nice comment there by Ilya) this is based on a misunderstanding of the theory of taxation.  It does not matter what the government’s underlying objective is, whether it is utilitarian or anything else.  If the government wants to raise money, for whatever purpose, say to provide education or pay the President’s economic advisors or fight wars, it wants to do so in the least distortionary way.

 The Cost of Doing Nothing on Health Care – NYTimes – Suppose Congress and President Obama fail to overhaul the system now, or just tinker around the edges, or start over, as the Republicans propose — despite the Democrats’ latest and possibly last big push that began last week at a marathon televised forum in Washington.  Then “my health care” stays the same, right?  Far from it, health policy analysts and economists of nearly every ideological persuasion agree. The unrelenting rise in medical costs is likely to wreak havoc within the system and beyond it, and pretty much everyone will be affected, directly or indirectly. “People think if we do nothing, we will have what we have now,” said Karen Davis, the president of the Commonwealth Fund, a nonprofit health care research group in New York. “In fact, what we will have is a substantial deterioration in what we have.”

Incentives Matter: Unemployment Insurance and Job Search Edition – The abstract of a new paper from Alan Krueger and Andreas Muelller: This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The major findings are: 1) the average U.S. unemployed worker devotes about 41 min to job search on weekdays, which is substantially more than their European counterparts; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between −1.6 and −2.2; 4) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; and 5) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI.

Fed Balance Sheet and MBS Purchases – Here is the Federal Reserve balance sheet break down from the Atlanta Fed weekly Financial Highlights: Graph Source: Altanta Fed.
From the Atlanta Fed:  The balance sheet expanded $20 billion, to $2.3 trillion, for the week ended February 17. Holdings of agency debt and mortgage backed securities increased $49 billion while short-term lending to financials, specifically the Term Auction Credit Facility, declined by $23 billion. The balance sheet is expected to peak during the first half of this year after the MBS purchase program is completed and purchases settle on the balance sheet Note that some of the MBS purchases have not "settled on the balance sheet" yet.The NY Fed has purchased $1.21 trillion net in agency MBS as of Feb 24th, but the Fed’s balance sheet only shows $1.03 trillion in MBS assets. It takes some time for the purchases to settle, and this has confused some people. The NY Fed number is the one to follow – and no one should be surprised that the Fed’s balance sheet continues to expand after the MBS purchase program ends on March 31st.

We Can’t Wish Away Climate Change -Al Gore – It would be an enormous relief if the recent attacks on the science of global warming actually indicated that we do not face an unimaginable calamity requiring large-scale, preventive measures to protect human civilization as we know it. … We would no longer have to worry that our grandchildren would one day look back on us as a criminal generation that had selfishly and blithely ignored clear warnings that their fate was in our hands. … I, for one, genuinely wish that the climate crisis were an illusion. But unfortunately, the reality of the danger we are courting has not been changed… In fact, the crisis is still growing… even though climate deniers have speciously argued for several years that there has been no warming in the last decade, scientists confirmed last month that the last 10 years were the hottest decade since modern records have been kept.

 Elizabeth Warren on the Coming Commercial Real Estate Crisis; 3000 Community Banks at Risk – Mish – The following story headline masquerades as a local (D.C.) problem but the real story buried in the article is a few select quotes from Elizabeth Warren. Please consider In D.C., more evidence that commercial real estate headed for foreclosure crisis. "There’s been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. "There will be significant bankruptcies among developers and significant failures among community banks."Nearly 3,000 community banks — 40 percent of the banking system — have a high proportion of commercial real estate loans relative to their capital, said Warren, whose committee issued a report on commercial real estate last week. "Every dollar they lose in commercial real estate is a dollar they can’t use for small businesses," she said.

 Fourth Quarter Final Demand Growth Revised Down to 1.9 Percent – The reporting on the revisions to fourth quarter GDP noted that the growth rate was revised up from 5.7 percent to 5.9 percent. However, this increase was attributable to revisions to the rate of inventory accumulation (actually slower de- accumulation). The rate of final demand growth was actually revised down from 2.2 percent to 1.9 percent. This bad news went largely unnoticed.

Dodd’s proposed compromise – Senate Banking chairman Chris Dodd is circulating his new compromise plan for a consumer financial regulator.  The New York Times and Wall Street Journal both summarized the proposal last night, but here is a copy of Dodd’s still-rough outline.  As compromises go, it could be worse.   It drops the idea of a stand-alone agency that would be devoted entirely to consumer financial regulation, a cornerstone of the White House financial overhaul and of the House-passed bill.  Instead, it would create a "Bureau of Financial Protection" within the Treasury.  Its director would be selected by the President, rather than the Treasury secretary, and it would have its own budget.  If the banks think this is worth a pitched battle, then you can bet this isn’t about angels on the head of a pin.

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