The Moment of Convulsion
– Seeing this residue of history put me in mind of a riddle that one of my college professors presented to us one day years ago: why did Achilles drag Hector around the city of Troy three times
? We came up with dozens of reasons ranging from conjectures out of the text of The Iliad
to lame bits of Hippie numerology, but nobody could furnish the answer that the prof was looking for, which was eventually revealed: Because he
[Achilles] was just that pissed off
. This was the idea that dogged me in the winter twilight of Paris late on Christmas Day as I pondered the fate of my own country back across the cold cold sea. A lot of Americans are beate
n down and discouraged these days. They’ve lost not only jobs, incomes, and houses, but also a sense of purpose, and perhaps faith in the essential fairness of the American venture – as the propane runs out, and families try to subsist on Froot Loops, and the re-po squad turns up to haul away the Ford F-150 Raptor. Meanwhile, in their last remaining refuge from harsh reality, TV, they glimpse the likes of Jamie Dimon, Chloe Kardashian, and Jay-Z emerging from limousines looking hopelessly bored with wealth beyond imagination. When will the folks out there
move from shame and despondency to being really pissed off
about the disposition of things?
China vows to $30B investment in water saving projects
-China plans to invest 30 billion dollars on water conservation projects in 2011 to reduce the impact of natural disasters on grain production, state media said Saturday. The report comes after severe flooding and droughts across the country this year destroyed crops and drove up food prices, pushing inflation to its highest level in more than two years in November. The investment — up 10 percent on year — would go towards improving irrigation and projects to combat weather-related disasters, the China Daily said, citing water resources minister Chen Lei. China has invested a little over 100 billion dollars in water projects in the past five years, the report said. "We have to accelerate the construction of water conservation facilities as one of the key infrastructures the country needs to secure increasing grain production,"
A Fed-Induced Speculative Blowoff – Hussman – Why are Treasury yields rising despite hundreds of billions of Treasury purchases by the Federal Reserve? There are two possibilities in the current debate. One is that the Fed’s policy of purchasing Treasuries has scared the willies out of the bond market on fears of higher inflation, and that the policy is a failure. The other is that the policy has been such a success at boosting the prospects for economic growth that interest rates are rising on anticipation of a better economy. From our standpoint, neither of these explanations hold much water. On the inflation front, the recent bond selloff has hit TIPS prices as well as straight Treasuries, which isn’t something you’d expect to see if inflation expectations were being destabilized. And although precious metals and other commodity prices have been pressed higher, the commodity run can be more accurately traced to negative real interest rates at the short-end of the maturity curve, coupled with a downward trend in long-term yields that has now reversed dramatically (more on that below). I’ve long argued that unproductive government spending and profligate fiscal policy are ultimately inflationary (regardless of how the spending is financed, and particularly if it is monetized), but I continue to view persistent inflation as a long-term, not near-term concern. A rise in T-bill yields of more than 15-25 basis points would change that assessment. Until then, velocity can be expected to collapse in direct proportion to changes in the monetary base, with little impact on prices.
This week, Greg Mortenson, who has been building schools for girls and boys in Afghanistan, offered a brilliant alternative to war in Afghanistan via Nicolas Kristof’s piece in the NY Times: Mr. Mortenson says that $243 million is needed to fund all higher education in Afghanistan this year. He suggests that America hold a press conference here in Kabul and put just 243 of our 100,000 soldiers (each costing $1 million per year) on planes home. Then the U.S. could take the savings and hand over a check to pay for Afghanistan’s universities. Is this talk of schools and development naïve? Military power is essential, but it’s limited in what it can achieve. There’s abundant evidence that while bombs harden hearts, schooling, over time, can transform them. That’s just being pragmatic. The war in Afghanistan isn’t making us safer, and it’s not worth the cost. The fact that bringing home 243 troops could pay for all higher education in Afghanistan this year shows that there are much, much better ways of stabilizing Afghanistan and improving the lives of Afghans if we’re willing to let go of military force as the answer
The World’s Real Oil Problem – Paul Krugman writes about the rising global price of commodities: Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months. Oil plays a role in the world economy that’s far more important than any other commodity, so when I’m in a mood to worry I worry about oil prices. I don’t know if we’ve hit peak oil, but we have reached the point at which the growth of supply has reached the point where it can barely keep up with growing demand in a normal economy. (More here about that.) This means that whenever the economy is growing at a decent pace (and driving up demand for oil with it), the price of oil will inevitably rise sharply and slow down the global economy (at best) or throw us into another recession (at worst). In other words, oil has become a permanent limit to world economic growth.
Resisting Bankers’ Rules
– As I pointed out in last week’s post
, echoing a widely shared view
, regulators are subject to capture by those they regulate. But this shouldn’t lead to the conclusion that regulation is futile. Rather, what we need is better monitoring and support, resistance and recapture. The recent history of financial regulation
offers both stark contrasts and some hope. It’s not hard to find examples of collaborators who didn’t try very hard, accomplished little and moved into lucrative private-sector jobs, easily weathering the storms of a financial crisis they helped create. A detailed history of regulatory complicity in financial services has yet to be written. When it is, virtually every major federal agency operating in this area, including the Securities and Exchange Commission
, is likely to be implicated. Indeed, the complex and sometimes overlapping jurisdictions of such agencies as the Federal Reserve Bank
, the Office of Thrift Supervision
, the Federal Deposit Insurance Corporation
, and the Office of the Comptroller of the Currency
contributed to the problem. However, higher-ups within the Office of the Comptroller of the Currency stand out.
Many Employees Don’t Understand Retirement Packages
– Employees often misunderstand their retirement packages and plan their golden years using inaccurate assumptions, a new study shows. Employees near retirement age incorrectly gauged when their retirement plans would kick in — and used those misconceptions to choose a retirement age. Many didn’t know how much post-retirement income they would earn either, “Survey responses indicate that the retirement-eligible employees in these companies had a rather low level of knowledge, a lack of confidence in their ability to make optimal retirement choices, and a strong desire for their employers to provide more formal pre-retirement planning programs,” according to the study
conducted from 2008 to 2009. While nearly all of the workers surveyed were covered by defined benefit pension plans, 56% said they didn’t know what their pension would be as a percentage of their salary once they retired. In surveys that asked employees about details of company and national retirement programs, workers got 50% of the answers correct on average. Just 36% of respondents knew the earliest age they were eligible to receive their company pensions. Another 37% overestimated the age, while 9% underestimated it.
How Not to Fix Economic Models
– Add more money. The Wall Street Journal notes
the Institute for New Economic Thinking was launched last year with $50 million from financier and theorist George Soros. The institute so far has approved funding for more than 27 projects, including efforts by aimed at developing new ways to model the economy. What are their ideas? Remember that Soros’ Alchemy of Finance
presented the big idea that prices are irrational, which he defined as biased ‘in one direction or another’ (his other idea, that markets can influence what they predict, playing off his role in the 1992 EMU crisis). He’s sympathetic to researchers who would confirm he’s not just rich, but a profound, original thinker. Here’s the WSJ: The problem, says Doyne Farmer, is that the models bear too little relation to reality. People aren’t quite as rational as models assume, he says. Advocates of traditional economics acknowledge that not all decisions are driven by pure reason.
Cold winter in a world of warming?
– Last June, during the International Polar Year conference, James Overland suggested
that there are more cold and snowy winters to come. He argued that the exceptionally cold snowy 2009-2010 winter in Europe had a connection with the loss of sea-ice in the Arctic. The cold winters were associated with a persistent ‘blocking event’, bringing in cold air over Europe from the north and the east. Last year’s cold winter over northern Europe was also associated with an extreme situation associated with the North Atlantic Oscillation
(NAO), with the second lowest value for the NAO-index on record (see figure below). I admit, last winter felt quite cold, but still it wasn’t so cold when put into longer historical perspective. This is because I remember the most recent winters more vividly than those of my childhood – which would be considered to be really frosty
by today’s standards. But such recollections can be very subjective, and more objective measurements show that the winters in Europe have in general become warmer in the long run, as explained in the German blog called ‘Wissenlogs’
. If there were no trend, then such a low NAO-index as last year’s would normally be associated with even colder conditions over Europe than those observed during the previous winter.