MetaFilter posts tagged with nation and government

Incommensurable values

kliuless — Mon, 25 Mar 2013 20:42:30 -0800

Economists and the theory of politics - "why unions were often well worth any deadweight cost" abstract:

The standard approach to policymaking and advice in economics implicitly or explicitly ignores politics and political economy, and maintains that if possible, any market failure should be rapidly removed. This essay explains why this conclusion may be incorrect; because it ignores politics, this approach is oblivious to the impact of the removal of market failures on future political equilibria and economic efficiency, which can be deleterious. We outline a simple framework for the study of the impact of current economic policies on future political equilibria — and indirectly on future economic outcomes. We then illustrate the mechanisms through which such impacts might operate using a series of examples. The main message is that sound economic policy should be based on a careful analysis of political economy and should factor in its influence on future political equilibria.

viz. What kind of mass movement with truly powerful institutional support can take the place of unions? - "I agree with just about everything they say about the value of unions, but I also feel forced to acknowledge that it doesn't matter. As a truly powerful mass movement, unions are dead and they aren't coming back. This has left a gaping hole in American politics: Corporations and the rich continue to have enormous institutional power, while the working and middle classes have almost no one to speak for them. I figure that filling this hole is the most important problem the left has to address over the next decade or so. Unfortunately, I don't know how." cf. The Tyranny of Political Economy - "In reality, our contemporary frameworks for political economy are replete with unstated assumptions about the system of ideas underlying the operation of political systems. Make those assumptions explicit, and the decisive role of vested interests evaporates. Policy design, political leadership, and human agency come back to life... Expand the range of feasible strategies (which is what good policy design and leadership do), and you radically change behavior and outcomes." also btw...

Markets in almost nothing - "One of the first things I noticed when I started studying economics was that goods that can't be bought and sold are basically ignored."
Wealth and Motivations for Saving - "teach the public more about how wealth builds over time"
The Supply and Demand for Safe Assets - "Where do safe assets come from? Empirical evidence suggests that the private sector creates more near riskless assets when the supply of government debt is low and reduces privately-created near riskless assets when the supply of government debt is high."
The safe asset shortage - "Safe debts – or what is often called information insensitive assets, as they do not suffer from the types of financial frictions that are characteristic to other financial assets – play a major role in facilitating transactions for institutional investors. And, as we have learned in the recent years, they also play a major role in triggering financial crises when they lose their safety status and turn into information sensitive assets."
GDP, welfare and the rise of data-driven activities - "The worry today is not that investment in technology might not be as productive as we thought (the so-called computer paradox), but the fact that the economic value of the fast growing consumption and production of online data may not be adequately captured in official statistics."
Uncle Sam, venture capitalist - "AMERICA, like much of the world, is facing a crisis of innovation. Its roots rest in several significant challenges: an awareness that rapid technological progress and growth will be crucial in weathering demographic headwinds and the threat of climate change among them. But there is very little consensus in Washington on just what the government ought to be doing to help."
What Google Reader tells us about banking and nationalisation - "Which is why the government taking charge of a service like RSS for the benefit of the public good — or for that matter providing the country with universal internet or high quality media — should not necessarily be treated with suspicion or mistrust. In the civilized world there is a perfectly reasonable way to ensure arm's length detachment and to protect such institutions from the political meddling of government."
If You Can't Fix It, You Don't Own It - "Who owns our stuff? The answer used to be obvious. Now, with electronics integrated into just about everything we buy, the answer has changed. We live in a digital age, and even the physical goods we buy are complex. Copyright is impacting more people than ever before because the line between hardware and software, physical and digital has blurred. The issue goes beyond cellphone unlocking, because once we buy an object — any object — we should own it. We should be able to lift the hood, unlock it, modify it, repair it... without asking for permission from the manufacturer. But we really don't own our stuff anymore (at least not fully); the manufacturers do. Because modifying modern objects requires access to information: code, service manuals, error codes, and diagnostic tools."

like think about sovereign debt -- that is safe assets -- more as a national equity: [1,2,3,4,5]

The US national debt is in truth - like all national debts - a complete and surreal fiction: it is a national equity, the greater part of which is interest-bearing either as claims over public or private revenues. At least two-thirds of the quasi tax credits created by banks came into existence as mortgage loans, and are therefore backed by claims over the productive value of the US land and buildings which they fund. Much of the rest consists of claims over the value of US assets which fund the productive capacity of US corporations. The remainder - which provides the credit necessary to finance the circulation of goods and services in the US - is based upon the magnificent productive capacity of the US people. Only by liquidating US Incorporated could this National Equity ever be redeemed... There is no shortage of dollars because every dollar's worth of productive capacity - public or private; productive people or productive assets - in the US is the capacity to issue a dollar credit, which reflects the increase in the US national wealth which underpins the US national equity. President Barack Obama and his government should get busy creating national equity by instructing the Fed to create and issue the necessary finance for the creation of a new generation of US infrastructure; the transition to a low carbon future which the US can, and should, be leading; and in increasing the capacity of the US people to do so.

(or how the government budget constraint is different than a household's or corporation's -- namely that they can tax and can't be liquidated, unless extraordinarily mismanaged or conquered, I guess...)

brittle efficiency and shallow triumphalism

kliuless — Sun, 17 Apr 2011 13:23:14 -0800

Fareed Zakaria: Are America's Best Days Behind Us? - "We have an Electoral College that no one understands and a Senate that doesn't work, with rules and traditions that allow a single Senator to obstruct democracy without even explaining why. We have a crazy-quilt patchwork of towns, municipalities and states with overlapping authority, bureaucracies and resulting waste. We have a political system geared toward ceaseless fundraising and pandering to the interests of the present with no ability to plan, invest or build for the future. And if one mentions any of this, why, one is being unpatriotic, because we have the perfect system of government, handed down to us by demigods who walked the earth in the late 18th century and who serve as models for us today and forever. America's founders would have been profoundly annoyed by this kind of unreflective ancestor worship." [for/against]

Be it resolved that financial 'innovation' does not boost economic growth

kliuless — Tue, 02 Mar 2010 06:24:34 -0800

Basicland vs. Sorrowland
A parable about how one nation came to financial ruin by Charles Munger. For extra colour there's... ...a debate on the merits of financial innovation; Jeremy Grantham writes "Beware the Financial Industrial Complex"

Clients can't easily distinguish talent from luck or risk taking. It's an unfair contest, nothing like the fair fight assumed by standard Economics. As we add new products, options, futures, CDOs, hedge funds, and private equity, aggregate fees per dollar rise. As the layers of fees and layers of agents increase, so too products become more complicated and opaque, causing clients to need us more. As total fees in the past grew by 0.5%, we agents basically reached into the clients' balance sheets, snatched the 0.5%, and turned it into income and GDP. Magic! But in doing so, we lowered the savings and investment rate by 0.5%. So, we got a short-term GDP kick at the expense of lower long-term growth. This is true with the whole financial system. Let us say that by 1965 – the middle of one of the best decades in U.S. history – we had perfectly adequate financial services. Of course, adequate tools are vital. That is not the issue here. We're debating the razzmatazz of the last 10 to 15 years. Finance was 3% of GDP in 1965; now it is 7.5%. This is an extra 4.5% load that the real economy carries. The financial system is overfeeding on and slowing down the real economy. It is like running with a large, heavy, and growing bloodsucker on your back. It slows you down. For 100 years the GDP Battleship grew at 3.5%. (Even the Great Depression did not change that trend.) But after 1965 the GDP growth rate ex-finance fell to 3.2% a year. After 1982 it fell to 3.1%, and after 2000 to 2.5%, with all of these measurements to the end of 2007 before the current crisis. From society's point of view, this additional 4.5% burden works like looting or an earthquake. Both increase short-term GDP through replacement effect, but chew up capital. All of the extra financial workers might as well be retirees or children, in that they are supported by the rest of the workforce, but they are much, much more expensive.

BONUS(es) Bonuses boost activity, not quality Bonuses and pay-for-performance are a risky business:

First, it can be hard to see whether employees make the right decisions; superiors do not hold the same information, and the results of decisions play out years later. Second, performance pay will attract exactly those who are willing to take on more risk. People interested in high but steady income will choose other careers. Third, to get their pay, employees may manipulate the system, against the interests of those who set up the incentives: like teachers who are threatened with losing their jobs and teach to the test. Finally, and most perniciously, performance pay can crowd out intrinsic rewards, as when children, having received gold stars for drawing pictures, later draw less than before in their own time. Why draw without getting paid? In organisations that work well, employees identify with their work and their organisations. People want to do a good job because they think they should and because it is the right thing to do... Why then, we ask, do traders and bankers need outsize bonuses and performance pay to get them to do their jobs?

CAUSES So What Exactly Caused the Financial Crisis? [1,2,3] Lessons from the crisis How financial innovation causes bubbles A special report on financial risk: Financial risk got ahead of the world's ability to manage it, cf. Mark-to-Make Believe – Still toxic after all these years, viz. When Goldman Sachs hates marking to market Are Derivatives the Real Problem? "it's the underlying 'business purpose' of transactions. Hedging has a legitimate business purpose. Making markets, speculation, and financing projects have solid business foundations as well. But entering into transactions that serve to hide or obfuscate economic reality work against this principle... let's be clear. The issue isn't derivatives; it's all financial transactions whose objective is to deceive or to weaken financial transparency." FIXES Breaking the Banks: "they promote a noncompetitive industrial organization. They do that by, among other things, creating informational asymmetries. The innovative products they promote -- both derivatives and consumer products -- give them an informational edge over their customers." Maybe it's time to bank simple? The Big Bank Fix:

...many countries with integrated banking systems did not have to bail out any of their financial institutions. Canada's banks were not too big to fail – just too boring to fail. There is nothing in Canada to rival the power of Wall Street or the City of London. This enabled the government to swim against the tide of financial innovation and de-regulation. It is countries like the US and Britain, with politically dominant financial sectors competing to take over financial leadership of the world, that suffered the heaviest losses. This is the point that the well-intentioned regulators miss. At root, the battle between the two approaches is a question of power, not of technical financial economics...

cf. Douglass North POLITICS Business interests and democracy, cf. Persistence of bad governments Were the US & UK central banks complicit in robbing the middle classes? Elizabeth Warren Does The Daily Show Again, cf. Parametric estimations of the world distribution of income The Market's "Howard Beale" Moment How Should We Reform Taxes? [1,2,3] A government that works well is a government that taxes easily [1,2,3,4] CULTURE Institutional failure Double Down Institutional Investing: "Are we the double-down society as far as investing goes? It's sad to see this phenomenon reappearing. Don't we ever learn?" Interview with Raghuram Rajan: "Private sector—yes, it can take care of itself, but its incentives may not be in the public interest; may not even be in the corporate interest if corporate governance is problematic. So the trader could fail the corporation, could also fail society." Power: "The scientists argue that power is corrupting because it leads to moral hypocrisy. Although we almost always know what the right thing to do is - cheating at dice is a sin - power makes it easier to justify the wrongdoing, as we rationalize away our moral mistake." Does feeling like a victim make you selfish? The corporate conscience Ten things that influence conformity: "People use conformity to ingratiate themselves with others... Have you noticed that nonconformers are less likely to care what other people think of them?" Beliefs Conform To Cultural Identities: "an experiment that demonstrates that people don't put as much weight on facts as they do their own belief about how the world is supposed to work" The arts are far more than just another industry: "After gravity, culture is the thing that holds humanity in place." ACADEMIC A financial system ill-equipped to serve the purpose to which it is addressed: "Real market institutions seem designed to hide information and shift consequences rather than reveal outcomes and allocate costs and rewards." [1,2] Market Failure: "I want to propose a new definition of market failure. For me, market failure exists to the extent that innovation is blocked by incumbents. If innovators can succeed by out-competing incumbents, then the market is working. If incumbents have a self-reinforcing system that keeps out innovators, then we have market failure." [1,2] Winding up economists: a research methodology

Q: What is a market? A: it's an institution Q: who owns it? A: often nobody, sometimes a private company Q: so is it a private asset or not? A: not really. Even if it is owned, it has considerable positive externalities. It's what we call a 'public good'. Q: what is a 'public good'? A: It's one of the four varieties of 'market failure'. Q: So you're telling me that a well-functioning market is a 'market failure'.

The disciplines of economics [1,2] High modernism and expert knowledge -- Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed OVERVIEW What Is the "New Normal" for Global Growth? Your undivided attention for the full 90 seconds

To begin with, let's get reacquainted with the fundamental economic problem of our age – lack of global aggregate demand – and how we got to where we are today: (1) Twenty years of accelerated globalization incrementally undermined the real incomes of most developed countries' workers/citizens, forcing governments to promote leverage and asset price appreciation in order to fill in what is known as an "aggregate demand" gap – making sure that consumers keep buying things. When the private sector assumed too much debt and asset prices bubbled (think subprimes and houses, or dotcoms/NASDAQ 5000), American-style capitalism with its leverage, deregulation, and religious belief in lower and lower taxes reached a dead end. There was a willingness to keep on consuming, there just wasn't the wallet. Vigilantes – bond market or otherwise – took away the credit card like parents do with a mall-crazed teenager. (2) The cancellation of credit cards led to the Great Recession and private sector deleveraging, the beginning of government policy reregulation, and gradual deglobalization – a reversal of over 20 years of trade policies and free market orthodoxy. In order to get us out of the sinkhole and avoid another Great Depression, the visible fist of government stepped in to replace the invisible hand of Adam Smith. Short-term interest rates headed to 0% and monetary policies of central banks incorporated new measures labeled "quantitative easing," which essentially involved the writing of trillions of dollars of checks to replace the trillions of dollars of credit that disappeared after Lehman Brothers. In addition, government fiscal policies, in combination with declining revenues, led to double-digit deficits as a percentage of GDP in many countries, a condition unheard of since the Great Depression. (3) For awhile it seemed that all was well, that the government’s checkbook could replace the private market’s wallet and credit cards. Risk markets returned to normal P/Es as did interest rate spreads, and GDP growth resumed; it was only a matter of time before job growth would assure the world that we could believe in the tooth fairy again. Capitalism based on asset price appreciation was back. It would only be a matter of time before home prices followed stock prices higher and those refis and second mortgages would stuff our wallets once again. (4) Ah, but Dubai, Iceland, Ireland and recently Greece pointed to a potential flaw in the model. Shaking hands with the government was a brilliant strategy in 2009 when it was assumed that governments had an infinite capacity to leverage themselves. But what if they didn't? What if, as Carmen Reinhart and Kenneth Rogoff have pointed out in their book, "This Time is Different," our modern era was similar to history over the past several centuries when financial crises led to sovereign defaults or at least uncomfortable economic growth environments where real GDP was subpar based on onerous debt levels – sovereign and private market alike. What if – to put it simply – you couldn't get out of a debt crisis by creating more debt? You are now up-to-date and I've used up all of my 90 seconds...

The Ring of Fire: "These red zone countries are ones with the potential for public debt to exceed 90% of GDP within a few years' time, which would slow GDP by 1% or more. The yellow and green areas are considered to be the most conservative and potentially most solvent, with the potential for higher growth." Forward Don Quixote, the windmills are in sight:

Quixotic journeys often make for great literature, but by definition are rarely productive. I am, after all, referring to windmills here – not their 21st century creation, but their 17th century chasing. Futility, not productivity, was the ultimate fate of Cervantes' man from La Mancha. So it is with hesitation, although quixotic obsession, that I plunge headlong into a discussion of American politics, healthcare legislation, resultant budget deficits and – finally – their potential effect on financial markets. There will be windmills aplenty in the next few pages and not much good can come of these opinions or my tilting in their direction. Still, I mount my steed, lance in hand, and ride forward. Question: What has become of the American nation? Conceived with the vision of liberty and justice for all, we have descended in the clutches of corporate and other special interests to a second world state defined by K Street instead of Independence Square. Our government doesn't work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people. Washington consistently stoops to legislate 10,000-page perversions of healthcare, regulatory reform, defense, and budgetary mandates overflowing with earmarks that serve a monied minority as opposed to an all-too-silent majority. You don't have to be Don Quixote to believe that legislators – and Presidents – often do not work for the benefit of their constituents: A recent NBC News/Wall Street Journal poll reported that over 65% of Americans trust their government to do the right thing "only some of the time" and a stunning 19% said "never." What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups. If, by chance, they're ever voted out of office, they have a home just down the street – at K Street – with six-figure incomes as a starting wage. What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives – and if that description fits the Democratic Congress now in control – then it applies to Republicans as well – past and present. So you watch Fox, or is it MSNBC? O'Reilly or Olbermann? It doesn't matter. You're just being conned into rooting for a team that basically runs the same plays called by lookalike coaches on different sidelines. A "ballot box" pox on all their houses – Senators, Representatives and Presidents alike. There has been no change, there will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates. Undemocratic? Hardly. Get on the internet, use Facebook, YouTube, or Twitter to campaign for your choice. That's the new democracy. When special interests, even singular citizens write a check, it represents a perversion of democracy not the exercise of the First Amendment. Any chance that any of this will happen? Not one ghost of a chance.

The Twilight of the Guilds? "The biggest bubble in the United States is the upper-middle class professional bubble; for the last generation the incomes of Americans with professional degrees continued to rise, sharply in many cases, even as incomes for blue collar workers steadily fell... This can't and won't go on." Towards A Vocation Nation The cost of doing nothing [1,2,3] The Real Roots of the Crisis

Macroeconomists argue that the roots of the crisis are in imbalances: asymmetries in the flow of trade between nations. But those imbalances themselves are just effects. A current account deficit is a symbol: just numbers that point to a deeper reality. The real roots of the crisis aren't about liquidity requirements, reserve ratios, or monetary transmission mechanisms. No amount of regulation or rule-making can fix it. And mere "growth" in GDP, as we're discovering, isn't a cure for it. What really caused the crisis was the fact that we didn't care. Bankers didn't care about the loans they issued. Boards didn't care about bankers. Shareholders didn't care about boards. Markets didn't care about shareholders. Communities didn't care about markets. Society didn't care about communities. No one cared much about society. The fundamental question, then, is this: why not? My answer's simple — and probably even simplistic. But it will serve well enough to make a point. We didn't care because we were chasing stuff. The real crisis is a crisis of nihilism: the belief that apart from stuff, nothing else matters economically. In the name of stuff, we sacrificed what mattered: people, community, comity, trust, education, skill, quality, happiness — and tomorrow itself. It is those institutions — not mere stuff — that underpin authentic value. Stuff is just window dressing. In Wall Street's parlance, we got blown up by a bad trade. Trading stuff for institutions was a bad idea. The real crisis is inside us. It's how we make sense of the world, what motivates us, and in what we value. It is, in short, culture. And it is culturally that we have lost our way.

cf. The Rules Have All Changed: "Julian Sanchez, criticizing guru Umair Haque and his manifesto[s]" [1,2,3,4,5]

George Soros on the Way Forward

kliuless — Sat, 21 Nov 2009 19:42:21 -0800

Soros lectures
You can slog through the video, but I preferred the transcripts 1 | 2 | 3 | 4 | 5 + to me, it started off rather abstract* (admittedly on his part) and slow (covered ground; note soros tag) and doesn't really get interesting until 3 -- "The event that forced me to thoroughly reconsider the concept of open society was the re-election of President Bush..." [altho he can get a bit arrogant ("even I, who discovered—or invented—reflexivity, failed to recognize...")] -- and gets better from there... so i'd skip to that if you're so inclined :P kinda previously... and btw, as a bonus, also see... - Why Do We Hate? - What Makes a Nation Rich? - How Much Is Enough? - What the U.S. Long Bond Market Is Telling Us (cf.) - The G20 in 2050 (viz.) - Rare earth: The New Great Game [1,2,3,4,5,6] --- *in fleshing out his concept of reflexivity he goes thru (among other things and in other words) descriptive vs. prescriptive (or normative) theories, instrumental rationality and empiricism, false thinking and truthiness, the law of unintended consequences, &c. so if you're into that sort of stuff... have at it!

Mr. Lee's Greater Hong Kong

kliuless — Thu, 21 May 2009 16:44:18 -0800

Prelude to Federation - Like a neocolonial SEZ (or TAZ) Paul Romer, not to be confused with David, posits "less developed countries contract with capitalist nations to set up Hong Kong's for them... that we rethink sovereignty (respect borders, but maybe import administrative control); rethink citizenship (support residency, but maybe import voice in political affairs); and rethink scale (instead of focusing on nations, focus on cities—on city states like Hong Kong and Singapore)." cf. neocameralism [1, 2, 3] BONUS - New Urbanism - Taking Up Space