Brief Overview as to the State of World Macroeconomics II

Part one can be found here.

Here's a depressing round table with Krugman and some other huge macroeconomists. It's 55 minutes and grim.

To add to that Ezra Klein talks about pretty similar scenarios in which growth is basically stagnate for the next 10-20 years.

Almost no one, not even my most liberal friends, want to hear about more stimulus spending. Yet, government size has decreased by 350,000 jobs since Obama took office, and over the last two years government expenditures have risen a paltry 3% - well below what they were for the previous two years and far below typical economic growth rates. But year America is somehow now socialist. The point is to fill the gap in spending temporarily until it picks up again. Exact numbers are given and they're huge - the initial bill was about half the size it needed to be and 40% tax cuts. Of course it was going to have a weak effect.

The market has been doing fairly well recently and some people are calling for a correction (essentially a devaluation) of anything from very little to 90%. The Big Picture's writer, Barry Ritholtz, is guessing that about 25% is perhaps at the high end, but at the same time - do you want to make money or do you want to be right?

Staying with Ritholtz for a minute - he says we need an intervention as a nation. This is in light of the fact that the foreclosure process (great article) has recently been shown to be in tatters, or rather, businesses that serve foreclosures are falsifying documents proving ownership of a loan that courts then use to seize property. Yeah, that's illegal.

Peter Diamond and two collaborators won the Nobel Prize in Economics (I know, I know - it's not the original) this morning. Why does his name sound familiar? Obama selected him as a Fed governor but the Republicans in the Senate blocked his nomination citing his lack of relevant experience. Then why did Obama choose him? Well, besides the fact that he was Bernacke's professor he also wrote the seminal paper, which he's now won a Nobel for, on... wait for it... unemployment in a distressed market (see: America, present).

Tax receipts get proposed:

I often get asked, or rather chided, about my support for TARP. It's somewhat hard to explain shadow banking to someone who doesn't really know how a reserve ratio works. Anyways, America get its money back and may even make a profit. PLus the banking system didn't collapse... yay? Somehow I feel as if that would have led to zombie attacks... I know, it's weird.

And the real reason I wanted to write about this: "China has an unloaded water pistol at our head"

Everyone knows that we trade a lot with China. They are out second largest trading partner after Canada, but what most people don't know is that China keeps its currency undervalued on purpose in order to increase its export volume. Normally if an import country taxes a good coming in, a tariff, the country where the good originated from gets mad so almost no one does that. Trade is mostly open in the world today - as in most cases it should be. But China "sterilizes" its inflows. What does that mean? When there's a trade imbalance one countries monetary base (amount of currency in its economy) gets bigger, so every year money flows from the US to China faster than the opposite. Every year Chinese currency becomes stronger in proportion to our currency as their monetary base grows. Normally this would mean that their currency, the renminbi, would be appreciate relative to the dollar. Literally, a dollar would buy less in China. Chinese exports would cost more and the US would buy less. That's how trade usually balances itself, so why doesn't that happen.

The Chinese sterilize inflows. That means that the Chinese government uses that excess domestic currency to buy US government debt so that their monetary base won't expand which keeps prices low and exports up. This essentially allows the Chinese to put a tariff on US imports and a subsidy on exports, but most people don't understand sterilization and thus it isn't perceived that way (Krugman's explanation).

The US recently passed the Levin Bill allowing the government the power to place a tariff on any country that manipulates its currency. The Chinese are pissed. They keep saying they will let their currency float (act naturally on the markets) but they never do - they just keep stringing us out.

Backlog of Readings

Now every time I post one of these obnoxious lists I'll point out the best article, or at least the one's that you can't skip.

Required Reading - This is a great (and lengthy) article by Malcolm Gladwell on brain damage and football. Kind of glad I never played.

Google says they overpaid when they purchased YouTube to the tune of 1 billion (they paid 1.65 billion for the site). Best part, they knew they were doing it.

According to Krugman the Fed, even under really rosy circumstances, won't raise rates for at least 2 years.

Ever hear of Conservapedia? They're hilarious, but now they've outdone themselves. They're going to rewrite the Bible to "remove the liberal bias."

New York City made a law requiring restaurants to show calorie counts on menu items. Oddly, the new law doesn't seem to be changing the amount of calories that people purchase in any given transaction.

New theories on altruism vis a vie termites.

A Nobel in medicine this year went to three scientists who discovered telomerase, an enzyme that allows a cell to divide perpetually without dying. It has implications for future cancer research.

Krugman says healthcare reform will happen.

Google's Android OS is about to tip. By the end of the year it'll be available on 12 phones.

Ugh, this wasn't even half of my list... more later.

Obama Wins a Nobel Peace Prize

Yeah, I'm a bit late on this one, but I'm busy enough these days that even taking time to do this is taking up time I should be working on some vague architectural assignment.

So Obama won the Nobel Peace Prize. I have to admit that it seems a tad premature. He did receive the nomination a mere 12 days after assuming office. Anyways, it seems to have made Fidel happy (as if that alone weren't reason enough... ha), and the right is pissed. Best comment (there's some other gems in there too) - Rush Limbaugh: "Something has happened here that we all agree with the Taliban and Iran about and that is he doesn't deserve the award

." Priceless.

This is Jesse Larner at the Huffington Post speaking of his confusion of Obama's win: "Maybe the more absurd and bizarre it is, the more of a kick in the pants it is to the Bush presidency, of late, unlamented memory. This is how much we hate you, George; anyone who comes after you will win the Nobel prize, just for not being you."

But then Foreign Policy (a great magazine by the way) spoiled the whole thing and listed what Obama had done in his first 12 days in office to deserve a Nobel.

• January 21: Obama met with the ambassador to Iraq, commander in Iraq, and regional commander to receive a complete briefing on the war.
• January 22: Obama ordered the closure of the Guantanamo Bay detention center.
• January 22: Obama signed an executive order explicitly prohibiting the use of torture and ordering all U.S. forces to obey the Army Field Manual. He also ordered a review of the case of Ali Saleh al-Marri, a detainee held on a Naval brig in South Carolina.
• January 22: Obama met with numerous retired generals.
• January 23: Obama rescinded the Mexico City policy, which had prevented nongovernmental organizations from receiving government funding if they supplied family planning assistance or abortions abroad.
• January 23: Obama calls Prime Minister Harper of Canada, King Abdullah of Saudi Arabia, Prime Minister Gordon Brown of Britain, and Ban Ki-moon, secretary general of the United Nations.
• January 26: Obama announced his appointing of Todd Stern to the new position of special envoy for climate change -- recognizing the environment as a pressing foreign-policy concern.
• January 27: More phone calls. This time Obama speaks with Australian Prime Minister Kevin Rudd, Colombian President Alvaro Uribe, South African President Kgalema Motlanthe, and Prime Minister Taro Aso of Japan.

But then Foreign Policy (a great magazine by the way) spoiled the whole thing and listed what Obama had done in his first 12 days in office to deserve a Nobel.

• January 21: Obama met with the ambassador to Iraq, commander in Iraq, and regional commander to receive a complete briefing on the war.
• January 22: Obama ordered the closure of the Guantanamo Bay detention center.
• January 22: Obama signed an executive order explicitly prohibiting the use of torture and ordering all U.S. forces to obey the Army Field Manual. He also ordered a review of the case of Ali Saleh al-Marri, a detainee held on a Naval brig in South Carolina.
• January 22: Obama met with numerous retired generals.
• January 23: Obama rescinded the Mexico City policy, which had prevented nongovernmental organizations from receiving government funding if they supplied family planning assistance or abortions abroad.
• January 23: Obama calls Prime Minister Harper of Canada, King Abdullah of Saudi Arabia, Prime Minister Gordon Brown of Britain, and Ban Ki-moon, secretary general of the United Nations.
• January 26: Obama announced his appointing of Todd Stern to the new position of special envoy for climate change -- recognizing the environment as a pressing foreign-policy concern.
• January 27: More phone calls. This time Obama speaks with Australian Prime Minister Kevin Rudd, Colombian President Alvaro Uribe, South African President Kgalema Motlanthe, and Prime Minister Taro Aso of Japan.

Scientists Recreate RNA (beginnings of life)

Just read this.

I don't see how it would be possible for these scientists not to win a Nobel Prize, but crazier things have happened.

Dear Mr. Obama

Paul Krugman, this years recipient of the Nobel Memorial Prize in Economic Science (funnier version here), wrote a straight forward and compelling article on what must be done to fix the economy. It's peculiar that I liked it; if I hear one more person say "green" or talk about the economy I'm likely to blow up an animal shelter.

But first, shameless self promotion:

"But let's be clear: Tax cuts are not the tool of choice for fighting an economic slump. For one thing, they deliver less bang for the buck than infrastructure spending, because there's no guarantee that consumers will spend their tax cuts or rebates."

Thanks Mr. Krugman!

If you don't feel like reading the article here are the... most interesting parts?

"The U.S. economy needs to add more than a million jobs a year just to keep up with a growing population. Even before the crisis, job growth under Bush averaged only 800,000 a year — and over the past year, instead of gaining a million-plus jobs, we lost 2 million. Today we're continuing to lose jobs at the rate of a half million a month." That means a 9% unemployment rate where about 4-5% is considered "natural". That's 20 million Americans.

"For the past half century the Federal Reserve... has been taking care of day-to-day, and even year-to-year, economic management. Your fellow presidents were just along for the ride."

"Reagan had absolutely nothing to do with [the economic boom of 1984]. It was, instead, the work of Paul Volcker, whom Jimmy Carter appointed as chairman of the Federal Reserve Board in 1979 (and who's now the head of your economic advisory panel). First Volcker broke the back of inflation, at the cost of a recession that probably doomed Carter's re-election chances in 1980. Then Volcker engineered an economic bounce-back. In effect, Reagan dressed up in a flight suit and pretended to be a hotshot economic pilot, but Volcker was the guy who actually flew the plane and landed it safely." This however won't work because:

"[W]hile the Fed can still print money, it can't drive interest rates down. Why? Because those interest rates are already about as low as they can go. As I write this letter, the interest rate on Treasury bills is 0.005 percent — that is, zero." This however hasn't led to lower interest rates as banks are afraid to lend money out, and who's spending (the effect of borrowing)? So basically this crisis is all on the president and legislative branches of government.

"There was, however, a big difference between FDR's approach to taxpayer-subsidized financial rescue and that of the Bush administration: Namely, FDR wasn't shy about demanding that the public's money be used to serve the public good. By 1935 the U.S. government owned about a third of the banking system."

"Conservatives will accuse you of nationalizing the financial system, and some will call you a Marxist. (It happens to me all the time.) And the truth is that you will, in a way, be engaging in temporary nationalization. But that's OK: In the long run we don't want the government running financial institutions, but for now we need to do whatever it takes to get credit flowing again."

"[Y]ou have to get job creation right — which FDR never did." FDR, concerned about budget defecits, also cut spending and raised taxes in 1937. This led to a recession. Learn from this.

"The lesson from FDR's limited success on the employment front, then, is that you have to be really bold in your job-creation plans."

"'Full employment' means a jobless rate of five percent at most, and probably less. Meanwhile, we're currently on a trajectory that will push the unemployment rate to nine percent or more. Even the most optimistic estimates suggest that it takes at least $200 billion a year in government spending to cut the unemployment rate by one percentage point. Do the math: You probably have to spend $800 billion a year to achieve a full economic recovery." Krugman goes on to say that this money should be spent on things of lasting value such as infrastructure. The hard part will be finding where to spend the money. Currently there are only about 150 billion in "shovel ready" infrastructure programs. Money can also go to state governments while tax cuts should go to the poor and middle class who are more likely to spend the extra money.

"Now my honest opinion is that even with all this, you won't be able to prevent 2009 from being a very bad year. If you manage to keep the unemployment rate from going above eight percent, I'll consider that a major success."

"The biggest, most important legacy you can leave to the nation will be to give us, finally, what every other advanced nation already has: guaranteed health care for all our citizens." Krugman advocates a shared payment/subsidized healthcare plan as he thinks a single pay (government) backed health care system, although more efficient, would be unpalatable to America currently.

"[L]et's put the costs of the economic-recovery program in perspective. It's possible that reviving the economy might cost as much as a trillion dollars over the course of your first term. But the Bush administration wasted at least twice that much on an unnecessary war and tax cuts for the wealthiest; the recovery plan will be intense but temporary, and won't place all that much burden on future budgets."

"[The Obama] team is well aware of the need to wind down the war in Iraq — which is, by the way, costing about as much each year as the insurance subsidies we need to implement universal health care."

"There is, however, one area where I feel the need to break discipline. I'm an economist, but I'm also an American citizen — and like many citizens, I spent the past eight years watching in horror as the Bush administration betrayed the nation's ideals. And I don't believe we can put those terrible years behind us unless we have a full accounting of what really happened." He gives the convincing argument that when Iran-Contra was swept under the rug many years ago those involved became responsible for similar transgressions 20 years later... in the second Bush Administration.

At second glance the article appears fairly partisan. But he's advocating better health care, economic recovery, ending pointless wars, and he won a Nobel Prize... I'll listen.

Links

Bush's soon to be disclosed illegal wiretaps.

Paul Krugman, the latest Nobel Memorial Prize winner in economics, on what Obama needs to do. The Nobel Memorial Prize in economics isn't actually linked to the original Nobel Prize. Both are worth reading if you weren't already aware.

The best article I've seen yet on the Houdini Project. The last 3 or 4 paragraphs are the relevant ones.

Operating systems (finally) get smaller.