Archive for September, 2010

Turmoil in Ecuador

From the Guardian,

Equador’s government has declared a state of emergency after police launched a chaotic rebellion over austerity measures that cut their benefits.

And Mark Weisbrot points out that we do not want to see a repeat of the U.S. response to the military coups in Honduras,

The Organization of American States will convene an emergency meeting at 2:30 Eastern Standard Time in Washington D.C., to consider the situation.

Mark Weisbrot
, Co-Director of the Center For Economic and Policy Research, called upon President Obama to state unequivocally that the United States will not recognize any government other than the democratically elected government of President Rafael Correa.

Weisbrot noted that the White House statement of June 28, 2009,  in response to the military coup in Honduras, did not make any such assertion, and in fact did not even condemn the coup.

“These types of statements are very important, in that the people who are trying to overthrow a democratic government are looking for signs of whether a coup government will be recognized by the United States. The first White House statement last year in response to the Honduran military coup sent the wrong signal at a crucial moment.”

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The Times reports that Medicaid added 3.7 million Americans in 2009, it’s largest single year increase ever. 1 in 6 Americans now participate in the program. The stimulus money helped the states bear some of this burden, but as it expires, this program will likely serve as dis-stimulus as states cut other areas of their budget to compensate.

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Not even the invisible hand

Stephen Colbert, of Comedy Central’s “The Colbert Report,” testified before a House subcommittee on the rights of migrant workers.

[photo: Drew Angerer/The New York Times]

After spending a day picking vegetables on a New York farm, Stephen Colbert testified on Capitol Hill as part of a panel on legalizing undocumented workers. Colbert made a case for the worker in his characteristically satirical style. NPR provides a neat summary of highlights, which includes his reason for testifying:

Mr. COLBERT: I like talking about people who dont have any power. And this seems like one of the least powerful people in the United States are migrant workers who come and do our work but dont have any rights as a result. And yet, we still invite them to come here. And at the same time, ask them to leave. And thats an interesting contradiction to me.

…and a jab at the “invisible hand”:

Mr. COLBERT: Normally, I would leave this to the invisible hand of the market. But the invisible had of the market has already moved over 84,000 acres of production and over 22,000 farm jobs to Mexico, and shutdown over a million acres of U.S. farmland due to lack of available labor, because apparently even the invisible hand doesnt want to pick beans.

Watch the entire testimony here.  (It is well worth the five minutes.)

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Given all of our discussion about the economic crisis, I thought it worthwhile to mention this excellent report on the shadow banking system. Published on the New York Fed’s webpage, Part I of this staff report by Z. Pozsar et al. on “Shadow Banking” is the best I have seen for a comprehensive summary – you can learn more than you ever wanted to know. This report will be important for going forward and preventing future crisis.
Our monograph “Shadow Banking” documents the origins, evolution and economic role of the shadow banking system. Its aim is to aid regulators and policymakers globally to reform, regulate and supervise the process of securitized credit intermediation in a market-based financial system.
The monograph has four sections. Section one, spanning the first 70 pages is intended as a standalone paper, an “executive summary” of the monograph. We consider this section complete. Sections two to four discuss the institutional details of every type of shadow bank in the shadow banking system: their activities, funding strategies, size and the credit and liquidity backstops that were extended to them during the financial crisis. These sections, spanning pages 70 to 230 remain a work in progress and are unpublished. The full monograph’s table of contents is provided below.
The authors also realize that the shadow banking system has not really changed (as of July 2010 at least), and something needs to be done before we experience deja vu. Also, the poster included in the document is impressive and alone worth checking out.
While the financial crisis of 2007-2009 re-shaped the financial system considerably, most components of the shadow banking system are still functioning today, albeit in a much impaired fashion. As such, we describe the shadow banking system in present tense. We recommend printing the accompanying map of the shadow banking system as a 36’’ by 48’’ poster.

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It does, however, indicate that the GOP is not serious about governance. Here’s Rodger Malcolm Mitchell:

See anything wrong with these nice, safe political “pledges”? If you make the tax cuts permanent, give extra tax deductions to small business, fully fund missile defense and strengthen our border, there is no way to reduce spending to the 2008 levels and reduce the deficit — nor should we. Reduced spending (aka “money creation”) would doom us to an immediate return to recession. All six depressions and nearly every recession immediately have followed reductions in deficit growth. The reason: Federal deficits provide the money for economic growth.

And Ezra Klein:

At the end of the day, America may be an idea — but it is also a country. And it needs to be governed. This proposal avoids the hard choices of governance. It says what it thinks will be popular and then proposes what it thinks will be popular — even when the two conflict. That’s an idea that may help you win elections, but not one that’ll help you govern a country.

However, he points out in another post that the Democrats need a forward-looking plan to, rather than resting on past achievements:

Dedicating themselves to any or all of those policies would make for an exciting agenda. In the absence of such an agenda, however, it just seems like the Democrats are running on the fumes of the past two years. The voters deserve better.

What we have, then, is one party that has no incentive to govern, and another party that is ignoring its own incentives to cast light on that fact. Depressing stuff.

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This week Tuesday, September 21, the University of Notre Dame will host its 2010 Forum. This year’s topic is the Global Marketplace and the Common Good (which, as others have pointed out, was announced at an interesting time, given the dissolution of Notre Dame’s pluralistic economics department).

I’ll be tuning in to the live feed and offering some coverage of the event. Much more information can be found at the forum website:

The topic was inspired by the 2009 Papal encyclical “Caritas in Veritate,” in which Pope Benedict XVI reveals his concern with the problems of global development and progress towards the common good. His Holiness argues that both love and truth are essential elements of an effective response. But are they enough?

Each Forum event will be streamed live on the internet on the ND Forum website. The first event takes place:

DATE: Tuesday, September 21
TIME: 7:00 – 8:30 p.m. ET
TOPIC: Morals & Markets: Being Catholic in a Global Economy

Opening remarks by Rev. John I. Jenkins, C.S.C., president of the University

Moderator: Mary Hirschfeld ’05 M.A., a graduate fellow of the Notre Dame Institute for Advanced Study


Doug Cassel, ND Law School presidential fellow and director, Center for Civil and Human Rights

Bill Evans, Keough-Hesburgh Professor of Economics

Margaret (Margie) Pfeil ’87, ’97 M.A., ’00 Ph.D., assistant professor of theology

View live stream – beginning 7:00 p.m. ET on Sept. 21

If you are not able to view the discussion live, you can watch a video on forum.nd.edu, starting the day after the event. Following the event, there will be opportunities for continued online dialogue and possibilities for ND clubs to create local educational programming related to the Forum topic.

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Newsweek has an article about how economics isn’t changing much in response to the crisis. The quote above is from Notre Dame’s own Philip Mirowski, who is no longer in an Economics department, but still an economist. His entire quote serves as a pretty good explanation of why economics isn’t changing:

But one problem is that the economics profession “has gotten much more intolerant of divergence from orthodoxy,” says Philip Mirowski, an economic historian at Notre Dame. “The range in which dissent happens is so narrow. In a sense they still cannot imagine the system can operate to undermine itself. That is not a position that is allowed anywhere in the economics profession. The field got rid of methodological self-criticism. This Great Moderation stuff was just arrogance, hubris.” Indeed, the joke on economists, says one of them, Rob Johnson, is that they create simplistic models that depend on people behaving as rational actors motivated by self-interest, yet “they have a blind spot regarding themselves.” The way they squabble mulishly to defend now-indefensible positions is itself evidence of how flawed those rational-actor models are.

My reaction to the article itself was, “meh.” The problem statement is framed around our financial collapse in 2008:

The most terrifying moment in modern economic history occurred two years ago this month. For several long days after the fall of Lehman Brothers on Sept. 15, 2008, the financial system was in danger of total collapse, and the United States seemed on the precipice of another Great Depression in that “Black September.” Just as bad, our economists and senior policymakers had barely any idea why this was happening.

Someone like Raghu Rajan, I think, comes much closer to identifying the real problems in our economy than the folks with their head stuck in the finance sector. Thus, I disagree with this conclusion:

But the question remains: how should we think about our outsized financial sector now, and how can it be made to serve the larger economy—rather than the other way around?

Finance primacy is certainly a problem, but not “the” problem. This represents a different vein of the narrowness to which Mirowski alludes.

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The Census Bureau reports that 44 million Americans now live in poverty (that’s 1-in-7), an increase of 4 million from 2008. Given the high unemployment rate, this should not be surprising. Nevertheless, it is galling, because even as GDP has grown, productivity has increased, and profits have rebounded, those at the widening margins of the economy have suffered.

Of course, many argue that the poverty line ($10,830 for a single, $22,050 for a family of four pre-tax) is too low to capture what it intends to capture. With the news a few months ago that an alternative poverty measure was being established, I hoped that it would lay bare the structural injustice of the economy. However, stunning numbers like these in a rich country should by their own merit herald an economic crisis. This isn’t news to those willing to look at our economy away from the rose-colored glasses of neoclassical economics. What will it take for a movement to coalesce around this injustice?

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She’s not being named the director, at least not yet, says the NYT:

Ms. Warren will be named an assistant to the president…The decision does not preclude the possibility that Ms. Warren could eventually be named director, and at the least, she would play a pivotal role in deciding whom to appoint to the job

Yet again, it seems, Obama has decided to take the sweetness out of what should be a great victory for the lower and middle classes economically, and the left politically. My one-and-a-half cent political analysis is that Obama decided the furor from the right over her appointment, recess or not, was not worth the motivation for the base. In any case, this should give the agency a good start.

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