Wait, if the CDS weren't a problem what was all the fuss about?

And why didn't Greece tell bondholders to go fuck themselves a year and a half ago? Of course, I wouldn't presume Planet Money is above publicizing pure propaganda:

In the end, though, Greece wound up forcing all bondholders to take a hit. And today, the committee that decides these things said, yes, Greece did default. And yes, CDS on Greek bonds will pay off. (Actually, the committee said a "restructuring credit event has occurred with respect to the Hellenic Republic." Which is the same thing.)

The CDS contracts will be settled by auction later this month, and it seems unlikely that the payouts will cause much trouble in the financial system.

The net payout on Greek CDS will likely be less than $3 billion, and most of that money has already been set aside by the companies who will have to make the payments, according to ISDA, the international body that oversees CDS.

More "market monetarism"

I.e. Scott Sumner

On the other hand NGDP is totally transparent.  It’s easy to understand if Bernanake says he’s printing money so that American incomes can grow at a steady rate of roughly 4% per capita.  If growth in average incomes has slowed due to recession, then it’s easy to understand why the Fed would think higher income growth would help the average American.

This is supposed to an alternative to the Fed targeting inflation. The idea is that when nominal incomes fail to grow steadily--and they either stagnate, fall, or accelerate rapidly--this has a tendency to gum up the works of the capitalist economy. The intuitive sense of these comes from the old problem that capitalism depends on the self-interested independent action of a large number of consumers and, especially, asset-holders, which can result in all kinds of social "irrationality" from individually rational activity. But how much of that irrationality can really be mitigated just by ensuring a steady and predictable nominal growth rate?

(There is also, I should note, a problem of mean vs. median: given the political economy of the past few decades, a 4% increase in per capita income entails much less than that for ~90% of the population and much more for 1%.)

Scott Sumner is a fascinating phenomenon

From this:

In late 2008 the markets were telling us that the Fed was making a tragic mistake by allowing NGDP expectations to plunge.  But the economics profession didn’t listen, as they view stock investors as being irrational.  Economists were obsessed with the notion that the real problem was banking distress, and that fixing banking would fix the problem.  No, the real problem wasn’t banking, the real problem was nominal.

I don't understand the full argument yet, but he advances the position that it is possible to engage in "nominal" planning of the economy, in effect to declare through the control of a fiat currency that the economy would grow at a constant rate in nominal terms. In this way, he seems to claim, the more violent fluctuations of a capitalist economy can be avoided as capitalists and rentiers can, indeed have to, make plans based on a predictable path of the nominal size of the economy (and thus of their money-denominated assets).

But there's a catch

Peter Dorman notes Alex Tabarrok saying nice things about active labor market policies in northern Europe. But, Dorman points out:

Just one thing though.  What makes these apprenticeships so valuable for the students?  And why are employers willing to pay more for well-trained employees than dumbing down the jobs for minimum wages or simply outsourcing as much as possible?  Each country is different, but they all share part of two answers—labor market regulation and stakeholder corporate governance.  The first of these is especially crucial to mass apprenticeship: to maintain demand for high-end labor, there need to be rules mandating employment rights, credentials and, especially, unions.  To minimize outsourcing, labor and the community need a strong voice in corporate management.  In addition, the whole system is nurtured and nudged with multifarious forms of public subsidy.

To put it simply, if you want the social democratic educational strategy, you’re going to need a social democracy to go along with it.  I’m happy to have Alex on board.

Is this last comment supposed to facetious? Let's look at what Tabarrok actually says:

Consider those offered in Europe. In Germany, 97 percent of students graduate from high school, but only a third of these students go on to college. In the United States, we graduate fewer students from high school, but nearly two-thirds of those we graduate go to college. So are German students poorly educated? Not at all.

Instead of college, German students enter training and apprenticeship programs—many of which begin during high school. By the time they finish, they have had a far better practical education than most American students—equivalent to an American technical degree—and, as a result, they have an easier time entering the work force. Similarly, in Austria, Denmark, Finland, the Netherlands, Norway, and Switzerland, between 40 to 70 percent of students opt for an educational program that combines classroom and workplace learning.

In the United States, "vocational" programs are often thought of as programs for at-risk students, but that's because they are taught in high schools with little connection to real workplaces. European programs are typically rigorous because the training is paid for by employers who consider apprentices an important part of their current and future work force. Apprentices are therefore given high-skill technical training that combines theory with practice—and the students are paid! Moreover, instead of isolating teenagers in their own counterculture, apprentice programs introduce teenagers to the adult world and the skills, attitudes, and practices that make for a successful career.

From the perspective of existing social democratic institutions, active labor market policies serve are a way to make those institutions pay for capitalists in the form of more productive workers and a more intensively employed labor force as a whole. It is the carrot to go along with the weakened-but-still-surviving stick of entrenched working-class power. From the perspective of a thoroughly liberal capitalist economy like the U.S., and coming out of the mouth of an avowed libertarian, praise for such policies must give rise to at least a little suspicion. Notice that in Tabarrok's discussion, the apprenticeships are seen only in terms of creating an appealing labor force. Why are they able to get good jobs? Because employers "consider [them] an important part of their current and future work force." "Look," it seems to say, "even the European social democracies are crafting their policies so they benefit employers even as they seek to maintain the living standards of employees! So, of course, the U.S. needs to do the same and not get distracted with coercive policies like the minimum wage, support for unionization, and so on." Dorman's point is a valiant attempt to bend away from this implication to say that, well, no, it's only because there's already a well-established set of institutions enforcing the power of labor and limiting that of employers that these policies work at all, so if we want to follow the lead of the germans and dutch, we're going to have to do a lot of work on both sides of the equation, not just on "labor supply side" policies like apprenticeships.

Sadly, I suspect his point will fall on deaf ears, even though it's far from controversial in the comparative political economy literature.

III. the 18th century equilibrium

A Sketch of the Capitalist Revolution in Europe (III)

Eighteen-century continental Europe had arrived of something like an equilibrium. True, wars between the various states still broke out over territorial and dynastic disputes, but they never approached the duration or intensity of the competition between France and Spain in the 16th c, or the 30-years war at the beginning of the 17th, or even the repeated wars of Louis XIV's reign in France. Likewise, a truce of sorts had emerged in the centuries-long fight between monarchs and nobles: the former enjoyed formal superiority, while the latter maintained (or even reasserted) a dominant position in the offices of the royal administration. Something was brewing in England, which manifested itself in its taking an increasing role in overseas trade at the expense of the Dutch not to mention its victory over the French in the struggle over imperial dominance of the Americas. However, for the rest of Europe this did not have the appearance of the an epochal shift. So what if London was the new Amsterdam, which had anyways only been the new Antwerp, which itself had risen at the expense of the Italian mercantile cities? And after all, England swiftly lost the majority of its North American colonies to rebellion--in a kind of pyrrhic revenge for the French.

Why would I ever read Ross Douthat?

But alas, I made the mistake of skimming this.

He very well might be right on the merits against Julian Sanchez, but who cares? I can think of few things less fun than judging spats between the social conservatives and the libertarians.

However, he also cites (via my favorite bourgeois economist) this passage from Wealth of Nations:

In every civilised society, in every society where the distinction of ranks has once been completely established, there have been always two different schemes or systems of morality current at the same time; of which the one may be called the strict or austere; the other the liberal, or, if you will, the loose system. The former is generally admired and revered by the common people: the latter is commonly more esteemed and adopted by what are called people of fashion. The degree of disapprobation with which we ought to mark the vices of levity, the vices which are apt to arise from great prosperity, and from the excess of gaiety and good humour, seems to constitute the principal distinction between those two opposite schemes or systems. In the liberal or loose system, luxury, wanton and even disorderly mirth, the pursuit of pleasure to some degree of intemperance, the breach of chastity, at least in one of the two sexes, etc., provided they are not accompanied with gross indecency, and do not lead to falsehood or injustice, are generally treated with a good deal of indulgence, and are easily either excused or pardoned altogether. In the austere system, on the contrary, those excesses are regarded with the utmost abhorrence and detestation. The vices of levity are always ruinous to the common people, and a single week’s thoughtlessness and dissipation is often sufficient to undo a poor workman for ever, and to drive him through despair upon committing the most enormous crimes. The wiser and better sort of the common people, therefore, have always the utmost abhorrence and detestation of such excesses, which their experience tells them are so immediately fatal to people of their condition. The disorder and extravagance of several years, on the contrary, will not always ruin a man of fashion, and people of that rank are very apt to consider the power of indulging in some degree of excess as one of the advantages of their fortune, and the liberty of doing so without censure or reproach as one of the privileges which belong to their station. In people of their own station, therefore, they regard such excesses with but a small degree of disapprobation, and censure them either very slightly or not at all.

The thing is, that both he and Cowen misread Smith rather badly, as advancing something along the lines of Charles Murray's recent book, that the sexual revolution, etc., has been integrated within an overall framework of discipline among the elite but has basically served to erode social order among everyone else. In fact, Smith is arguing the exact opposite, that the "common people" are more morally rigorous as a matter of material necessity, whereas the wealthy are libertine as a mark of their status. Indeed, in the section where there passage comes from, he goes on to note to argue, "There are two very easy and effectual remedies, however, by whose joint operation the state might, without violence, correct whatever was unsocial or disagreeably rigorous in the morals of all the little sects into which the country was divided." That is to say, that Smith is not worried--like Murray, Douthat, etc.--about instilling rigorous morality in the masses but instead in tempering the "excessive rigour" that comes from "carrying [the austere system of morals to some degree of folly and extravagance."

Oh no! Demand for labor might be increasing!

“The slowdown in productivity growth is now making it much harder for firms to achieve double-digit rates of earnings growth,” said Erik Johnson, U.S. economist at IHS Global Insight. As a result, he expects the profit share of gross domestic product has likely peaked.

Eric Green, chief rate strategist at TD Securities, says the margin compression will put “more emphasis on top-line revenue growth to justify market valuations.”

The danger, he adds, is that higher unit labor costs driven by higher real compensation could slow future job gains.

“Employers [will] squeeze more out of the existing labor pool as they scramble to maintain profit margins in a growth environment that remains okay, but far from robust,” he warns.

So . . . anything less than employers making out like bandits is a "danger"? No correction to the trend will be accepted?

An alternative translation: "Sorry workers, we just didn't need 10-20% of you for the last couple years, so we couldn't help but pay you less relative to revenues. And don't even think about making up some up the difference now that we want to hire more of you again."

Oh dear

Alex Tabarrok is not my favorite bourgeois economist.

Thus, in Florence, the epicenter of the Renaissance, we see five factors propelling that city's innovation: patents, prizes, education, global markets, and cosmopolitanism, an openness to ideas from around the world. How do these factors apply today? What combination of incentives and foundation will bring the greatest innovation to the modern world? How can we create a 21st-century Renaissance?

These questions are especially important now because the early 21st century has not been kind to the United States. The new century dawned with the destruction of the World Trade Center, and its first decade closed with the worst recession since the Great Depression. We face continuing wars, significant debt and divisive politics. Not all of our problems are recent in origin or likely to be resolved quickly. Most significantly, productivity growth, our best measure of innovation, fell dramatically in the United States in the post-1973 era and has not yet picked up again.

And what was the economic growth like in renaissance Italy (or more specifically, Tuscany)? Per this,

Year	GDP (1420-40 = 1)	Per capita GDP (1420-40 = 1)
1310	1.63	.87
1325	1.57	.83
1350	1.21	.91 (plague does wonders)
1375	.96	.87
1400	1.06	.94
1425	1.01	1.01
1450	1.03	.98 (uh-oh, wrong direction)
1475	1.05	.87
1500	1.04	.82

Going from 1310 to the 2 peaks of GDP per capita (1 in 1365 and 1.13 in 1413), that's a yearly growth rate of .25%. Go innovation! (Yes, that's just barely lower than the growth rate of median U.S. household income from 1978, before the Volcker recession, to 2009, during the current recession.)

The "Great Divergence"

I'm reading the Cambridge Economic History of Modern Europe, which was published in 2010 and represents a digestion of the state-of-the-art in mainstream economic history--which is to say, cliometrics and institutionalism. The final chapter is about the so-called "Great Divergence" between Asia and Europe, and the authors discuss the various positions on the relative levels of economic development of India, China, and the European countries, ultimately coming down against Pomeranz who wants to claim that the most advanced regions in China were comparable to England in the 18th century. They then go on to suggest explanations of the gap.

This is the conclusion of the chapter:

The survey presented in this chapter takes us closer to the traditional position on comparative living standards across Eurasia than to the revisionists. The evidence we have seen indicates that differences in living standards between Asia and northwest Europe had already emerged in the early modern era, and only widened further with the onset of the Industrial Revolution. The advanced parts of Asia – India and China – looked more similar to the backward parts of Europe than to the more advanced northwest. The Great Divergence was well under way in the seventeenth century.

What strikes me strange is that they focus overwhelmingly on the first part (the quantitative divergence between "northwest Europe" and Asia, which is the "Great Divergence" that "was well under way in the seventeenth century") at the expense of the second (the similarity between Asia and "the backwards part of Europe"). Together, however, these two points suggest that the real divergence wasn't so much between Europe and Asia in the 18th century as it was between England and Holland on the one hand (and the latter even falls back a little in early 19th c) and everywhere else on the other, which included both the rest of Europe as well as the major Asian economies. Central Europe diverges from Asia only in the 19th c--i.e. when it is reached by industrialization.

What I think this means is that the (NW) Europe-Asia comparison is a bit of a red herring. The question is what happened in Holland and England before the 18th c, which led to the divergent pattern that is already visible by that century. If we're going to do comparative analysis to try to capture and explain this divergence, shouldn't the first step be to look at the most immediate contrasting cases, namely France and the German principalities, and the Hapsburg Low Countries? That way, political, cultural, even technological, geographical and climactic factors are held relatively constant, as opposed to comparisons between England and China or India or Japan in which those factors are all vastly different.

After that, it would make sense to ask, first, whether what caused the gap to open up between, say, England and France through the mid-19th c also led to a divergence between England and, say, China. Then, second, whether the process by which France (and Germany, etc.) began to close that gap in the 19th c was similar or different to the way that Japan was able to begin to close that gap as well at the end of the century, and what it was that blocked that process from occurring in China and India until the latter half of the 20th c. Indeed, when the question is asked in this way, the role of imperialism seems much more important, in contrast to the authors' position, which is that it can't really explain the appearance of divergence already in the 18th c.

You might as well go all out if you're going to do John Cage

CAGE 18' 12", A Simultaneous Performance of Cage Works
·· Inlets (Improvisation II)
·· 0' 00" (4' 32" No. 2)
·· Duet for Cymbal
·· 45' for a Speaker

I do hope it is really simultaneous and not just sequential.

I was so surprised to learn that Jack Goldstone is into promoting revolutions abroad

Commenting on McCain's "bold" call for NATO intervention

Without substantial material support to the opposition, however, sanctions may have a different effect:  they may prompt Assad to fully crush the opposition as rapidly and completely as possible in order to eliminate any alternative before the external sanctions peel away his remaining support.
If Assad manages to remain in power, the result will be an emboldened Iran, with Syria more deeply in its debt, and greater confidence among Iran’s other regional allies, Hezbollah and Hamas.  Other counter-revolutionary forces in the region will gain confidence as well, and autocrats throughout the world are likely to draw the lesson that crushing any popular opposition quickly and thoroughly is far more likelier than reform to preserve their power.
In the late 18^th and early 19^th centuries, revolutions against absolute monarchies scored success after success, producing new constitutional regimes from 1776 in America to 1789 in France, and on to Holland and Belgium and Greece.  But in 1848 the wave broke and was turned back when Russia supported Austria’s counter-revolution.   Whether Iran and Russia help Syria to crush its popular revolt may similarly determine the fate of democracy across the region for decades to come.

 Ah yes, the neverending game of emboldening and (what's the opposite of emboldening?) Iran, Hezbollah and Hamas. But really, the surprising thing is his reference to "success after success" of 18th and 19th century revolutions . . . I always took him as more of a conservative, "revolutions often cause more harm than good" type. I guess I can see the other side of it though, since he tends to blame the short-sightedness of elites for the crises that lead to revolutions (a criticism he's been extending to the U.S. as well).

Wishful thinking

Noahpinion:

Given my history of critiquing libertarianism, it would hardly be surprising if I felt a flash of gleeful schadenfreude to see the dismay with which so many movement libertarians are reacting to the Koch takeover of the Cato Institute. But I don't. I just feel sad. Here are a bunch of smart people who truly, honestly believe in their worldview - a worldview that shares some key elements with my own - discovering for the first time that they are in fact merely a proxy army for people who don't take them or their worldview seriously at all.
. . .

If I were a meaner-spirited type of person, I would say that this realization is too little, too late - that libertarians spent decades being apologists, water-carriers, and useful idiots for authoritarians, and only now that their masters are reeling in the leash do they suddenly want out. But instead I say: Better late than never. You guys made mistakes before, but now you see the truth. First, realize that the conservative puppeteering of the libertarian movement is not an extremely recent phenomenon, but was always present at some level. And then start thinking about what kind of political agenda and rhetorical emphasis will actually promote liberty in America. 

Freed from the conservative yoke, libertarians will have huge potential to do a lot of real good for this fundamentally libertarian country.

What exactly is the capacity of the libertarian "movement" without the Koch-funded institutional infrastructure?

A friend of mine used to say that libertarianism was for people who were used to thinking of themselves as smarter than everyone around them, but weren't actually all that smart themselves.

An epitaph for American politics

Ross Douthat, in the context of gently scolding people for writing nasty things about Breitbart after his death.

While it’s true that extremely important issues are at stake in our public debates, the appearance of the eternal footman can serve as a useful reminder that by the standards of human history — recent Western and American history very much included — the right-left stakes of the current era are often relatively low. Partisans on both sides may emphasize the world-historical consequences of our elections and policy battles, but compared to the world of our great-grandparents, the level of political agreement is far more remarkable than the level of polarization. Yes, there are still controversies (mostly on the culture-war front) that reflect radically divergent ideas about first principles. But fundamentally we’re an extraordinarily rich country with a remarkably stable consensus around our form of government arguing about whether federal spending should claim 18 percent of G.D.P. or 22 percent of G.D.P. — an important question, to be sure, but one that doesn’t always justify the level of heat and hyperbole that it generates.

Of course, he's right, though one can object to the fact that he pretty clearly thinks it's a good thing. The point, though, is that it's not for lack of their being issues of a magnitude that would justify intense political battles; it's that those battles will never be met in the mainstream political domain.

The crisis in Europe

1. I've heard it claimed the lion's share of the fiscal crisis in most of the "peripheral" states comes from the burden of backing up insolvent financial systems. This is certainly true of Ireland and Spain; for the others it seems less straightforward.
2. It seems to be one worry that if Greece is officially recognized as having "defaulted" instead of "renegotiating" its debt, this would set off trigger insurance many investors bought on their Greek debt--but which the counterparties are in no position to pay out. The resulting chain-reaction of losses would more or less bring the continent's financial system to a halt.
3. In the last couple days there have been reports of a half-a-billion euros in what are in effect loans to finance internal European trade imbalances, currently on the balance sheet of the German central bank. That money is, for all practical purposes, gone.
4. The ECB refuses to monetize sovereign debt but has for all practical purposes agreed to fund every private bank on the continent for 3 years at 1%. Already the loans have surpassed a trillion euros. Yes, obviously this is a way, on a macro-economic level, to counteract fiscal austerity by ensuring the banks can lend at reasonable interest rates. But in return for doing European leaders the favor of not failing and so throwing the entire economy into chaos, the banks get the right to essentially print money in the form of any return above 1% they can get from their cheap, guaranteed financing.

irrational rationalization

Via my favorite bourgeois economist . . .

The calculus of consent?:

A few years ago, two researchers, both then at Carnegie Mellon, decided to calculate how much time it would take to actually read every privacy policy you should.
First, Lorrie Faith Cranor and Aleecia McDonald needed a solid estimate for the average length of a privacy policy. The median length of a privacy policy from the top 75 websites turned out to be 2,514 words. A standard reading rate in the academic literature is about 250 words a minute, so each and every privacy policy costs each person 10 minutes to read.
Next, they had to figure out how many websites, each of which has a different privacy policy, the average American visits. Surprisingly, there was no really good estimate, but working from several sources including their own monthly tallies and other survey research, they came up with a range of between 1,354 and 1,518 with their best estimate sitting at 1,462.
So, each and every Internet user, were they to read every privacy policy on every website they visit would spend 25 days out of the year just reading privacy policies! If it was your job to read privacy policies for 8 hours per day, it would take you 76 work days to complete the task. Nationalized, that’s 53.8 BILLION HOURS of time required to read privacy policies.

That is Alexis Madrigal, the article is here, for the pointer I thank Jeffrey Deutsch.

"I wanted to love it, but a brief flirtation confirmed my suspicions that the co-op was a place where people in overalls behaved unpleasantly toward you and where arriving at consensus over the price of a plum took longer than the first and second phases of the Strategic Arms Limitations Talks."

http://www.nytimes.com/2012/03/04/nyregion/politics-at-the-park-slope-food-co-op-leave-a-bad-taste.html?hp

“Collectivism, of course, makes a fetish of process. That is probably the most benign way to interpret what has recently been going on at the co-op . . .”

There is something unseemly about one segment of the cultivated bourgeoisie sniping at another. I mean, the writer isn’t entirely wrong, but one can’t help but think, Oh, but of course that’s what you’d say . . .

“The co-op, despite the wonderful job it does providing organic foods at affordable prices, suffers from its own adolescent myopia: It believes that what it does has broad implications. Suppressing hummus on Union Street won’t change the world.”

"Develops feminist and embodied geopolitics with cyborg literatures" and "Analyses the lived experiences of military human–machine assemblages" indeed

For some reason I saved this and will try to at least skim it later . . .

Enabling persistent presence? Performing the embodied geopolitics of the Unmanned Aerial Vehicle assemblage

Publication year: 2011
Source: Political Geography, Available online 19 September 2011
Alison J. Williams
Military Unmanned Aerial Vehicles (UAVs) are being increasingly used to provide surveillance and attack capabilities within war zones. At the heart of much of the rhetoric about these aircraft is their supposed ability to enable persistent presence across the battlespace. They are also unique in that they actively distance the aircrew from the aircraft. This paper seeks to question whether this claim to persistent presence can be justified and considers the implications of the distancing of pilot from machine in this. In order to achieve this, the paper focuses upon conceptualising UAVs as assemblages, composed of both human and machine elements. It uses firsthand accounts from a Royal Air Force Reaper UAV aircrew as a basis to analyse the ways in which the deployment of these aircraft in Afghanistan is changing the ways that war is experienced by aerial combatants. It does this through the utilisation of a feminist, embodied geopolitics, refiguring it from a concern with victims of war to argue for its use to understand the micro-scale of how the humans within these UAV assemblages experience combat. This paper thus focuses upon the extent to which the Reaper UAV achieves a persistent presence through analysis of its supposed more-than-human loitering and vision abilities, and the limitations associated with the requirement for a human-in-the loop. The paper contends that although UAVs like the Reaper change the geopolitics of combat, the continuing requirement for the human element of the assemblage restricts their ability to provide persistent presence.

Highlights

► Develops feminist and embodied geopolitics with cyborg literatures. ► Analyses the lived experiences of military human–machine assemblages. ► Utilises firsthand accounts of Royal Air Force Unmanned Aerial Vehicles pilots. ► Considers the limits of persistent presence by UAV assemblages.

Weber in his existentialist mood

Weber liked to observe that whereas the peasants and lords of the middle ages could think of their life as a well-trodden succession of stations, at the end of which, they would know that they had passed through the entire breadth of what made for a complete life. In the modern age, individuals have the freedom to choose the course of their lives, but for that very reason, what makes up a life becomes unavoidably a matter of choice. There is no longer any standard that says yes, this is a complete life. And so, the modern individual has an almost unlimited menu of “meanings” to attempt to possess, but no matter how much they achieve, there is always room to try to hold one more.

This suggests an extension: The power of artistic form is to be able to have it both ways: it is freely created thing, and yet it is inscribed as a completed thing. Its end is not a cutting off of what could have continued on but marks out a full circuit.

Kind of a nice line of thought. Totally agnostic on whether it's right or not, though.