John Galt Played by a Raincoat
P J O’Rourke reviews Atlas Shrugged, the movie, Part 1:
I will not pan “Atlas Shrugged.” I don’t have the guts. If you associate with Randians—and I do—saying anything critical about Ayn Rand is almost as scary as saying anything critical toAyn Rand. What’s more, given how protective Randians are of Rand, I’m not sure she’s dead.
Then there is the audacity of bringing “Atlas Shrugged” to the screen at all. Rand devotees, starting with Rand herself, have been attempting it for 40 years… trying to make a movie of “Atlas Shrugged” is like trying to make a movie of “The Wealth of Nations.” But Adam Smith had the good sense to leave us with no plot, characters or melodramatic clashes of will so that we wouldn’t be tempted to try.
posted on 07 April 2011 by skirchner in Rand
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Dear Urban Cyclists: Go Play in Traffic
P J O’Rourke on the evil of cities congested by bikes and bike lanes:
The bicycle is a parody of a wheeled vehicle—a donkey cart without the cart, where you do the work of the donkey.
posted on 02 April 2011 by skirchner in Culture & Society
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Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance
The financial crisis has generated hundreds of wise-after-the-fact, morality play and melodrama books on the subject, almost all of which have been completely beside the point. Until now. James Pressley reviews Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance:
Fannie Mae and Freddie Mac’s growth reflected astonishing advantages they had over private rivals. They paid lower taxes, could borrow at cheaper rates and were required to hold less capital. How much less? When they guaranteed the credit risk of mortgage-backed securities, or MBS, the capital requirement was 0.45 percent—just 45 cents per $100 of guarantees, the authors say; when they invested such securities, the buffer was 2.5 percent, or $2.50 per $100.
A federally insured bank, by contrast, faced a capital requirement of 4 percent for holding residential mortgages—unless it held GSE MBS. In that case, the requirement fell to 1.6 percent, creating perverse incentives for banks to originate mortgages, sell them to the GSEs for securitization and buy them back as GSE MBS. Same risk, less capital.
A race to the bottom was on—a competition to churn out increasingly dicey mortgages—only now it pitted Godzilla Fannie Mae and Freddie Mac against King Kong banks deemed to have “a too-big-to-fail government guarantee,” the authors say. Here was “a highly leveraged bet on the mortgage market by firms that were implicitly backed by the government with artificially low funding rates.” America, the bastion of free markets, became anything but when it came to mortgages.
You can read Chapter One here.
posted on 31 March 2011 by skirchner in Economics, Financial Markets
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Greenspan on Dodd-Frank
Greenspan in the FT on the Dodd-Frank Act:
the largest regulatory-induced market distortion since America’s ill-fated imposition of wage and price controls in 1971.
posted on 30 March 2011 by skirchner in Economics, Financial Markets
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John Edwards Tipped for the RBA Board
John Edwards has been tipped as an appointment to the RBA Board. John’s Lowy Institute monograph Quiet Boom gives a good insight into the thinking he would bring to monetary policy decision-making. He is critical of the conduct of monetary policy in the late 1980s and early 1990s and directly challenges former RBA Governor Ian Macfarlane’s attempts to re-write the history of this episode. I review Edwards’ and Macfarlane’s interpretations of this episode in this essay.
As I have suggested previously, if the government is not going to re-appoint McKibbin, it could at least give thought to appointing an overseas economist to the Board. Here is an interview with Adam Posen, a US economist appointed to the Bank of England’s Monetary Policy Committee. He takes his job very seriously:
“If I have made the wrong call, not only will I switch my vote, I would not pursue a second term. They should have somebody who gets it right and not me. I am accountable for my performance.”
Meanwhile, Peter Diamond’s nomination to the Fed is being held up by Senate Republicans, revenge for the Democrats blocking Bush nominee Randall Kroszner. As Hassett notes: This is what we have come to: In the minds of our politicians, partisan manoeuvring and score-settling far outweigh the desire to populate government with skilled individuals.
posted on 29 March 2011 by skirchner in Economics, Monetary Policy
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When the Guano Runs Out
A RBA research paper obtained through FOI advocates an offshore sovereign wealth fund, although the story seems to contain some editorialising by Paul Cleary, who thinks Australia is just a bigger version of Timor Leste. Liberal MP Paul Fletcher seems to think Australia is just a bigger version of Naru:
More fundamentally, natural resources are finite. When they run out, the money will stop flowing. So we should make sure we put some of the money aside – rather than spending it all now.
In our own region, the micro-state of Nauru offers a sobering example of the folly of assuming that the good times will last forever. It used to have large reserves of guano, used to make fertiliser. With only a few thousand people and a steady flow of mining royalties, it was in a fortunate position.
But the money was largely frittered away. Then the guano ran out – and Nauru had little to show for decades of mining.
Resources are not finite in any economically meaningful sense. The Coalition seems to think that SWFs are a great idea once government debt is paid off (they set up the Future Fund after all). I make the case against further use of SWFs in this op-ed. Governments that are not prepared to commit to binding fiscal responsibility legislation cannot be trusted with SWFs.
posted on 28 March 2011 by skirchner in Economics, Fiscal Policy
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RBA Drags the Chain on Transparency
Fed Chair Bernanke joins overseas counterparts in holding post-FOMC meeting press conferences:
Chairman Ben S. Bernanke will hold press briefings four times per year to present the Federal Open Market Committee’s current economic projections and to provide additional context for the FOMC’s policy decisions.
In 2011, the Chairman’s press briefings will be held at 2:15 p.m. following FOMC decisions scheduled on April 27, June 22 and November 2. The briefings will be broadcast live on the Federal Reserve’s website. For these meetings, the FOMC statement is expected to be released at around 12:30 p.m., one hour and forty-five minutes earlier than for other FOMC meetings.
The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding.
In this op-ed, I made the case for the RBA Governor to hold a press conference following each Board meeting and CPI release. Apart from the gains to monetary policy transparency, this would serve to reduce politicians’ media space in public debates over interest rates and inflation.
posted on 25 March 2011 by skirchner in Economics, Financial Markets, Monetary Policy
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Sovereign Fiscal Responsibility Index
Australia is number one (meaning we hit the wall only after 40 years, as opposed to being broke right now). The United States sits between Italy and Hungary.
These are the variables:
Fiscal Space: An analysis of the additional amount of debt a country could issue before it is likely to face a fiscal crisis. Compares a country’s weighted-average debt level to the estimated maximum debt level a country could carry.
Fiscal Path: A projection of a country’s future levels of debt. The measure uses a projection of a country’s weighted-average debt level every year until 2050, using those figures to then calculate how long it takes a country to meet its maximum debt level.
Fiscal Governance: A rating of a country’s spending rules, transparency about fiscal policy making, and whether those rules are actually enforceable.
posted on 24 March 2011 by skirchner in Economics, Fiscal Policy
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Go Canada, Go Australia
Substitute ‘Australia’ for ‘Canada’ in this story for no loss of generality.
posted on 22 March 2011 by skirchner in Economics, Financial Markets
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Offshore Perceptions of Australia: A Failure of Leadership
The WSJ on the failure of the federal government and opposition to provide leadership on the SGX-ASX takeover:
Ms. Gillard professes to understand the general principle involved, having said that “An open economy has been in Australia’s interest.” So the failure by her and Mr. Swan to more aggressively support lifting the ownership cap to open the economy further is puzzling.
She may feel politically constrained as the head of a minority government beholden to a small band of Greens and independents. But that’s all the more reason to mount an aggressive persuasion campaign. Equally disappointing is the reaction—ranging from silence to outright hostility—from members of the ostensibly more free market opposition.
On this issue, the federal opposition is not even ostensibly free market.
Jennifer Hewett argues the government won’t risk defeat on something it doesn’t care about anyway:
It would be hard enough to muster political energy and risk defeat for something the government strongly supported, but Labor doesn’t really like this deal one bit. That is even though it knows blocking it on national interest grounds would be awkward for a government already regarded with suspicion by the international investment community. It’s why the Treasurer is sounding so cautious.
posted on 22 March 2011 by skirchner in Economics, Financial Markets, Foreign Investment, Rule of Law
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Fed Bloggers
The Federal Reserve Bank of New York has launched a new blog, Liberty Street Economics, following in the footsteps of the Atlanta Fed’s Macroblog. From their introductory post:
We have created this blog to augment our existing publications by providing a way for our economists to engage with the public about economic issues quickly and frequently. Further, the less technical style that we are striving for in the blog posts should make the insights from our research informative to a broader audience…
There are some topics that you will not find in the Liberty Street Economicsblog. We will not be blogging on the next policy move of the Federal Open Market Committee (FOMC) or other issues that only the FOMC or other policymakers could know. And the blog posts will not necessarily reflect the official opinion of the Federal Reserve Bank of New York or the Federal Reserve System.
I wouldn’t hold your breath waiting for the RBA to start blogging.
posted on 22 March 2011 by skirchner in Economics, Monetary Policy
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‘If the FIRB Doesn’t Kill It, We Will’
The FIRB is nothing more than a fig-leaf for political decisions that have already been made:
A senior source told the Herald that the government’s disposition was to reject the [SGX-ASX] merger, despite what the board recommended. ‘‘If [the board] doesn’t kill it, we will.’‘
posted on 19 March 2011 by skirchner in Economics, Financial Markets, Foreign Investment, Rule of Law
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How Big Are Fiscal Multipliers?
For an open economy with a flexible exchange rate, zero to negative. (HT: Scott Sumner).
posted on 17 March 2011 by skirchner in Economics, Fiscal Policy
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ERA and Economic Papers
A letter to contributors from the editor of Economics Papers, Harry Clarke, can be found below the fold.
continue reading
posted on 17 March 2011 by skirchner in Economics
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A Forgotten Financial Failure
I have an article in Online Opinion questioning the dominant narrative of the recent financial crisis and its role in conditioning regulatory responses to the crisis:
Perhaps the most pernicious myth about the crisis is that it was the failure of the US government to rescue Lehman Brothers that precipitated these events. Indeed, it has become common practice to date the crisis from 15 September 2008 when Lehman Brothers was allowed to fail. Yet trouble had been brewing in credit markets for more than 12 months before.
The failure of Lehman Brothers was a trivial event compared to a much bigger but largely ignored financial failure that took place one week before when the two US mortgage giants Freddie Mac and Fannie Mae were put into conservatorship by the US government. These Congressionally-mandated, government-sponsored enterprises (GSEs) either owned or guaranteed two-thirds of the bad mortgages in the US financial system. They were far more highly leveraged than the private US or European investment banks. They will also ultimately cost US taxpayers more than all the other bail-outs of private financial institutions combined…
The failure of Lehman Brothers was merely a symptom rather than a cause of the crisis and the unwillingness of the US authorities to rescue Lehman was perhaps the one good US policy decision made through this episode. Federal Reserve Chairman Ben Bernanke conceded as much recently, when he tried to defend the decision as a necessary one, but then undercut his own argument by maintaining that the decision also had disastrous consequences. What Bernanke should have argued was that the winding up of Lehman Brothers was fairly orderly as far as these things go and not a source of major systemic problems in the financial system.
Other contributions in this series can be found here.
posted on 16 March 2011 by skirchner in Economics, Financial Markets
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