Category: Financial Crisis

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Criticism Economics Financial Crisis New York City Politics The Media The Opinionsphere

Must-Reads of the Week: The IRA, Journalism, Unsavory Profits, Bipartisanship, and the Tyranny of New York

1. Double Agents in the IRA. I recently came across an excellent article by Matthew Teague in The Atlantic about the British counterintelligence program and the IRA. It’s from 2006, but still engrossing.

2. Restoring Journalism. Maureen Tkacik talks about her life as a journalist, the nothing-based economy, and the future of journalism:

If journalism’s more vital traditions of investigating corruption and synthesizing complex topics are going to be restored, it will never be at the expense of the personal, the sexual, the venal, or the sensational, but rather through mastering the kind of storytelling that understands that none of those things exists in a vacuum. For instance, perhaps the latest political sex scandal is not simply another installment of the unrelenting narcissism and sense of invincibility of people in power. Most of the journalists writing about it have—as we all do—some understanding of the internal conflicts that lead to personal failure. By humanizing journalism, we maybe can begin to develop a mutual trust between reader and writer that would benefit both.

What I’m talking about is, of course, a lot easier to do with the creative liberties afforded a blog—one’s humanity is inescapable when one commits to blogging all day for a living.

The piece is long, and worth every word. (H/t to John Cantwell.)

3. The Papacy, Blumenthal, and Now Goldman Sachs. The New York Times took on Goldman Sachs earlier this week with a look at the perfectly legal but unsavory practices it uses to make money:

Transactions entered into as the mortgage market fizzled may turn out to have been perfectly legal. Nevertheless, they have raised concerns among investors and analysts about the extent to which a variety of Wall Street firms put their own interests ahead of their clients’.

“Now it’s all about the score. Just make the score, do the deal. Move on to the next one. That’s the trader culture,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University and former counsel to the Federal Reserve Board. “Their business model has completely blurred the difference between executing trades on behalf of customers versus executing trades for themselves. It’s a huge problem.”

4. Erroneous Assumptions. Matt Yglesias concisely summarizes what left-leaning advocates of bipartisanship have found time and again:

Oftentimes people reach the conclusions that conservatives might support this or that by the erroneous method of pretending that conservatives believe in the stated reasons for their policy positions. It seems to me that private views of wonks aside in practice the conservative political movement simply opposes anything that would increase government revenue and/or be bad for rich people.

5. The Tyranny of New York (cont). Continued from last week, many voices around the interwebs weighed in on the conversation started by Conor Friedersdorf on the tyranny of New York in media and culture. There’s a lot of good pieces to read on this — but the 2 I will recommend are this response in the New Yorker by Amy Davidson and this follow-up by Friedersdorf himself.  Davidson, as an aside mentions an E. B. White essay “Here Is New York” that I now need to read:

(Friedersdorf mentions “living vicariously through” E. B. White, who once wrote that there were three New Yorks, that of the native, the commuter, and the newcomer from smaller American places, and that “Of these trembling cities the greatest is the last—the city of final destination, the city that is a goal…Commuters give the city its tidal restlessness, natives give it solidity and continuity, but the settlers give it passion.” But I’ve never really bought that, as matchless as many of White’s descriptions of the city are, maybe because, as a native, I feel no shortage of passion, and don’t much like being called solid. And, again, for many of the most interesting newcomers, this is an entry point to America, not the “final destination.”)

[Image by me.]

Categories
Barack Obama Criticism Economics Financial Crisis National Security New York City Politics The Media The Opinionsphere The War on Terrorism The Web and Technology War on Drugs

Must-Reads of the Week: SWAT, Google’s News Plans, MTA Motto, Peanuts, Tea Party Feminism, Republican Pravda, Fiscal Hangover, New York’s Tyranny, Brooks on the Military, and Facebook Backlash

1. SWAT antics. Radley Balko does some follow-up reporting on the now infamous video of the SWAT team raid in Missouri in which 2 dogs were shot:

[D]espite all the anger the raid has inspired, the only thing unusual thing here is that the raid was captured on video, and that the video was subsequently released to the press. Everything else was routine… Raids just like the one captured in the video happen 100-150 times every day in America.

2. Google’s News Plans. James Fallows discusses how Google is trying to save the news industry.

3. If you see something… Manny Fernandez in the New York Times discusses the impact and coinage of the ubiquitous phrase, “If you see something, say something.”

It has since become a global phenomenon — the homeland security equivalent of the “Just Do It” Nike advertisement — and has appeared in public transportation systems in Oregon, Texas, Florida, Australia and Canada, among others. Locally, the phrase captured, with six simple words and one comma, the security consciousness and dread of the times, the “I ♥ NY” of post-9/11 New York City. [my emphasis]

4. Artful Grief. Bill Waterson — creator of Calvin & Hobbes — reviewed a biography of Charles Schultz for the Wall Street Journal a few years ago — writing on the ‘Grief’ that Made Peanuts Good. It’s several years old but well worth reading.

5. Tea Party Feminism. Hanna Rosin of Slate evaluates the Tea Party as a feminist movement. And her reporting surprised me at least.

6. Republican Pravda. Jonathan Chait collects a few Weekly Standard covers to illustrate the changing right-wing portrayal of Obama over the past year. He identifies the passage of the health care bill as a turning point:

Now that Obama has won his biggest legislative priority and is closing in on at least one other important win, the tone is change. The hapless patsy has become the snarling bully. The lack of Republican support for Obama’s agenda, once a credit to Republican tough-mindedness, is now blamed upon Obama’s stubbornness. Here is a recent cover of Obama–the nefarious, but powerful, overseer…

7. Fiscal Hangover. Gillian Tett of the Financial Times explains the successful approach the Irish are taking to their fiscal crisis: treat it like a hangover.

8. The Tyranny of New York. Conor Friedersdof complains about the tyranny of New York — but I will excerpt his praise:

Even if New York is a peerless American city, an urban triumph that dwarfs every other in scale, density, and possibility; even if our idea of it is the romantic notion that Joan Didion described, “the mysterious nexus of all love and money and power, the shining and perishable dream itself;” even if you’ve reveled in the fact of the city, strutting down Fifth Avenue in a sharp suit or kissing a date with the skyline as backdrop while the yellow cab waits; even if you’ve drunk from the well of its creative springs, gazing at the Flatiron Building, or paging through the New York Review of Books on a Sunday morning, or living vicariously through Joseph Mitchel or E.B. White or Tom Wolfe or any of its countless chroniclers; even if you love New York as much as I do, revering it as the highest physical achievement of Western Civilization, surely you can admit that its singularly prominent role on the national scene is a tremendously unhealthy pathology.

Despite the rent, the cold, the competition, the bedbugs, the absurd requirements for securing even a closet-sized pre-war apartment on an inconvenient street; the distance from friends and family, the starkness of the sexual marketplace, the oppressive stench of sticky subway platforms in the dog days of August; despite the hour long commutes on the Monday morning F Train, when it isn’t quite 8 am, the week hardly underway, and already you feel as though, for the relief of sitting down, you’d just as soon give up, go back to Akron or Allentown or Columbus or Marin County or Long Beach — despite these things, and so many more, lawyers and novelists and artists and fashion designers and playwrights and journalists and bankers and aspiring publishers and models flock to New York City.

I don’t quite get Friedersdof’s complaint to be honest. What would be improved if there were more sitcoms taking place in Houston?

9. Military Flow Chart. David Brooks analyzes the military’s adaptation of counterinsurgency as a case study in the flow of ideas in entrenched organizations.

10. Facebook Backlash. Ryan Singel of Wired has one of many pieces in the past week fomenting the growing Facebook backlash:

Facebook has gone rogue, drunk on founder Mark Zuckerberg’s dreams of world domination. It’s time the rest of the web ecosystem recognizes this and works to replace it with something open and distributed.

[Image by me.]

Categories
Barack Obama Criticism Economics Financial Crisis Foreign Policy Israel Politics The Bush Legacy The Media The Opinionsphere

Must-Reads of the Week: The Obama 20-somethings, Graham’s Cojones, Fannie/Freddie, Naive Conspiracy Theorists, Saban, Obama=Socialism, Political Imitations, Underdogs, Lost!, and Julián Castro

This is a busy season for me — but there should be some more substantive blog posts next week…

1. The Obama 20-somethings. Ashley Parker for the New York Times Magazine profiles “all the Obama 20-somethings” in an interesting profile of the new crowd in D.C. of smart, highly educated, highly motivated, civic-minded, young Obama staffers.

2. Lindsey Graham’s Cojones. You gotta hand it to Lindsey Graham — if nothing else, he’s got guts — from Dana Milbank of the Washington Post:

The lone pro-gun lawmaker to engage in the fight was the fearless Lindsey Graham (R-S.C.), who rolled his eyes and shook his head when Lieberman got the NYPD’s Kelly to agree that the purchase of a gun could suggest that a terrorist “is about to go operational.”

“I’m not so sure this is the right solution,” Graham said, concerned that those on the terrorist watch list might be denied their Second Amendment right to keep and bear arms.

“If society decides that these people are too dangerous to get on an airplane with other people, then it’s probably appropriate to look very hard before you let them buy a gun,” countered Bloomberg.

“But we’re talking about a constitutional right here,” Graham went on. He then changed the subject, pretending the discussion was about a general ban on handguns. “The NRA — ” he began, then rephrased. “Some people believe banning handguns is the right answer to the gun violence problem. I’m not in that camp.”

Graham felt the need to assure the witnesses that he isn’t soft on terrorism: “I am all into national security. . . . Please understand that I feel differently not because I care less about terrorism.”

Jonathan Chait comments:

There’s a pretty hilarious double standard here about the rights of gun owners. Remember, Graham is one of the people who wants the government to be able to take anybody it believes has committed an act of terrorism, citizen or otherwise, and whisk them away to a military detention facility where they’ll have no rights whatsoever. No potential worries for government overreach or bureaucratic error there. But if you’re on the terrorist watch list, your right to own a gun remains inviolate, lest some innocent gun owner be trapped in a hellish star chamber world in which his fun purchase is slowed by legal delays.

3. Why Isn’t Fannie/Freddie Part of FinReg? Ezra Klein explains why regulation of Fannie Mae and Freddie Mac isn’t in the financial regulation bill.

4. Naive Conspiracy Theorists. William Saletan contributes to the whole epistemic closure debate with a guide on how not to be closed-minded politically, including this bit of advice:

Sanchez goes through a list of bogus or overhyped stories that have consumed Fox and the right-wing blogosphere: ACORN, Climategate, Obama’s supposed Muslim allegiance, and whether Bill Ayers wrote Obama’s memoir. Conservatives trapped in this feedback loop, he notes, become “far too willing to entertain all sorts of outlandish new ideas—provided they come from the universe of trusted sources.” When you think you’re being suspicious, you’re at your most gullible.

5. Saban. Connie Bruck in the New Yorker profiles Haim Saban, best known for bringing the Mighty Morphin Power Rangers to the United States — but who made much of his fortune licensing the rights to cartoon music internationally. As a side hobby, he tries to influence American foreign policy towards Israel. He doesn’t come off very well in the piece, but at least this one observation seems trenchant to me at first glance:

Saban pointed out that, in the late nineties, President Clinton had pushed Netanyahu very hard, but behind closed doors. “Bill Clinton somehow managed to be revered and adored by both the Palestinians and the Israelis,” he said. “Obama has managed to be looked at suspiciously by both. It’s not too late to fix that.”

6. The Obama=Socialism Canard. Jonathan Chait rather definitively deflates Jonah Goldberg’s faux-intellectual, Obama=socialism smear:

For almost all Republicans, the point of labeling Obama socialist is not to signal that he’s continuing the philosophical tradition of Roosevelt, Eisenhower, Kennedy, Johnson, Nixon, Carter and Clinton. The point is to signal the opposite: that Obama embodies a philosophy radically out of character with American history. Republicans have labeled Obama’s agenda as “socialism” because the term is widely conflated with Marxism, even though Goldberg concedes they are different things, and because “liberalism” is no longer a sufficiently scary term. Republicans endlessly called Bill Clinton a liberal, Al Gore a liberal — the term has lost some of its punch. So Obama must be something categorically different and vastly more frightening.

Goldberg is defending the tactic by arguing, in essence, that liberalism is a form of socialism, and Obama is a liberal, therefore he can be accurately called a socialist. But his esoteric exercise, intentionally or not, serves little function other than to dress up a smear in respectable intellectual attire. [my emphasis]

7. Imitating the Imitators of the Imitation. This Politico piece by Mike Allen and Kenneth P. Vogel explains how some elite Republicans are trying to set up a right wing equivalent of the left wing attempt to imitate the right wing’s media-think tank-political infrastructure:

Two organizers of the Republican groups even made pilgrimages earlier this year to pick the brain of John Podesta, the former Clinton White House chief of staff who, in 2003, founded the Center for American Progress and was a major proponent of Democrats developing the kind of infrastructure pioneered by Republicans.

And of course, that right wing infrastructure was meant to imitate the left wing policy-media infrastructure of the left — the Brookings-New York Times axis. The whole imitation of imitation of imitation of imitation — spawning more and more organizations — reminds me a bit of those old Mad magazine comic strips:

8. The Underdog. Daniel Engber in Slate explores the underdog effect and various scientific studies of the underdog effect, including how it affects expectations:

The mere act of labeling one side as an underdog made the students think they were more likely to win.

9. Lost! Ed Martin in the Huffington Post is concerned with how the tv show Lost will end:

Not to put too much pressure on Lindelof and Cuse, but the future of broadcast television will to some extent be influenced by what you give us over these next few weeks.

10. Julián Castro. Zev Chafets of the New York Times Magazine profiles Julián Castro, mayor of San Antonio, Texas, and one of the up-and-coming Democrats. The article entirely elided his policy ideas or and barely mentioned his political temperament — but was interesting nevertheless.

[Image by me.]

Categories
Barack Obama China Criticism Domestic issues Economics Financial Crisis Foreign Policy Green Energy Immigration Life New York City Politics The Bush Legacy The Opinionsphere The Web and Technology

Must-Reads of the Week: American Power, Inequality, 1 Billion Heartbeats, Hacking Life, Anthora Cups, Structural Deficit, Financial Doomsedays and Crises, China, the Tea Party’s Views on Immigration, and Lady Gaga

There were a lot of good articles and posts I came across this week — so brace yourself…

1. The American Power Act. David Brooks makes the case for progressive reform — specifically the American Power Act regarding climate change:

When you read that history, you’re reminded that large efforts are generally plagued by stupidity, error and corruption. But by the sheer act of stumbling forward, it’s possible, sometimes, to achieve important things…The energy revolution is a material project that arouses moral fervor — exactly the sort of enterprise at which Americans excel.

Matt Yglesias had earlier this week critiqued Brooks (among others) for taking the exact opposite stance of the one he was adopting here:

Oftentimes in the Obama Era the difference between “reasonable” conservatives (David Brooks and Greg Mankiw often leading the charge) and reasonable liberals has been that reasonable liberals look at flawed legislation that would improve on the status quo and support it while “reasonable” conservatives look at flawed legislation that would improve on the status quo and oppose it, while claiming to support alternative flawed proposals that they don’t actually lift a finger to organize support for within their own ideological faction.

2. Inequality, social mobility, and the American Dream. The Economist had a good piece that can serve as a starting point for a post I’ll be writing soon on inequality, social mobility, and the American dream:

The evidence is that America does offer opportunity; but not nearly as much as its citizens believe.

Parental income is a better predictor of a child’s future in America than in much of Europe, implying that social mobility is less powerful.

3. The Science of Life. Jonah Lehrer for Seed magazine has a brilliant piece on how cities are like living organisms. As a side matter, he notes this beautifully poignant data point:

[A]n animal’s lifespan can be roughly calculated by raising its mass to the 1/4 power. Heartbeats scale in the opposite direction, so that bigger animals have a slower pulse. The end result is that every living creature gets about a billion heartbeats worth of life. Small animals just consume their lives faster.

4. Fine-tuning life. Gary Wolf for the New York Times Magazine explains how the accessibility of computers is creating data about every aspect of our lives — and of the efforts of some people to begin to catalog and find insights in their own data. Surprisingly, Lifehacker was never mentioned.

5. The Anthora Cup. Margalit Fox of the New York Times writes the obituary for Leslie Buck, the designer of the Anthora cup:

It was for decades the most enduring piece of ephemera in New York City and is still among the most recognizable. Trim, blue and white, it fits neatly in the hand, sized so its contents can be downed in a New York minute. It is as vivid an emblem of the city as the Statue of Liberty, beloved of property masters who need to evoke Gotham at a glance in films and on television.

6. Unified Theory of the Financial Crisis. Ezra Klein synthesizes various narratives into a unified theory of the financial crisis.

7. The Structural Deficit. Donald B. Marron provides a coherent and reality-based conservative look at America’s structural deficit. Absolutely a Must-Read.

8. The Financial Doomsday Machine. Martin Wolf dedicated his column in the Financial Times last week to describe the “financial doomsday machine“:

[T]he financial sector has become bigger and riskier. The UK case is dramatic, with banking assets jumping from 50 per cent of GDP to more than 550 per cent over the past four decades…The combination of state insurance (which protects creditors) with limited liability (which protects shareholders) creates a financial doomsday machine. What happens is best thought of as “rational carelessness”. Its most dangerous effect comes via the extremes of the credit cycle.

9. Realism on China. Stephen Walt explains his take on China’s strategic ambitions — and its inevitable rivalry with the United States and other regional powers.

10. The Tea Party & Immigration. Radley Balko explains his take on the widespread support among the Tea Party for the massive government power grab that is Arizona’s new immigration law:

It also makes a mockery of the media narrative that these are gathering of anti-government extremists. Seems like in may parts of the country they’re as pro-government as the current administration, just pro-their kind of government.

Coincidentally, I made that exact point about the Tea Party back in September 2009 entitled: These Protests Aren’t Against Big Government, But About Liberals Running the Government.

Andrew Sullivan piles on:

Worse, on the fiscal front, they’re total frauds. They have yet to propose any serious cuts in entitlements and want far more money poured into the military-imperial complex. In rallies, the largely white members in their fifties and older seem determined to get every penny of social security and Medicare. They are a kind of boomer revolt – but on the other side of that civil conflict, and no longer a silent majority. In fact, they’re now the minority that won’t shut up.

More and more, this feels to me like an essentially cultural revolt against what America is becoming: a multi-racial, multi-faith, gay-inclusive, women-friendly, majority-minority country.

11. Sovereign Debt Crisis. Felix Salmon and Paul Krugman are both very pessimistic about how Greece will get out of this crisis — and what it means for the global economy.

12. Lady Gaga’s Ambition. Brendan Sullivan for Esquire chronicles the life and ambitions of Lady Gaga:

“There is a musical government, who decides what we all get to hear and listen to. And I want to be one of those people.” The girl who said that didn’t yet have the number-one hits (although she had already written most of them).

She was not yet the creative director of the Haus of Gaga, which is what she calls the machine of more than a hundred creative people who work for her. She didn’t make that statement in an interview or from the stage. She made it in 2007, when she was a go-go dancer sewing her own outfits and I was her DJ. She wrote it in one of my notebooks…

Lady Gaga is a student of fame, and the fame she studies most is her own — being famous seems to both amuse and fascinate her.

[1st image by me; 2nd image by LarindaME licensed under Creative Commons.]

Categories
Economics Financial Crisis Politics

Volker’s Paradox

[digg-reddit-me]In response to long-time commenter John Rose who asked for a link to some tangible data proving that profits for financial firms have increased markedly since deregulation began:

From the same paper as the above chart, comes the observation which prompted my post on how Wall Street’s enormous profits are evidence of a poorly functioning market:

In 1997, former Federal Reserve Board Chairman Paul Volker posed a question about the commercial banking system he said he could not answer. The industry was under more intense competitive pressure than at any time in living memory, Volcker noted, “yet at the same time, the industry never has been so profitable.” I refer to the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking as Volcker’s Paradox.

Deregulation of the economy in general began in earnest under Jimmy Carter — but it wasn’t until the 1980s that the deregulation of the financial industry began to gain steam under Ronald Reagan. Then of course, in 1999 came the (in)famous Gramm-Leachley Act which seems to precede the sharpest rise in real profits of the financial sector.

[Chart from this paper by James Grotty (pdf) published by PERI.]

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Barack Obama Criticism Economics Financial Crisis Foreign Policy Political Philosophy The Media The Opinionsphere The Web and Technology

Must-Reads of the Week: Obama’s Accomplishments and Diplomatic Brand, Facebook, Epistemic Closure, Financial Reform, Our Long-Term Fiscal Crisis and Problem-Solving Capacity, and Mike Allen

1. Obama’s Accomplishments. Jonathan Bernstein explains how Obama has gotten so many of his legislative goals accomplished despite the GOP’s constant obstructionism: By loading up the major bills with many other smaller items. In fact, according to PolitiFact, Obama has accomplished almost a third of his campaign promises if compromises count (and a fifth if they don’t).

2. Facebook v. Google. Ian Schafer in the Advertising Age has a smart take on Facebook’s recent challenge to Google and how Facebook is trying to reorganize the web.

3. Epistemic Closure. Julian Sanchez follows up on his starting post on the epistemic closure of the right wing. Every single link he provides in the article is worth following as the conversation he started extended across many people and was full of insights all around.

4. Obama’s Diplomatic Brand. Marc Ambinder has an excellent post on “the essence of Obama’s diplomatic brand.” While Ambinder acknowledges it’s too early to assess how effective Obama’s diplomacy will be and has been, he does a good job of describing it — and little wonder it bears little resemblance to the weak, anti-American apologizing that the right sees as Obama’s trademark. Ambinder lists a few qualities, but let me focus on one:

Bush assumed a position of direct strength, not deference, when he met with leaders. Obama has been decidedly deferential, which, in the traditional binary way the media covers foreign policy, allegedly suggests weakness. From Obama’s perspective, deference is both strategic and is demanded by the goals he sets out. Treating countries as equals foists certain obligations upon them. It helps leaders deal with internal politics. Year one, Obama was the star, and wasn’t seen as a heavyweight, even by some allies. Year two is different: he’s charted a course on legacy problems (Iran, Iraq, Afghanistan, Middle East peace), so the world knows where he stands.

5. How Financial Reform is Playing. There was some disagreement around the opinionosphere about how financial reform is “playing.” Initially, there was concern that the Republicans would once again follow their tried and true strategy of: Make up stuff that’s really awful — and pretend the bill is about that. There was concern that the Obama administration didn’t have a plan for this contingency, presuming that Republicans would crack under public pressure. And then, the SEC filed suit against Goldman and Blanche Lincoln (who was expected to water down the bill) adopted the strongest language we’ve seen and the Republicans seem to be breaking ranks over this with Bob Corker critizing McConnell’s lies and Chuck Grassley voting for the bill in committee. Kevin Drum suggests McConnell crossed some line of absurdity:

[I]t turns out there really is a limit to just how baldly you can lie and get away with it…[W]e seem to have reached a limit of some kind, and McConnell crossed it. Maybe we should name this the McConnell Line or something so that we know when future politicians have crossed it.

I tend to think Matt Yglesias is more right when he observed:

This time around, though, it doesn’t seem to be working nearly as well, perhaps because people realize we’ve seen this movie before.

6. Our Long-Term Fiscal Crisis. Jonathan Chait observes what may prove to be a fatal flaw in the political strategy of the GOP on fiscal matters if they authentically do support a smaller government:

Distrust of government makes Americans distrust everything people in governemnt say or do, including cut spending, which — with the exception of a few programs seen to help “others,” like welfare and foreign aid — tends to be wildly unpopular.

Their current strategy has been to provoke a fiscal catastrophe and cut government spending in the aftermath. But Chait suggests that this strategy of starve-the-beast governance may not work. On a related note, William Galston has an astutely even-handed piece describing the fiscal problems we are facing and what the solution must realistically be. He quotes Donald B. Marron in National Affairs who explains an idea that is antithetical to ideological right wingers:

Policymakers should not always assume that a larger government will necessarily translate into weaker economic performance. As few years ago, Peter Lindert—an economist at the University of California, Davis—looked across countries and across time in an effort to answer the question, “Is the welfare state a free lunch?” He found that countries with high levels of government spending did not perform any worse, economically speaking, than countries with low levels of government spending. The result was surprising, given the usual intuition that a larger government would levy higher taxes and engage in more income redistribution—both of which would undermine economic growth.

Lindert found that the reason for this apparent paradox is that countries with large welfare states try to minimize the extent to which government actions undermine the economy. Thus, high-budget nations tend to adopt more efficient tax system—with flatter rates and a greater reliance on consumption taxes—than do countries with lower budget. High-budget countries also adopt more efficient benefits systems—taking care, for example, to minimize the degree to which subsidy programs discourage beneficiaries from working.”

Right wingers rarely acknowledge this even as they oppose measures that would improve the efficiency of government (like the VAT). They simply call it “European-style socialism” and move on with addressing why on the substance more efficient government measures shouldn’t be adopted.

7. Our Problem-Solving Capacity. Stephen Walt has a very long and very, very good post that attempts to balance optimism (global violence is at historic lows!) with some pessimism:

One way to think about the current state of world politics is as a ratio of the number of important problems to be solved and our overall “problem-solving capacity.” When the ratio of “emerging problems” to “problem-solving capacity” rises, challenges pile up faster than we can deal with them and we end up neglecting some important issues and mishandling others.  Something of this sort happened during the 1930s, for example, when a fatal combination of global economic depression, aggressive dictatorships, inadequate institutions, declining empires, and incomplete knowledge overwhelmed leaders around the world and led to a devastating world war…

[Today] Washington D.C. has become synonymous with the term “gridlock,” leading the Economist magazine to describe the U.S.  political system as “a study in paralysis.” Obama did get a health care reform package through, but it still took an enormous effort to pass a watered-down bill that pandered to insurance companies and other well-funded special interests. Meanwhile, decisive action to address climate change, the persistent U.S. budget deficit, or financial sector reform remain elusive, and it’s going to get a lot tougher if the GOP makes big gains in the 2010 midterms. Nor is it reassuring to realize that the Republican Party seems to be taking its marching orders from two entertainers — Rush Limbaugh and Glenn Beck — the latter of whom has made it clear that he’s interested in making money and doesn’t really care about public affairs at all…

Nor is this problem confined to the United States. Japan’s ossified political order remains incapable of either decisive action or meaningful reform; the Berlusconi-government in Italy is an exercise inopera bouffe rather than responsible leadership, French President Nicolas Sarkozy’s early flurry of reform efforts have stalled and Mexico remains beset by drug-fueled violence and endemic corruption. Britan’s ruling Labor Party is a spent force, but the rival Conservatives do not present a very appealing alternative and may even lose an election that once seemed in the bag. And so on.

There are some countries where decision leadership is not lacking, of course, such as China (at one end of the size scale) and Dubai (at the other). Yet in both these cases, a lack of genuine democratic accountability creates the opposite problem. These government can act quickly and launch (overly?) ambitious long-term plans, but they are also more likely to make big mistakes that are difficult to correct them in time…

In short, what I am suggesting is that our inability to cope with a rising number of global challenges is not due to a lack of knowledge or insufficient resources, but rather to the inability of existingpolitical institutions to address these problems in a timely and appropriate way.

8. Mike Allen. Mark Leibovitch in the New York Times Magazine has an excellent profile of Mike Allen of Politico and how that organization is changing the news business by covering it like some combination of ESPN and Facebook’s feed of data on the activity of your friends. As a character study, it succeeds given Mike Allen’s unique personality — and as a look at the changing media landscape in politics, it succeeds in raising many questions about where we’re headed. Marc Ambinder responds.

[Image by me.]

Categories
Economics Financial Crisis Politics The Bush Legacy The Opinionsphere

Miracles Can Happen!

Jonathan Chait:

What’s happening with financial reform right now is unlike anything that’s happened since I’ve been following American politics. Look at the fundamentals of the issue. This is a matter where a massive industry — one that accounts for close to half of all corporate profits — is adamantly opposed to new regulation. The merits of the issue are so mind-numbingly complex that even economists and policy wonks sound distinctly fuzzy on the details. Throw in a Republican Party that had pursued, with evident political success, a policy of total obstruction. I’d tell you this was a formula either for defeat or a toothless reform.

And yet a substantial reform now appears close to inevitable. It’s not a toothless reform — a set of derivative regulations more hawkish than anybody could have dreamed possible a couple weeks ago just passed through the Agriculture Committee. It’s one of those strange moments when the normal laws of politics have been suspended.

Categories
Economics Financial Crisis Politics The Opinionsphere

Wall Street’s enormous profits are evidence of a poorly functioning market (cont.)

[digg-reddit-me]This is something that really needs to get more attention. William Cohan in the New York Times:

The easiest and most profitable risk-adjusted trade available for the banks is to borrow billions from the Fed — at a cost of around half a percentage point — and then to lend the money back to the U.S. Treasury at yields of around 3 percent, or higher, a moment later. The imbedded profit — of some 2.5 percentage points — is an outright and ongoing gift from American taxpayers to Wall Street.

H/t Ezra Klein.

I also came across this from James Kwak at the Baseline Scenario:

[I]f you see a company that has very high profits over a sustained period, there are two possibilities: either it is benefiting from a non-competitive market (e.g., it is a monopoly), or it is simply exceptional at innovating and staying ahead of the competition for years on end. If you see a whole industry that has sustained high profits, however, the latter explanation cannot hold, and you should immediately suspect a lack of competition.

[T]he thing that we should celebrate is not high profits, but competition. The pursuit of high profits is what motivates competition; but if a whole industry achieves high profits, then what you are seeing is not competition, but its opposite.

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Criticism Economics Financial Crisis Libertarianism Political Philosophy The Opinionsphere

Wall Street’s enormous profits are evidence of a poorly functioning market.

[digg-reddit-me]Matt Yglesias and Ezra Klein had 2 complementary points in posts yesterday. (Damn you, JournoList!) Yglesias:

…[L]ooking at this chart I think it’s hard to avoid the conclusion that Wal-Mart is the last thing we should be worried about. The worrying trend is the domination of the corporate landscape by super-profitable firms in the heavily regulated energy, banking, and telecom sectors.

Yglesias is making a point most commonly associated with libertarians that large firms often use the government — through favorable regulation, tax breaks and incentives, etc. — to increase their profits. For example, increasing the barriers for new firms in the industry and restraining their indirect competitors from direct competition. This follows the well-known principle that any government policy whose costs are diffused and whose benefits are concentrated will be adopted more often than not. Thus highly regulated industries tend to be dominated by a small number of large firms that make very large profits — because thanks to government regulation, there isn’t much competition. However, Ezra Klein observed:

In a competitive market, there’s really no place to make 27 cents on the dollar. Some other firm will come in and offer the same services for 24 cents, and then someone will undercut them at 19 cents, and so it will go until the profit margin narrows. Wal-Mart, for instance, has a profit margin of around 3.5 percent. Ah, capitalism.

Not so in the financial sector, though, which ever since deregulation has been posting higher and higher profit margins.

So, the exception to this trend is Wall Street — where deregulation has lead to higher profits. All of this seems quite intuitively true — both from a libertarian and from a liberal perspective — and even from a liberaltarian one.

The enormous profits taken out of every dollar (as seen in much of the the financial industry) is a demonstration of a lack of competition and thus a poorly functioning market. Of course, Goldman Sachs didn’t manage to make it on the list above — but it had more than double the amount of profit out of every dollar it took in as compared to each of the companies here. Goldman managed to take $0.26 of every dollar they made as profit to their shareholders. (And that includes the massive bonuses given to employees as expenses.) I think I need to see more data though to draw the conclusion that Klein is hinting at — that the deregulation of Wall Street increased it’s profits as a percentage of revenues — while deregulation generally has the opposite effect (as in the case of Wal-Mart).

Annie Lowery drives the point home in analyzing the 1Q results from Wall Street:

This is not quite a picture of a healthy industry. In a competitive marketplace, prices and fees at Wall Street firms should fall and margins should become thinner. On the one hand, Wall Street firms like J.P. Morgan and Goldman Sachs have seen a number of their competitors die in the past two years, and have absorbed business from the failed Lehmans and Bear Sterns of the world. But on the other hand, Wall Street profit margins have remained sky high except for a short blip during the worst of the credit crunch. And, an economist would tell you, such sustained levels of high profitability point to anti-competitive behavior…

[T]he profits point to a lack of competition. That is one thing the Dodd bill — via derivatives regulation — attempts to fix. Right now, Wall Street firms do not bid for big derivatives contracts — they simply quote a price and work over-the-counter. For that reason, derivatives are wildly profitable for the companies. The Dodd bill will force derivatives pricing to become public to the market, driving down margins as companies compete.

There’s a whole lot to unpack within these points about the nature of American capitalism and the government’s role in it.

But one key takeaway seems to be a repudiation of the most ideological take of either the left or right — and an acknowledgment that free markets are not merely what happens when the government is out of the way — but are created and maintained by a complex balancing act in which government regulates and participates. What you end up with is something less than socialism or libertarianism and more like liberalism:

Contemporary liberals reject the doctrinaire distinction between the “market” and the government that animated so much of the conflict in the 20th century. The free market should not be treated as some theoretical utopian ideal or as a perpetually lost state of innocence. And the government is not some evil force which must be reduced until it is of a size that it “could be drowned in a bathtub.” Rather the government and the free market exist together – and in a capitalist republic such as ours, each is dependent on the other. The free market does not exist in a state of nature but must be created by and maintained by the society and the state which provide the values and the rules and other conditions without which a market cannot be free. In other words, a free market is a product of a just government.

Follow-up post here.

[Image by f-l-e-x licensed under Creative Commons.]

Categories
Economics Financial Crisis The Opinionsphere

How Financial Innovation Causes Financial Crises

Ezra Klein explains how financial innovation causes financial crises:

Investors want to make more money with less risk. Someone invents a financial product that appears to make investors more money with less risk — in this case, subprime securities. Demand for this new product explodes. But few understand this new product, and even the people who do understand the new product don’t know how it performs under stress (it’s a new product, after all). At the beginning, this actually helps the product: because its risks aren’t known, they’re ignored, and so it looks like a better deal than it is and sells more of itself than it should.

Then something bad happens. The new product shows its flaws. And precisely because no one really understands it, the market cracks. Investors all run away at once, as they don’t really have the tools to assess the situation. Where lack of knowledge about the product originally drove demand, now it accelerates flight.