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Domestic issues Economics Energy Independence Financial Crisis Green Energy Humor Politics The Opinionsphere

Eliot Spitzer v. Sarah Connor

Eliot Spitzer has some good ideas about how to spend the stimulus money, including this technology which I’d heard of but not understood until reading:

[Smart meters] would permit, with a smart grid, time-of-day pricing for all consumers, with potentially double-digit reductions in peak demand, significant cost savings, and consequential remarkable energy and environmental impacts. These declines in peak demand would translate into dramatic reduction in the number of new power plants. The problem with installation of smart meters has been both the cost and, often, state-by-state regulatory hurdles. Now is the moment to sweep both aside and transform our entire electricity market into a smart market.

However, Spitzer has another more controversial proposal which Matt Yglesias fears will lead to the end of the human race, “Provide funding for robotics teams at every school. Yglesias:

After the human race is enslaved by robots, there are going to be small rebel groups hiding out somewhere and Elliot Spitzer’s going to be writing op-eds about how “no one could have predicted” that the robots would rebel and overthrow their masters. And it’ll be left to DFH bloggers to observe that this is in fact one of the most widely predicted scenarios in all of science fiction. From the proto-SF of Mary Shelly’s Frankenstein through to Karel Capek’s R.U.R. and The War Against the Newts all the way up through Terminator and The Matrix. Yes, yes, yes eventually the Butlerian Jihad will allow us to re-overthrow the Thinking Machines and establish human rule but do we really want to fall into that trap?

Just say no to robots. And certainly say no to robots in our schools.

You just know that Spitzer – for promoting this idea – would be on Sarah Connor’s hitlist.

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Economics Financial Crisis The Opinionsphere

The Financial Crisis as a Bawling Baby

Adam Gopnik in The New Yorker:

Far from adjusting our expenditures to the needs of the moment, it seems, we tend to wildly overswing, according to our mood. The difference between the provident ant, who cautiously saves up for winter, and the carefree grasshopper, dancing and hopping, is a matter of what Keynes called “animal spirits.” It is better for the common lot if each of us is a hopper (and a shopper) rather than a hoarder. Being a nation of grasshoppers is allied to being a nation of hope.

That bit reminds me of one of the most insightful things written in the midst of the opening panic in September, this blog post by Megan McCardle about some cognitive errors that contributed to the crisis. But then Gopnik takes a very different route than McCardle, bringing the financial crisis to life by invoking a holiday classic:

In “It’s a Wonderful Life,” George Bailey’s Building & Loan is, let us recall, the reckless banker of Bedford Falls, giving what would now be called subprime mortgages to people like Mr. Martini, who would be better off renting. And it is mean, miserable old Mr. Potter who berates Bailey for the practice. “And what does that get us?” Potter asks. “A discontented, lazy rabble instead of a thrifty working class.”

Gopnik sees value in both George Bailey’s and Mr. Potter’s views – with George calling on people to sacrifice for the greater good and Potter acting in his own selfish interest and assuming others will as well. (Another recent column I read – somewhere – pointed out that the dystopia of Pottersville would have survived the industrial decline of upstate New York much better than the Bedford Falls George Bailey protected.)

But for Gopnik – as for Caldwell, and as for most observers – the crisis demonstrates the fickleness of the market itself, and the extent to which it is dominated by what an economist might have once called “animal spirits”:

An economy is not a rational model; it’s an emotional muddle. It depends on how you feel about your neighbors, about next year’s hopes, and about Mr. Martini. Which is why another new President once warned against fearing fear, and why the only thing that can cause us to panic now is panic. There is something faintly encouraging, just barely hopeful, in the human familiarity of the counsel being given by the Keynesian economists. For what they are telling us is just what the parent, in that long bad moment, wishes for the child: Take a deep breath. Look at the ornaments! Don’t cry.

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Economics Financial Crisis

The Financial Crisis as a Mood

Christopher Caldwell in The Weekly Standard (via David Brooks):

Neither Barack Obama nor John McCain had much of value to say about the financial crisis as it raged through the headlines this fall. Rather than shred their campaign strategies, they played it safe, as most politicians would have. But in the name of justice we ought to recall that there was one candidate who did foresee our predicament with considerable accuracy when it still lay far in the future. Ron Paul, in almost every speech he made during the Republican primaries, spoke of bubbles, reckless credit growth, and the “unsustainability” of present policy. So why isn’t there more demand for the common-sense solutions he put forward? Because common sense is not much use in a financial panic.

This was the great discovery of Walter Bagehot, the prolific 19th-century essayist and journalist, who was editor of the Economist from 1860 to 1877. (His name rhymes with gadget.) Ninety-nine percent of the time, common sense is a synonym for practicality. But in a serious banking crisis, doing the commonsensical thing–hunkering down and counting your pennies–has proved to be not practical at all.

And:

So the “cultural contradictions of capitalism” run deeper than we thought. The classic idea, as laid out in their different ways by the economist Joseph Schumpeter and the sociologist Daniel Bell, is that capitalism rewards diligence; diligence produces wealth; wealth begets idleness; and idleness undermines capitalism. But when, as now, push comes to shove, we can ask whether there is really anything particularly capitalist about the virtues of diligence and self-restraint. The real capitalist virtues appear to be optimism and luck. From a central-banking perspective, the cultural contradictions are not results of capitalism but elements of it.

The problem with central banking is that it reacts to a system that has been mismanaged by rewarding the managers.

But this closing is what really gets me:

To be blunt, credit is successfully reestablished when financial elites say, “When.” Credit is close to a synonym for the mood of the ruling class. To say an economy is based on credit is to say it is based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure .  .  . that is what the economy is made of. It is a rather terrifying thought.

Credit as a synonym for the mood of the ruling class – how frightening yet illuminating. But read the rest of the piece too. Caldwell – whose work I haven’t usually enjoyed – gives conservatism a good name with this piece. It also slipped by me though that Caldwell, while giving a generally conservative justification for the extreme government intervention of a central bank and government during a crisis, subtly invokes John Maynard Keynes. Keynes wrote in The General Theory of Employment, Interest and Money that:

Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. [my emphasis]

As Hans O. Melberg summarizes the passage: ” It is clear that Keynes believes economic fluctuations can be partly explained by spontanous (or exogenous) shifts in moods (optimism or pessimism).”

If Caldwell is any indication, it seems that liberals and conservatives can now largely agree about the instability of markets.

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Economics Financial Crisis Politics Scandal-mongering The Opinionsphere

Irony Watch

As Justice Brandeis observed, sunlight is the best disinfectant.

So says the man whose governorship was felled by a bit too much sunlight on his sordrid sex life.

But an excellent new column by Eliot Spitzer in Slate on reforms to bring transparency to Wall Street.

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Economics Financial Crisis

The Proper Proportion of the Finance Sector to the Real Economy

Paul Krugman:

In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier.

This data point taken in isolation seems to suggest an idea I’ve been toying with for a few months now – perhaps there is a correct proportion of the financial sector to the real economy. This might not be original – and it seems related to the initial explanation of the Great Depression as a misdistribution of purchasing power due to income inequality. But I think the distinction is important – as my knowledge of history suggests that increasing inequality and a booming financial sector often precede serious economic crises.

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Financial Crisis Humor Law

Discretionary Spending (cont.)

Contra Raoul Felder, who asked for a bailout for divorce lawyers in an op-ed for the Wall Street Journal because:

There is no other profession more dependent on discretionary spending, except perhaps the oldest one.

Chris Thompson of Slate’s The Big Money:

Some of the luckiest attorneys in the world, he says, will be the divorce lawyers. “Suddenly, people find themselves cutting back, and that makes them lose face in their tony community,” he says. “So that exposes tensions in the relationship that may have been previously ignored. The matrimonial bar may see a flow out from this.”

So that’s what it’s come to for New York’s finest lawyers: waiting around for broke investment bankers to destroy their marriages.

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Barack Obama Domestic issues Economics Energy Independence Financial Crisis Foreign Policy Green Energy Health care Politics

An Ambitious Presidency

In his interview with Time magazine, Barack Obama listed those issues on which he believes his first two years as president should be judged:

Domestic Policy

  • Have we helped this economy recover from what is the worst financial crisis since the Great Depression?
  • Have we instituted financial regulations and rules of the road that assure this kind of crisis doesn’t occur again?
  • Have we created jobs that pay well and allow families to support themselves?
  • Have we made significant progress on reducing the cost of health care and expanding coverage?
  • Have we begun what will probably be a decade-long project to shift America to a new energy economy?
  • Have we begun what may be an even longer project of revitalizing our public-school systems so we can compete in the 21st century?

Foreign Policy

  • Have we closed down Guantánamo in a responsible way, put a clear end to torture and restored a balance between the demands of our security and our Constitution?
  • Have we rebuilt alliances around the world effectively?
  • Have I drawn down U.S. troops out of Iraq, and have we strengthened our approach in Afghanistan — not just militarily but also diplomatically and in terms of development?
  • Have we been able to reinvigorate international institutions to deal with transnational threats, like climate change, that we can’t solve on our own?

Intangibles

  • And, two years from now, can the American people say: “Government’s not perfect; there are some things Obama does that get on my nerves. But you know what? I feel like the government’s working for me. I feel like it’s accountable. I feel like it’s transparent. I feel that I am well informed about what government actions are being taken. I feel that this is a President and an Administration that admits when it makes mistakes and adapts itself to new information, that believes in making decisions based on facts and on science as opposed to what is politically expedient.” Those are some of the intangibles that I hope people two years from now can claim.

So, basically, a rather limited agenda here.

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Financial Crisis Humor Law

Discretionary Spending (cont.)

Following sharply on the Wall Street Journal‘s op-ed asking for a bailout for attorneys – as they are the profession second-most dependent on discretionary spending – the New York Times reports that the industry most dependent on discretionary spending is also in trouble.

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Financial Crisis Humor Law

Discretionary Spending

Raoul Felder in the Wall Street Journal:

There is no other profession more dependent on discretionary spending, except perhaps the oldest one.

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Barack Obama Domestic issues Economics Election 2008 Energy Independence Financial Crisis Green Energy Politics The Opinionsphere

The Generation That Sucked

[digg-reddit-me]With apologies to all those Baby Boomers I know – I, of course, don’t mean you.

There is something so very right about trashing the Baby Boom generation. Tom Friedman – a member of said generation – suggests a few names in his column on Sunday:

“The Greediest Generation?” “The Complacent Generation?” Or maybe: “The Subprime Generation: How My Parents Bailed Themselves Out for Their Excesses by Charging It All on My Visa Card.”

Barack Obama himself wrote in The Audacity of Hope:

In the back and forth between Clinton and Gingrich, and in the elections of 2000 and 2004, I sometimes felt as if I were watching the psychodrama of the baby boom generation — a tale rooted in old grudges and revenge plots hatched on a handful of college campuses long ago.

Perhaps this passage is what led Andrew Sullivan to describe Barack Obama’s candidacy (back when he was a long shot) as America’s only chance for a much needed truce in the long civil war fought by the Baby Boom generation:

…the most persuasive case for Obama has less to do with him than with the moment he is meeting. The moment has been a long time coming, and it is the result of a confluence of events, from one traumatizing war in Southeast Asia to another in the most fractious country in the Middle East. The legacy is a cultural climate that stultifies our politics and corrupts our discourse.

Obama’s candidacy in this sense is a potentially transformational one. Unlike any of the other candidates, he could take America—finally—past the debilitating, self-perpetuating family quarrel of the Baby Boom generation that has long engulfed all of us. So much has happened in America in the past seven years, let alone the past 40, that we can be forgiven for focusing on the present and the immediate future. But it is only when you take several large steps back into the long past that the full logic of an Obama presidency stares directly—and uncomfortably—at you.

At its best, the Obama candidacy is about ending a war—not so much the war in Iraq, which now has a mo­mentum that will propel the occupation into the next decade—but the war within America that has prevailed since Vietnam and that shows dangerous signs of intensifying, a nonviolent civil war that has crippled America at the very time the world needs it most. It is a war about war—and about culture and about religion and about race. And in that war, Obama—and Obama alone—offers the possibility of a truce.

The point of all of this is that the Baby Boom generation was quite terrible. While the “Greatest Generation” tackled a Great Depression and won a World War, and then came home and created an age of prosperity and the United Nations – and then, by the late 1950s and early 1960s, fought for and won civil rights, finally erasing the official discrimination against African Americans that had blighted America since it’s inception – the Baby Boomers – the children of the Greatest Generation – started an American civil war, focused initially on Vietnam, and then later on the role of government, on abortion, and on religion’s place in public life. While these are worthy issues to argue about, the culture war of the Baby Boomers kept them from tackling many of the urgent challenges of their day – from global warming to infrastructure deterioration to America’s place in the world. As the Baby Boomers entered adulthood, their national cohesion that was evident in the Greatest Generation dissolved into squabbles and then by 1968, into a virtual civil war.

Since the 1960s, America has failed to invest in our roads, our utilities, our energy infrastructure; America’s dependency on foreign oil was demonstrated in the 1970s, yet we did nothing and blamed it on Jimmy Carter’s bad leadership; at the same time, a radical brand of extremist Islam began to grow – and our government encouraged it, seeing it as a tool to use against the Soviet Union; some two decades ago, global warming was accepted as a fact by the greatest majority of scientists, yet we have failed to take any significant steps.

Instead, since the late 1960s, we have fought and re-fought the war over the war in Vietnam. What happened in the rice paddies and jungles of that nation are almost irrelevant to the culture war. What is remembered is where people stood while they were here. John Kerry served with distinction, but spoke against the war when he came back – forever putting him on the liberal side of the war. Dick Cheney got one deferment after another, avoiding serving at all – yet he was enthusiastic about the war as long as he himself wasn’t fighting, making him a conservative. John McCain was captured and came home a hero and George W. Bush served stateside in a cushy National Guard unit for the sons and daughters of those politicians influential enough to prevent their children from serving – yet both are equally conservative because they both were annoyed at the hippies protesting. Barack Obama was only a boy, but as Sarah Palin never failed to mention, he served on a charitable board with someone who decided to fight an insurgency against the American government to oppose the war – which by association made Obama a far-left radical. Much less important than what these Baby Boomers actually did is how they felt about the war.

It is possible to determine with a great degree of accuracy whether a Baby Boomer is a Democrat or Republican simply by asking their position on a war that ended almost forty years ago. Those who protested the war and stood against it took one side in the culture war; those who supported the war took the other side. As a rule, the Democrats – Kerry, Clinton, Gore – were against the war. The Republicans – Bush, McCain, Cheney – were for it. (This was despite the fact that it was “the best and the brightest” under Democrats John Kennedy and Lyndon Johnson who started the war.)

The obvious problem is that these divisions are barely relevant anymore.

The Baby Boomers pissed away the prosperity their parents bequeathed to them and squandered the opportunities presented to them – and now are busy using their children’s future earnings (our future earnings) to buy their way out of the mess they have created. They avoided the challenges of their times and found people to blame. They focused on OJ Simpson, Britney Spears, Madonna, and Monica Lewinsky – on abortion, Vietnam, gays, and religion – and not on global warming, on campaign finance, on the corruption of our political process, on an overleveraged economy.

After decades of avoiding systematic problems – as the solutions became embroiled in the ongoing culture war – we now must face them. With two wars in the Mid-East, a failing world economy, a growing threat of catastrophic terrorism, and whatever else may come our way, procrastination is impossible. Now it’s time for us to try to salvage this wreck.

That’s what the 2008 election was really about. And that’s our challenge. It remains to be seen if we’re up to it.