Malian drug runners

Does the normal criminal justice system work for terrorism defendants? A case in the Manhattan US District court might be a good test. Three Malians, according to the NY Times, are accused of conspiracy to commit drug trafficking and support terrorism. Oumar Issa, Harouna Toure' and Idriss Abelrahman arranged to transport columbian cocaine through west Africa to spain and claimed to be tightly connected with the local Al Qaeda.

Moral Foundations

Watch Jonathan Haidt's TED talk on moral roots of liberals and conservatives. He claims that there are 5 innate moral values and liberals and conservatives (on social issues) differ in their appreciation for them.

1. Harm/care, related to our long evolution as mammals with attachment systems and an ability to feel (and dislike) the pain of others. This foundation underlies virtues of kindness, gentleness, and nurturance.
2. Fairness/reciprocity, related to the evolutionary process of reciprocal altruism. This foundation generates ideas of justice, rights, and autonomy.
3. Ingroup/loyalty, related to our long history as tribal creatures able to form shifting coalitions. This foundation underlies virtues of patriotism and self-sacrifice for the group. It is active anytime people feel that it's "one for all, and all for one."
4. Authority/respect, shaped by our long primate history of hierarchical social interactions. This foundation underlies virtues of leadership and followership, including deference to legitimate authority and respect for traditions.
5. Purity/sanctity, shaped by the psychology of disgust and contamination. This foundation underlies religious notions of striving to live in an elevated, less carnal, more noble way. It underlies the widespread idea that the body is a temple which can be desecrated by immoral activities and contaminants (an idea not unique to religious traditions).

Get ready for a weak-dollar world

We must get ready for a weak-dollar world
By Jeffrey Garten
Published: November 29 2009, The Financial Times

The two most significant structural consequences of the recent financial debacle are the massive deficits and debts of the US and the shift of economic power from west to east. There is only one effective way for governments to address the combined impact of both: press for a sea change in currency relationships, especially a permanently and greatly weakened dollar.

The Coming Collapse of the Middle Class

The video lecture The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net by Elizabeth Warren (wikipedia) came to me by way of The Big Picture.

First Aired: 6/11/2007, 57 minutes

Distinguished law scholar Elizabeth Warren teaches contract law, bankruptcy, and commercial law at Harvard Law School. She is an outspoken critic of America's credit economy, which she has linked to the continuing rise in bankruptcy among the middle-class.

The huge economic shift that brought the median family in America from being a 1 income household in 1970 to a 2 income household in 2005, a single generation. Income for fully employed males has been flat to slightly negative over this period. Savings went from 11% of disposable income to nothing. Revolving debt as a percentage of annual income went from 1.4% to 15%.

Surprisingly, typical 2-kid family spending has dropped on several staple items. Clothes have gone down by 32%. Food has dropped by 18%. Appliances down 52%. Per-car cost has dropped 24% because people keep cars longer and spend less on repairs. Imports are cheap. Retail works on thin margins.

But spending on mortgages has popped up by 76%. This is magnified for houses in decent school districts. Health insurance is up 74%. Most people have 2 cars. Childcare is a new expense not present in 1970. The tax rate has gone up by about 25% for this family.

The income of this typical family has gone from 32k to 73k, but after the big-ticket fixed expenses, the two-income family has less money than their one-income parents. The two-income family is much more precarious because they have less slack (no spare worker), income is more volatile, health care expenses have gone up.

While volatility has increased, the safety net has eroded. Risk on healthcare has increased, we've shifted from defined benefit retirement to defined contribution. The educational bar is higher and college is paid for by the family rather than government. (As is preschool.)

Families with children filed for bankrupcy at a rate of 15 per thousand in the early 2000's often due to illness, job loss, or divorce. People hide bankrupcy. We're moving from a three class society to a two class society. The solid american middle class drives our economy and gives us a stable democracy. She paints a picture a weakened insecure middle class, where, if you don't get sick, divorced, or fired you do OK, but any of those events will push you over the edge of a cliff into the underclass.

More

• How Procter & Gamble is coping with the collapse of America's middle class

Healthcare pragmatics

The debate on healthcare reform is practically over and the important points haven't even broken the surface of the public debate. Have we dumbed ourselves down to the point where we can no longer publicly talk through an issue? So it seems. Well, here's an attempt to state the obvious, which will put me ahead of most news media and way ahead of both political parties.

• Healthcare costs money. Someone has to pay. Different schemes distribute the cost and benefits slightly differently at the margin. But, under any plan from government run single-payer to pure pay-as-you-go, roughly the same people are going to pay. For all the ideological histrionics, you and I, middle-class america, are going to pay no matter what. We'll get middle-class healthcare for ourselves and subsidize healthcare for the poor. This arrangement won't change much whatever reform happens or doesn't happen. The amount of subsidy coming from the executive class healthcare of the rich varies a bit from one scheme to another. Different segments of the poor or working poor are better off under some plans. But, for the most part the poor have no money and the rich have accountants and lawyers, so the middle class has to pay.
• Healthcare is a public good. For several reasons, I have an interest in your health. For example, if you could refrain from coughing any H1N1 on my lunch, I'd appreciate it. I depend on my coworkers, local businesses, and my community. If those people are out sick, or worse yet, out in public spreading viruses, I suffer. So, am I willing to contribute to your healthcare? A rational person should say, "yes".
• The benefit of insurance comes from pooling risk. Middle-men cost money. In the case of insurance, we accept the cost of the middle-men because they help us by redistributing risk. If we let insurance companies choose to insure only the healthy, we lose this benefit. Likewise, if we let people wait until they're sick to buy insurance. The employer-based insurance system is stable, despite making the work-force less efficient, because it effectively limits how much either side can game the system. Any system that replaces employer-based groups needs to have the same property. In the current setup, insurance also plays a redistributive role in monetary (rather than risk) terms. For example, if I have a baby, the cost of the birth is subsidized by the non-parents in my company. I subsidize the cost of insuring those with less healthy diets than mine. The young subsidize the old. Overall, it's reasonable for us, as the buyers of insurance, to ask how much this service is costing us and what kind of value we're getting.
• People respond to incentives. Distorted incentives are all over healthcare. We're well on our way to making primary care medicine like teaching - a profession that you would do only for love because it pays so little. Already many rural areas have shortages of primary care. Also, if you threaten doctors with law suits, you get expensive (uncomfortable, potentially risky) tests. It's called CYA medicine. And, of course, those spending someone else's money tend to spend too much.
• We're all going to die. Saudi princes with personal physicians, plebeian patients of HMOs, and tin-shack squatters with nothing all share the same fate, in the blink of an eye that is our short lives. Medicine has awesome powers and will gain much more awesome powers in the coming decades. But, the final outcome is not going to change any time soon.
• Healthcare is not a right. Human rights, in general, mean you have the right to do for yourself unmolested by others. You do not have the right to force others to do for you. Your right to life means that nobody has the right to kill you. It does not mean you have the right to force doctors, nurses and drug companies to take care of you. Healthcare is a limited resource and it should be treated that way.
• The current American system is very inefficient. Countries pay for healthcare in different ways. All countries struggle with healthcare, but several countries get better outcomes for a lot less than we spend. ...think we could learn something?

A Scotch Drinker on Debt

When historians look back on the current time period, they will notice many things but I think the main thing they will find interesting and worthy of study is our penchant for debt.

• Econbrowser: Looking for an Exit
• The Fed's Exit Strategy

Niall Ferguson: U.S. Empire in Decline, on Collision Course with China

The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money. The loss of empire is not such a bad deal for the average citizen of the empire building country... except for the wars the come along with geopolitical transitions.

Father of the Green Revolution kicks the bucket

“If the world population continues to increase at the same rate, we will destroy the species.”

Norman Borlaug won the Nobel Peace Prize in 1970. In the 1950's, he crossed varieties of wheat including those resistant to the rust fungus and higher-yielding semidwarf strains multiplying wheat output sixfold in Mexico. Similar ideas were applied to rice with similar results, together averting a Malthusian disaster.

Critics say the green revolution displaced smaller farmers, encouraged overreliance on chemicals and paved the way for greater corporate control of agriculture, [calling it ecologically destructive and unsustainable.] Dr. Borlaug declared that such arguments often came from “elitists” who were rich enough not to worry about where their next meal was coming from. But over time, he acknowledged the validity of some environmental concerns, and embraced more judicious use of fertilizers and pesticides. He was frustrated throughout his life that governments did not do more to tackle what he called “the population monster” by lowering birth rates.

[from the NYTimes article] What a giant badass.

Keynes and Krugman

Paul Krugman writes in the NY Times about the battle currently raging in the economics profession between the fresh-water devotees of the Chicago school and the more Keynesian salt-water economists, of which he is a partisan.

"But don’t recessions look like periods in which there just isn’t enough demand to employ everyone willing to work?" Well, I sure want to work and no one will hire me. I want to work as a hammock sleeper. I'm good at it. I've trained for years. Minimum wage would be fine, even though I've got a family to feed, but no one will hire me. It's a case of inadequate demand! The government should rectify this situation at once!!

A joke? OK, but I don't want a minivan. I don't know anyone who does. They're big and ugly and burn lots of expensive fuel. Yet, the car companies are busy crying for government bailouts. But, maybe the mistake isn't inadequate demand for ugly gas guzzlers. Maybe it's inadequate ability to make cars people want. I don't see how their argument is any different than my failure to find employment sleeping in a hammock.

Guided by this neo-Keynesian thinking, the government is pumping out billions in stimulus money. My fear is the most of it will go to politically connected boondoggles, bridges to nowhere, or well intentioned but fluff-headed projects. The problem was that we as a country spent too much by taking out too much credit. We're trying to wise up and spend less and save more. That's to be encouraged.

I should read Keynes, just to know whether his work is misquoted and abused as badly as Adam Smith's. My guess is that both sides of this neo-Keynesian vs. rational-market argument contain valuable insights. But the belief that either theory is the anywhere near the whole explanation seems woefully contradicted by the facts. And arguing one dogma vs. another is a sure way to miss whatever new insights this current mess can show us.

To justify spending our way out of recession, Paul Krugman says (in the Aug. 27, 2009 NY Times) that a debt-to-GDP ratio of 70% is OK for the US. That means 1% of GDP goes to interest on the debt. He sites examples of Belgium and Italy which had debt-to-GDP ratios of 118 and 114 percent in the early 1990s. Japan's is upwards of 170%.

He says, "The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity." Feel safe with that assumption?

But, let's juxtapose that with the International Monetary Fund's report on Argentina's financial collapse (The IMF and Argentina, 1991-2001 By Shinji Takagi). (I don't really know if these ratios are computed the same way.)

[The] debt level of 50% of GDP was high for any country, but particularly for Argentina, given the likely overvaluation of the peso. With the sharp depreciation of the peso against the U.S. dollar, in the event, Argentina's external debt-to-GDP ratio rose to over 140% in 2002.

I don't mean to beat up on the Nobel prize winning Krugman. I like his essays and often agree with them. But the idea that more spending and more debt can possibly be the answer to a crisis brought on by too much spending and too much debt is a little hard to swallow. Maybe I'm just a grumpy old crank who thinks the world is going to hell in a hand-basket, but I'm worried that commenter, Chris Horton, might be right:

This country is toast... For my entire lifetime, the GOP have been despicable scum and the Dems worthless fools. The lights are going out all over America, we shall not see them again in our lifetime.

On a related note, Justin Fox's The Myth of the Rational Market sounds like a fun read. Krugman liked it. And EconTalk has an interview with the author.

Capitalism on the rocks

People say that the recent financial crisis is a failure of the capitalism or even a failure of the free market. I don't agree. The real-estate bubble and the misunderstanding of the risk of derivatives, now those were market failures. The crash was a correction. People were selling snake oil. Those people went belly up. Seems to me, the market found the right answer, eventually.

Too bad, the government stepped in and bailed out the snake oil salesmen. Now they're back. Maybe they'll straighten up and fly right for a while. Maybe they'll just switch to selling another kind of snake oil. And we, the public, are a couple trillion deeper in hock.

Efficient Market Hypothesis

The poor efficient markets hypothesis is taking a lot of flak these days. The EMH asserts that markets reflect all publicly available information. That's interpreted by some to mean that the market price is, in some sense, the right price for traded assets and, further still, that markets are rational. These days, that's looking pretty suspect, when the markets go and do something loopy like the dot-com boom, or as stark raving batshit as they've been the past couple of years.

In defense of the EMH, it's absolutely true, as long as your willing to define information to include false information, uncertain information, kooky beliefs, and outright bullshit (deliberate attempts to deceive) modulated through widely varying abilities to understand the information and act accordingly. Layer onto that the effects of the more sophisticated players trying to guess what effect the available information will have on the ill-informed and labile masses. Now you have the kind of recursive cluster-fuck that might very well produce the kind of irrational craziness that had 7-11 employees buying beachfront condos and venerable insurance companies torching themselves. The wonder is that markets are as stable as they are. "Markets can remain irrational longer than you can remain solvent."

Krugman says we're hosed

...turning this country around is going to take years of siege warfare against deeply entrenched interests, defending a deeply dysfunctional political system.

Risk of Extended Malaise?

Mark Dow of Pharo Management, a global macro hedge fund, says the dollar is falling due to change in denomination of financial assets in other currencies.

Joseph Stiglitz: Private sector put money in the wrong place - housing. Country needs health-care, education, infrastructure. We need to spend money well to make our economy more productive in the future.

• Weakness in commercial real estate.
• Huge deficits at the state level, leading to more job losses.
• Many Americans at risk of having unemployment benefits expire.
• Weakness in our major trading partners, and overall lack of final demand.

Sites a "lack of aggregate demand" - language of Keynes.

Peter Schiff:

In truth, because of the continued profligacy of the government and Federal Reserve, the imbalances that caused the current recession have actually worsened. [...]

We must remember that recessions inevitably follow periods of artificial growth. During these booms, malinvestments are made which ultimately must be liquidated during the ensuing busts. In short, mistakes made during booms are corrected during busts – and in the recent boom we made some real whoppers. We borrowed and spent too much money, bought goods we couldn’t afford, built houses we couldn’t carry, and developed a service sector economy completely dependent on consumer credit and rising asset prices. All the while, we allowed our industrial base to crumble and our infrastructure to decay.

In order to lay the foundation for real and lasting recovery, market forces must be allowed to repair the damage. However, current policy is counterproductive to this end. Trillions in stimulus dollars have kept the party going, but now what? How does deficit spending by the government address the problems that brought about the crash? It doesn’t; it just delays and worsens the hangover

China and the dollar's demise

Charles Ortel managing director with Newport Value Partners, an independent research firm, is convinced lawmakers have already doomed the greenback. "In the actions of our politicians of both parties - Democrats and Republicans - all you see is fiscal irresponsibility."

• The Chinese think over centuries...
• ...looking at politicians of both parties and all you see is fiscal irresponibility
• How long can America afford to maintain its military assets in the Pacific?
• The Chinese are snapping up raw materials, natural resources, timber, and energy assets

In the previous segment, he says that there are three americas: pure private sector, public sector, public companies that feed off the public trough. The last is the clientel of the Bush administration. The implication is that the Democrats sponsor the public sector.

Attempted revolution in Iran

It's been grim watching the rigged election and subsequent riots and repression in Iran over the past weeks. Videos put out over the internet show a young woman apparently killed in the rioting; police on motorbikes riding through the crowds swinging batons, soldiers firing into crowds from rooftops. The bravery of the protesters is impressive as is the cruelty of their pathological government. I've been disappointed that condemnation from our half of the world hasn't been louder. There needs to be some way of restraining and punishing governments run amok. There are too many examples. This one is right up there with Tiananmen Square in 1989 and Burma in 2007 to name a couple.

Debt to GDP ratios headed higher

Country | Debt to GDP ratio
===========================
US      |  45%
UK      |  50%
Japan   | 171%
Germany |  39%
Canada  |  42%
China   |  20%
Brazil  |  36%

* Q4 2008

The big picture blog quotes Bill Gross of PIMCO's "Staying Rich in the New Normal". The US deficit of nearly $1.5 trillion is 10% of GDP. In 5 years, that get's us to a debt to GDP ratio of 100%. Add funding the baby-boomer's healthcare and retirement and your in the banana republic territory of 300%.

I dunno where they got the above numbers. Google says the national debt is 11 trillion while GDP is 14 trillion, which gives 78%. Looks like we're right about at the point of no return. Doh!

The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

Healthcare results compared

“According to the Economist the total US spend on healthcare is 15.4% of GDP including both state and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2.
“As a whole Europe spends 9.6% of GDP on healthcare, has 3.9 doctors per 1,000 people, 6.6 hospital beds and live until they are 81.15 years old.

Roubini says the dollar's hosed

THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. ... This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order.