Tasmanian devils now endangered BBC
Explosions in the Lab Slate
Dick Cheney: Washington trembles at the return of ‘Darth Vader’ Guardian
Geithner Adopts Part of Wall Street Derivatives Plan Bloomerg. Goldman, JP Morgan, and friends get what they wanted.
Tiverton Work Shows Stimulus Not Denting Job Losses Bloomberg
Sorry Greg, This Crisis Was Completely Predictable and Predicted Dean Baker
S&P’s warning to Britain marks the next stage of this global crisis Telegraph. I am reminded that Austria in 1931 seemed to be on the ropes, then took some austerity measures and its bonds traded at close to par as the bond markets approved. But France was the big creditor then, and Austria persisted with plans to build pocket battleships and a customs union with Germany. The French quit buying, Credit Anstaldt went under, provoking further defaults and a ratchet down to the Depression bottom in 1933. Long winded way of saying that the immediate and near term responses may not clearly show how things play out.
Good Economic News All The Time Boom2Bust
For This Guru, No Question Is Too Big New York Times. A nice profile of Jim Collings, but if you are familiar with Phil Rosenzweig’s The Halo Effect, you will know his methodology, despite its appearance of rigor, is bunk.
Securitization: Advanta and the Fiction of True-Sale Chris Whalen
Obushma-Biney in the Home of the Frightened Willem Buiter. Today’s must read.
Antidote du jour:
11 comments
Comments are closed.
Austria was land-locked by 1931. Germany was the builder of the 3 pocket-battleships.
The customs union is normally viewed as a problem with Germany and fear of German militarism. Austria was involved, but it seems unlikely that anyone was quaking at fear of them.
Are you sure France was a net creditor? I thought that part of the collapse came from France reneging on its war dept to the US.
The economic collapse was severe in Europe, but over for most the European countries much quicker than for the US. In part because it wiped out the war debt and the closely related German reparation payments.If it had not helped lead to the rise of the Nazis it is possible that from a European standpoint it would not have had the “Great” tag that we associate with it.
I had exactly the same response to the Mankiw piece
It is fair to say that this crisis caught most economists flat-footed. In the eyes of some people, this forecasting failure is an indictment of the profession.
But that is the wrong interpretation. In one way, the current downturn is typical: Most economic slumps take us by surprise. Fluctuations in economic activity are largely unpredictable..
It’s only “typical” in that almost everyone in the profession was delusional. No noe who maintained rationality was taken by surprise.
So Mankiw unintentionally concedes that this was indeed an endemic failure of the profession, since he admits they succumbed to the delusion en masse.
Most of all, this was no random “fluctuation”, as if the god of derivatives rolled the dice and they came up snake eyes instead of sevens.
This was predictable and widely (if obscurely) predicted systemic failure based on intrinsic unsusatainability and fundamental resource limits.
Today’s NYT also featured Ben Stein’s latest fairy tale.
Here too we don’t live in the physical world:
No amount of foreign competition or resource shortage has historically caused such a catastrophe. However, policy actions undertaken without proof or even evidence of their efficacy have historically done so.Hmm, never heard of Mesopotamia, the Maya, the Anasazi, the Hohokam, Easter Island, Viking Greenland, and others.
Of course, to the likes of Mankiw and Stein infinite growth is fundamentalist religion and therefore by theological dogma, even though they can hardly deny Easter Island and its collapse exist, they still deny the globe is just a bigger Easter Island. Somehow, by magic, this is considered not to be the case.
Although I neglected to include it in the copy/paste, Stein goes on to cite the fall of Rome as a clear example of policy-driiven, not resource-based, fall. Evidently he’s never heard of Joseph Tainter either, whose resource-limitations-based collapse theory for Rome and elsewhere is increasingly accepted.
(Stein also indulges his fantasy that the bankers are good folk who made an honest, good faith mistake and are now the poor innocent victims of dastardly scapegoating and violations of their “rights”. Nauseating.)
I’m lock step with you attempter, I wonder too, what thoughts Noam Chomsky has rolling around in his head these days. Seems the mad men hiding under the rocks of diminishment/obscurity are having a wee little chuckle to them selves.
Skippy…oly oly in-come free, tag neocons/economists your it.
Excellent piece by Buiter, and I often don’t like his writing.
It has struck me as false every single time since 9/11 that I have heard someone claim that the top priority for the president is to keep the American people safe. Remember that they are talking about safety from any possible attack, not safety from an existential threat.
What about preserving freedom? What about crafting policies that are in line with our national values? What about competent, uncorrupted governance?
For that matter, what about hundreds of thousands of Americans who died for liberty and moral principles that we gave up in the wake of the tragic death of several thousand Americans? The calculus of lives sacrificed for liberty favors liberty even more dramatically if we examine the deaths in proportion to population rather than absolute numbers. There is no better time than Memorial Day weekend to reflect on our history which, until recently, strongly favored freedom over safety when the two conflict.
Someday we must come to terms with the fact that our reaction to 9/11 has damaged us far worse than the event itself. It seems painfully clear that we are not yet close to acknowledging and accepting that.
YS:
Thanks for the Advanta piece. I said this about Citigroup and a $49 billion off balance sheet “error” about 17 months ago. The problem: CPAs which lack intellectual integrity and an SEC that wastes its time on trivia as opposed to investigating this stuff then making referrals to the Justice Department for securities fraud prosecution. Again, I ask, “Where is the PCAOB” on this?
The PCAOB shows what’s wrong with the entire concept of regulation, “regulatory capture”. The PCAOB is nothing more than a Big 87654 cartel enforcer.
YS:
I read Buiter’s piece and disagree with him. Iraq, among other countries is not and never was a signatory of the Geneva Convention. The detainees should have been subjected to the same treatment German soldiers were in December 1944 at the Battle of the Bulge when found in American uniforms. They were shot on the spot. Shocked? Check it out. Buiter’s moral preening shows me this: he has no understanding of war and contempt for American blood.
Re: Cheney
What does Dick Cheney have on Obama? I’m starting to think that he’s the modern-day equivalent of J. Edgar Hoover.
Re: Buiter
He’s right. And the whole thing makes me feel helpless. We have Democrats in charge of both houses of Congress _and_ the White House … yet the failed policies of Republicans continue to rule.
Exactly why do I vote?
Tim in Sugar Hill
RE: Advanta
“In the run-up to the credit crisis, therefore, banks had too much managed leverage from securitization and not enough capital to provide the recourse that has historically been the sole means of support for troubled assets. As is usually the case, taxpayers are picking up the tab.”
The link between the financial sector and the political class exist without limits resembling a modern version of the medieval royal court patronage system.
One has to admire Buiter’s idealism, to which I am certainly very much in agreement. But Buiter buys uncritically into some American myths, as well as an unrealistic conceptualization of human nature.
His quoting Patrick Henry, who certainly was no great champion of liberty, was a bad choice. For it was the unlikely team of opposites–Jefferson the romantic, Madison the realist–that laid the groundwork for our liberal, secular democracy. And the far more conservative Henry was more often than not one of their greatest adversaries in this endeavor.
The way in which Buiter invokes the Bill of Rights is also somewhat of a misfire. Buiter here is very much playing the role of the romantic, idealistic Jefferson. But it was Madison–the father of our Constitution–who gave our seminal governing document its grounding in reality, a reality very foreign to Jefferson’s Pollyanish concept of human nature. For Madison was very much aware of the paradox of democracy. As Lance Banning wrote in “Madison, the Statute, and Republican Convictions:”
Madison was deeply dedicated to the Revolutionary principle that governments derive their just authority from popular consent and must remain responsive to the people’s will. He was dedicated, too, to “justice,” by which he meant equality before the law and scupulous respect by government for natural law and natural rights… Bills of rights were not intended to protect some citizens from others, but to defend the whole society from the ambitions of its rulers. Theory and experience combined to make it difficult to understand how the majority, the greater number of the equals who composed the whole society, could will an act that would be inconsistent with the common good, which was their own. Only long experience with a disturbing train of measures could compel committed democrats to reexamine these assumptions, for the thought that the demands of the majority might be repeatedly at odds with justice and the long-term public good could force consistent thinkers to conclude that they might have to choose between the two commitments, neither one of which could be relinquished.~
Madison expresses the dilema in his own words, in a letter to Jefferson explaining why he was not initially inclined to worry that the recently completed Constitution did not include a bill of rights:
Repeated violations of these parchment barriers have been committed by overbearing majorities in every state. In Virginia I have seen the bill of rights violated in every instance where it has been opposed to a popular current… Wherever the real power in a government lies, there is the danger of oppression. In our government the real power lies in the majority of the community, and the invastion of private rights is chiefly to be apprehended, not from acts of government contrary to the sense of its constituents, but from acts in which the government is the mere instrument of the majority number of the constituents.~
Madison’s remedy to the democratic paradox was to “enlarge the sphere” of republican government. He concluded that a multiplicity of interests–and thus a large, diverse republic–is the most effective democratic safeguard for the rights of all. Implicit in his thinking of course was the need for a strong federal government.
Probably nowhere did we see the paradox play out more vividly than in the civil rights movement, where the racists were arguing “states rights” and the blacks were relying on a strong federal government to enforce their civil rights.
France was a net creditor. They were the biggest bond buyers in the early 1930s. They had pegged their currency too low in gold terms and thus were accumulating a ton of gold. Key quote from this paper, which discusses the crisis in gory detail:
Paris newspaper accounts also intimated that France, at the time the second largest creditor nation in the world thanks to the enormous inflow of gold that followed the Poincaré government’s undervaluation of the Franc, possessed the financial clout to bring down the German economy by calling in loans (p. 18)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=260993
This is not it but gives you some indirect corroboration.
Sorry for the hasty writing. The pocket battleships were a belligerent move, and the customs union was, if I recall correctly, a violation of the armistice.
“Fear is a poor guide to policy. It caused the US to launch an unnecessary second war against Iraq …”. Buiter’s point about the dominance of irrational fear in the US following 9/11 is certainly incontrovertible. But I wonder if his conceit about the unnecessary war in in Iraq implies that he he believes the war in Afghanistan was truly a war of necessity. It is worthwhile considering whether or not the war in Iraq was strategically and even tactically more necessary in the GWOT than the war in Afghanistan. Now that the GWOT is over is difficult to imagine any rationale for continuing in Afghanistan. It’s lOCO.