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Saturday, 29 November 2008
Friday, 28 November 2008
Obama wants you LSE grads!
A political economy theory of fashion
Does the health of macroeconomy have an impact on fashion? That's a question I've been wondering about recently. I don't know anything about fashion, but intuitively it seems that there must be some sort of connection between what sort of clothes people wear and the overall health of their economic situation. I mean, wealthy people tend to dress "better" than poorer people - that is to say, their clothing is more aesthetically appealing, judged by the standards of the day. Can we extend that trend to the whole economy and compare between eras?
Well that's exactly what I'm going to try to do here. My idea is that people tend to be more stylish during periods of economic boom. It's not an airtight theory, but it's Friday so bear with me. I realize there's a problem from the outset. I'm subjectively biased towards fashion in that I'm more likely to favour current fashion trends over older ones - it's what I'm used to wearing and seeing around me. But I think, even with that in mind, it's not too difficult to look back at history and say: yes, those people looked sharp, or, oh God! something was horribly, horribly wrong. Also, I'm sticking to North-Atlantic economies because I know less-than-nothing about fashion in the rest of the world. So let's start with post-WW1
1920s
The Roaring Twenties - a few minor recessions notwithstanding, economic growth in the twenties was impressive. It was the Jazz age, there was the jitterbug, and of course there was the infamous stock market bubble. Everyone owned stocks. From Wall St. barons down to their limo drivers, stock tips were being shared and discussed in everyday conversation. Everyone was getting rich.
What do we see? For the women: some funny-looking stockings & bathing caps, this is not bad, nor this. A little, er, old fashioned but classy nevertheless. Same goes for the men: the three piece with hat & hankerchief. And of course Al Capone: badass.
1930s
The Great Depression. Clearly some people managed to stay largely unaffected by the extended economic downturn, but with unemployment at 20%+, things tended to be a little more sober. Or worse. Enough said.
1950s - 1960s
Post-war recovery was remarkably rapid, even in Europe. Economic growth, particularly in the 1960s under Kennedy and Johnson, was averaging around 5-6% per year - that's unbelievable by today's standards. This was the era of cheap oil & boat-sized sedans, big industry and safe union jobs. As Patrick at zzzeitgeist pointed out, it was a period of unrestrained consumption.
And man, they looked sharp. The fedora continued to reign supreme. No complaints about the introduction of the mini-skirt, either. Or maybe I've just been watching too much Mad Men.
Of course, I'm forgetting the hippies. But the hippy movement didn't really take off until the late 60s and early 1970s - and by 1968 the economic policies of the previous decade had begun to hit the wall....
1970s
Let's take the period from January 1970 until the end of 1982: that's thirteen years or 156 months. According to economist Timothy Taylor, the US economy spent 49 of those months in recession (re: negative growth). That's almost a third of a decade n' change spent in recession. Yikes.
As for the fashion, well - there are no words. Like monks flagellating themselves to atone for their sins, people in the 1970s attempted to make up for their previous economic excesses by forcing themselves to wear horrible, horrible things and listening to disco music. I can't even begin to... what were they... the fat tie... David Bowie!? Make it stop. Please, make it stop.
1980s - early 1990s
The 1980s were sort of a hangover from the 1970s. There were a couple of recessions and government debts rose rapidly. Conservative politicians in the US, UK and Canada implemented neoliberal economic policies, which led to economic pain and social displacement in many areas of the economy.
As my theory predicts, the 80s is known for some pretty questionable fashion taste. We've got the Big Hair, exhibit A, B and OMG. Of course the MC Hammer parachute pants and the hip hop square-cut. I could go on.
But, you want to counter, the 80s was awesome and so was the music!1! Well, you're wrong.
Mid-1990s to present?
Since the rapid economic growth of the mid- to late-1990s, it's my general impression that people have started to dress better again. We've left some of the crazy experiments of the last two and a half decades behind. Granted, the suit & fedora-wearing gentleman has all but disappeared, but I'm noticing that at least pinstripes are making a comeback.
I recognize that this is a huge generalization, and that clearly different groups within society have different tastes. Moreover, this is not to say that we don't have some laughable fashion items of our own these days. My housemate has nominated board shorts with floral patterns. My personal choice is Ugg boots - you want to know who was wearing those boots 20 years ago? That hideous woman from the Shining, that's who. Feel free to add your own in the comments section.
Conclusion
This is, admittedly, not a particularly robust thesis. Nevertheless, I think the idea that fashion reflects the economic zeitgeist is a plausible explanation for the ups and downs in fashion history over the past century or so. As we enter into what many people are labeling "the worst economic crisis since the Great Depression," this is something worth pondering. During the 1930s, President Roosevelt proclaimed that there was nothing to fear but fear itself. But back then, Roosevelt was not yet aware of an even scarier possibility: the return of polyester.
Well that's exactly what I'm going to try to do here. My idea is that people tend to be more stylish during periods of economic boom. It's not an airtight theory, but it's Friday so bear with me. I realize there's a problem from the outset. I'm subjectively biased towards fashion in that I'm more likely to favour current fashion trends over older ones - it's what I'm used to wearing and seeing around me. But I think, even with that in mind, it's not too difficult to look back at history and say: yes, those people looked sharp, or, oh God! something was horribly, horribly wrong. Also, I'm sticking to North-Atlantic economies because I know less-than-nothing about fashion in the rest of the world. So let's start with post-WW1
1920s
The Roaring Twenties - a few minor recessions notwithstanding, economic growth in the twenties was impressive. It was the Jazz age, there was the jitterbug, and of course there was the infamous stock market bubble. Everyone owned stocks. From Wall St. barons down to their limo drivers, stock tips were being shared and discussed in everyday conversation. Everyone was getting rich.
What do we see? For the women: some funny-looking stockings & bathing caps, this is not bad, nor this. A little, er, old fashioned but classy nevertheless. Same goes for the men: the three piece with hat & hankerchief. And of course Al Capone: badass.
1930s
The Great Depression. Clearly some people managed to stay largely unaffected by the extended economic downturn, but with unemployment at 20%+, things tended to be a little more sober. Or worse. Enough said.
1950s - 1960s
Post-war recovery was remarkably rapid, even in Europe. Economic growth, particularly in the 1960s under Kennedy and Johnson, was averaging around 5-6% per year - that's unbelievable by today's standards. This was the era of cheap oil & boat-sized sedans, big industry and safe union jobs. As Patrick at zzzeitgeist pointed out, it was a period of unrestrained consumption.
And man, they looked sharp. The fedora continued to reign supreme. No complaints about the introduction of the mini-skirt, either. Or maybe I've just been watching too much Mad Men.
Of course, I'm forgetting the hippies. But the hippy movement didn't really take off until the late 60s and early 1970s - and by 1968 the economic policies of the previous decade had begun to hit the wall....
1970s
Let's take the period from January 1970 until the end of 1982: that's thirteen years or 156 months. According to economist Timothy Taylor, the US economy spent 49 of those months in recession (re: negative growth). That's almost a third of a decade n' change spent in recession. Yikes.
As for the fashion, well - there are no words. Like monks flagellating themselves to atone for their sins, people in the 1970s attempted to make up for their previous economic excesses by forcing themselves to wear horrible, horrible things and listening to disco music. I can't even begin to... what were they... the fat tie... David Bowie!? Make it stop. Please, make it stop.
1980s - early 1990s
The 1980s were sort of a hangover from the 1970s. There were a couple of recessions and government debts rose rapidly. Conservative politicians in the US, UK and Canada implemented neoliberal economic policies, which led to economic pain and social displacement in many areas of the economy.
As my theory predicts, the 80s is known for some pretty questionable fashion taste. We've got the Big Hair, exhibit A, B and OMG. Of course the MC Hammer parachute pants and the hip hop square-cut. I could go on.
But, you want to counter, the 80s was awesome and so was the music!1! Well, you're wrong.
Mid-1990s to present?
Since the rapid economic growth of the mid- to late-1990s, it's my general impression that people have started to dress better again. We've left some of the crazy experiments of the last two and a half decades behind. Granted, the suit & fedora-wearing gentleman has all but disappeared, but I'm noticing that at least pinstripes are making a comeback.
I recognize that this is a huge generalization, and that clearly different groups within society have different tastes. Moreover, this is not to say that we don't have some laughable fashion items of our own these days. My housemate has nominated board shorts with floral patterns. My personal choice is Ugg boots - you want to know who was wearing those boots 20 years ago? That hideous woman from the Shining, that's who. Feel free to add your own in the comments section.
Conclusion
This is, admittedly, not a particularly robust thesis. Nevertheless, I think the idea that fashion reflects the economic zeitgeist is a plausible explanation for the ups and downs in fashion history over the past century or so. As we enter into what many people are labeling "the worst economic crisis since the Great Depression," this is something worth pondering. During the 1930s, President Roosevelt proclaimed that there was nothing to fear but fear itself. But back then, Roosevelt was not yet aware of an even scarier possibility: the return of polyester.
Wednesday, 26 November 2008
Tax Cuts vs. Government Spending: The Lowdown
What's the deal... with fiscal stimulus? That's the burning question that's on everyone's mind these days - yes, everyone. At least it should be, since most members of the G20 have committed to using some sort of fiscal policy measures to compensate for the increasingly futile efforts of central banks to stimulate the economy. Although most people don't care to know the details of this debate, it matters a great deal: somewhere down the line, you're going to get upset with the government for either a) raising your taxes to pay for wasteful spending commitments or b) raising your taxes/cutting benefits to pay for government deficits induced from earlier tax cuts.
This is why it matters whether our respective governments choose to implement direct government spending or issue tax cuts. We've debated this already, but so far the best summary of both sides of the argument that I've come across can be found on Mark Thoma's website. It's a long-ish article, so I'll provide the core points here:
Rather than compare the benefits of tax cuts vs. govt spending on "bang for buck" (govt spending will win because it adds more to GDP), the quoted article suggests that the two approaches should instead be assessed on 1) the value of increased spending (adv: tax cuts), and 2) the precision of timing (adv: govt spending).
Second, although it's true that governments tend to be more wasteful than consumers, Thoma questions whether market actors are really directing their resources towards things of higher value: "Like purchasing stocks and houses in a bubble, things like that?" Equally, we find roads to nowhere built by the private sector: they lead to abandoned housing construction projects.
The big advantage for fiscal stimulus is that it can concentrate spending on large projects that will last well beyond the economic troubles - projects that may not otherwise have been implemented by the private sector due to market failure, lack of economies of scale, or
what-have-you. The counter-argument is that, unlike the make-work projects of the New Deal era, building infrastructure requires much more specialization these days. You can't just hire a bunch of people with shovels. That means the spending will have a long lag-effect before it kicks in - perhaps too late.
It seems that for every good argument on one side, there is an equally good counter-argument on the other side. Tax cutters say that fiscal stimulus is just wasted through "leakage" and that it is difficult to turn off the money tap once it's opened. Fiscal spenders counter that tax cuts are also extremely difficult to reverse and that consumers may choose to spend money on goods made outside the country - a form of leakage on its own. So what to make of all this?
It seems that the best solution is to find creative ways to bring elements of both sides together, perhaps taking advantage of the benefits of both. One idea is to reduce value-added taxes on consumer products, but place an expiry date on the reduction to encourage spending now. Another, which Thoma suggests, is merely to break up a stimulus package into pieces, some of which involves targeted tax cuts and others which focus on projects with high social value.
Sounds good to me.
(First image: lmno4p.org; Second: markybaby.com)
This is why it matters whether our respective governments choose to implement direct government spending or issue tax cuts. We've debated this already, but so far the best summary of both sides of the argument that I've come across can be found on Mark Thoma's website. It's a long-ish article, so I'll provide the core points here:
Rather than compare the benefits of tax cuts vs. govt spending on "bang for buck" (govt spending will win because it adds more to GDP), the quoted article suggests that the two approaches should instead be assessed on 1) the value of increased spending (adv: tax cuts), and 2) the precision of timing (adv: govt spending).
Tax Cuts: Gimme a Break
The common argument is that "Unlike the consumer, the government does not reliably spend extra resources on valuable purchases." Examples are not hard to find (cough, Detroit), and politicians are notorious for building roads, bridges and roundabouts to nowhere. In short, there is more overall value in the aggregate decisions of market actors - this is why centrally planned economies fail miserably.
Government spending: Show me the Money
Unfortunately, during times of severe economic uncertainty, consumers are not spending at normal rates and the proceeds from tax cuts are liable to be squirreled away or used to pay down debts. For instance, some members of my office are expecting a lump sum of about $4,000 as a result of some recently-completed union negotiations. Based on my non-rigorous survey of my co-workers, I get the impression that a few are willing to blow it all on a spending spree but most are putting it towards credit cards, etc.Second, although it's true that governments tend to be more wasteful than consumers, Thoma questions whether market actors are really directing their resources towards things of higher value: "Like purchasing stocks and houses in a bubble, things like that?" Equally, we find roads to nowhere built by the private sector: they lead to abandoned housing construction projects.
The big advantage for fiscal stimulus is that it can concentrate spending on large projects that will last well beyond the economic troubles - projects that may not otherwise have been implemented by the private sector due to market failure, lack of economies of scale, or
what-have-you. The counter-argument is that, unlike the make-work projects of the New Deal era, building infrastructure requires much more specialization these days. You can't just hire a bunch of people with shovels. That means the spending will have a long lag-effect before it kicks in - perhaps too late.It seems that for every good argument on one side, there is an equally good counter-argument on the other side. Tax cutters say that fiscal stimulus is just wasted through "leakage" and that it is difficult to turn off the money tap once it's opened. Fiscal spenders counter that tax cuts are also extremely difficult to reverse and that consumers may choose to spend money on goods made outside the country - a form of leakage on its own. So what to make of all this?
It seems that the best solution is to find creative ways to bring elements of both sides together, perhaps taking advantage of the benefits of both. One idea is to reduce value-added taxes on consumer products, but place an expiry date on the reduction to encourage spending now. Another, which Thoma suggests, is merely to break up a stimulus package into pieces, some of which involves targeted tax cuts and others which focus on projects with high social value.
Sounds good to me.
(First image: lmno4p.org; Second: markybaby.com)
Monday, 24 November 2008
Deflating Expectations
In August we pointed out that summertime worries over inflation were probably overstated. Since then, a collapse in commodity markets and consumer spending has vindicated this view - so much so that the new worry is deflation. Deflation is by most accounts worse than inflation because of the difficulty in reversing the trend. First, a backgrounder:
Deflation is "A general decline in prices, often caused by a reduction in the supply of money or credit.... Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, [central banks] can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation."
The trouble is, central banks have been attempting to increase the money supply by lowering interest rates with less-than-stellar success. Besides, there are inherent limits to monetary policy - limits which seem to be approaching quickly.
So what to do? John Kemp argues forcefully that the best way to deal with deflation is to stop trying to fix it. Que? Based on his reading of previous depressions, deflation is the symptom of a severe decline in the business cycle, not the cause. The full article is very interesting (so is this one), but the conclusion reads as follows:
That means fiscal stimulus! But rather than rely upon the government for everything, Dr. Boli recommends that consumers also do their part (via Megan McArdle):
Deflation is "A general decline in prices, often caused by a reduction in the supply of money or credit.... Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, [central banks] can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation."
The trouble is, central banks have been attempting to increase the money supply by lowering interest rates with less-than-stellar success. Besides, there are inherent limits to monetary policy - limits which seem to be approaching quickly.
So what to do? John Kemp argues forcefully that the best way to deal with deflation is to stop trying to fix it. Que? Based on his reading of previous depressions, deflation is the symptom of a severe decline in the business cycle, not the cause. The full article is very interesting (so is this one), but the conclusion reads as follows:
Rather than worrying about a modest decline in the price level, policy needs to focus on guaranteeing households and businesses against the worst aspects of the downturn to minimize the decline in spending and investment. Policies that create demand and jobs, while limiting foreclosures and bankruptcies, rather than fight the deflation chimera or worry about falling asset values are now the urgent priority.
That means fiscal stimulus! But rather than rely upon the government for everything, Dr. Boli recommends that consumers also do their part (via Megan McArdle):
Saturday, 22 November 2008
That Was The Week That Was
While IPE Journal got a makeover...
Politique
-The US National Intelligence Council's 2025 project releases Global Trends 2025: A Transformed World. The report announces the end of the "unipolar moment", and predicts declining American influence and power. While the US will remain the preeminent power, the rise of the BRICs will reintroduce a multipolar world. Other defining trends: increasing competition for scarce resources, greater West-East transfer of wealth, and broader Middle East destabilization.
-World trade is grappling with a tricky little pirate problem, as Saudi joins a NATO anti-piracy fleet and calls for a global response to this "terrorism".
-The IAEA confirms speculation that the Syrian structure bombed by Israel in 2007 contained nuclear material. Syria swiftly calls for end to probe.
-Obama announces plans to create 2.5 million jobs through massive fiscal stimulus, government projects. His cabinet takes shape: Geithner for Treasury, Clinton at State (the Guardian broke her acceptance plans, beating US media to story), and reported negotiations for Gates to remain at Defense.
Economia
-Citi executives huddle in New York with government officials to discuss the bank's survival. The Dow Jones Industrial average closed below 8,000 this week, the first time since March 2003.
-Japan falls into recession, ending longest postwar expansion.
-Pakistan formally requests $7.6bn IMF standby loan, agrees to economic reforms including fiscal deficit reduction.
The Rest
-Scientists now believe that massive glaciers may lie beneath the rocky Martian surface, and humanity is step closer to confirming life beyond Earth.
-Arsenal drop Gallas, ManU lose Berbatov for big Villa clash, and Liverpool/Chelsea stay top of Prem
-Vanity Fair releases its International Best Dressed List. This year's list includes Michelle Obama, Kate Middleton, and Kanye West. West drops a full preview of new album, 808s and Heartbreak.
Politique
-The US National Intelligence Council's 2025 project releases Global Trends 2025: A Transformed World. The report announces the end of the "unipolar moment", and predicts declining American influence and power. While the US will remain the preeminent power, the rise of the BRICs will reintroduce a multipolar world. Other defining trends: increasing competition for scarce resources, greater West-East transfer of wealth, and broader Middle East destabilization.
-World trade is grappling with a tricky little pirate problem, as Saudi joins a NATO anti-piracy fleet and calls for a global response to this "terrorism".
-The IAEA confirms speculation that the Syrian structure bombed by Israel in 2007 contained nuclear material. Syria swiftly calls for end to probe.
-Obama announces plans to create 2.5 million jobs through massive fiscal stimulus, government projects. His cabinet takes shape: Geithner for Treasury, Clinton at State (the Guardian broke her acceptance plans, beating US media to story), and reported negotiations for Gates to remain at Defense.
Economia
-Citi executives huddle in New York with government officials to discuss the bank's survival. The Dow Jones Industrial average closed below 8,000 this week, the first time since March 2003.
-Japan falls into recession, ending longest postwar expansion.
-Pakistan formally requests $7.6bn IMF standby loan, agrees to economic reforms including fiscal deficit reduction.
The Rest
-Scientists now believe that massive glaciers may lie beneath the rocky Martian surface, and humanity is step closer to confirming life beyond Earth.
-Arsenal drop Gallas, ManU lose Berbatov for big Villa clash, and Liverpool/Chelsea stay top of Prem
-Vanity Fair releases its International Best Dressed List. This year's list includes Michelle Obama, Kate Middleton, and Kanye West. West drops a full preview of new album, 808s and Heartbreak.
Friday, 21 November 2008
Friday Fare: Arsenal and Bond
Since its Friday, some light fare to take your mind off the fall of Rome:
The current Bond series, much like Batman, is an interesting reflection of our times. The 1990's (ahhh the 90s) gave us Pierce Brosnan, a solid Bond character, but kind of fluffy and flashy. Sean Connery had the charm and slick image, but there was a gritty ruthlessness to Connery's Bond that lay just under the cool exterior. Brosnan lacked this. Some Bond purists believe that Craig's version is too rough. I disagree, and believe that Craig is more in the tradition of Connery than Brosnan ever was. Importantly, the new Bond films substitute flash for substance. It forces you to question the actions and intentions of 007. He may be working towards an ultimate good, but has he corrupted himself along the way?
We in the West live in a darker, more confusing time. In our heroes we find both hope and despair. Bond is a perfect reflection of this shift.
-Arsene Wenger, obviously having read IPE Journal last night, has reportedly stripped William Gallas of his captaincy. Furthermore, Gallas will not travel with the club to Manchester City this weekend. There is intense speculation over who will take up the arm band, with Gael Clichy, Kolo Toure and Manuel Almunia the frontrunners. Some believe that when Cesc Fabregas returns from suspension next week, he could assume the captaincy for the remainder of the season.
This is an extremely positive (and necessary) move by Wenger, and will hopefully provide the jolt Arsenal needs to make a strong second-half/European run. My vote goes to Fab, the club's talisman and future.
The current Bond series, much like Batman, is an interesting reflection of our times. The 1990's (ahhh the 90s) gave us Pierce Brosnan, a solid Bond character, but kind of fluffy and flashy. Sean Connery had the charm and slick image, but there was a gritty ruthlessness to Connery's Bond that lay just under the cool exterior. Brosnan lacked this. Some Bond purists believe that Craig's version is too rough. I disagree, and believe that Craig is more in the tradition of Connery than Brosnan ever was. Importantly, the new Bond films substitute flash for substance. It forces you to question the actions and intentions of 007. He may be working towards an ultimate good, but has he corrupted himself along the way?
We in the West live in a darker, more confusing time. In our heroes we find both hope and despair. Bond is a perfect reflection of this shift.
State vs. Market
Arnold Kling presents a brief history of state-finance relations. Whereas modern economics assumes a market economy and explains the use of money as a tool to make it work better, Kling argues that, in his "skewed view" of financial institutions, the use of money developed well before the market:
Skewed? I thought that this was mainstream. The emergence of "the market" as a distinct entity is extremely recent in terms of human history. If you had asked a peasant in 16th century about the market, he/she would have pointed you towards the stalls selling produce in the town square. The whole concept of shifting power from the state to market forces would have been nonsensical.
This is why, prior to Adam Smith and his contemporaries, economics (or political economy, as it was then known) did not exist as a field of study. How could it? Every aspect of what we would now label economic activity was deeply intertwined with social, political and power relationships.
Of course, it still is. Marx and his followers represent one version of this story, but there are many variations to choose from. Oxford and Cambridge still offer courses in PPE (Politics, Philosophy and Economics) because they recognize the necessary overlap. This makes the attempt by modern academia to separate political studies from their economic counterparts all the more frustrating.
Not only are the Wall St./Main St. dichotomies annoying, they're misleading. If anything, the recent financial turmoil has reminded everyone of the importance of treating "the state" and "the market" as complementary, not adversarial, components of our social structure. And in case there was any doubt: Rory and I started the IPE Journal to explore this relationship and try to make some sense out of it all.
How are we doing so far?
According to the skewed view, there was never a state of nature in which financial institutions roamed free in the wild, to be later tamed by regulators. Instead, financial institutions were fundamentally institutions of government. Entrepreneurial finance is a modern development, and its separation from government may always be tentative.
Skewed? I thought that this was mainstream. The emergence of "the market" as a distinct entity is extremely recent in terms of human history. If you had asked a peasant in 16th century about the market, he/she would have pointed you towards the stalls selling produce in the town square. The whole concept of shifting power from the state to market forces would have been nonsensical.
This is why, prior to Adam Smith and his contemporaries, economics (or political economy, as it was then known) did not exist as a field of study. How could it? Every aspect of what we would now label economic activity was deeply intertwined with social, political and power relationships.
Of course, it still is. Marx and his followers represent one version of this story, but there are many variations to choose from. Oxford and Cambridge still offer courses in PPE (Politics, Philosophy and Economics) because they recognize the necessary overlap. This makes the attempt by modern academia to separate political studies from their economic counterparts all the more frustrating.
Not only are the Wall St./Main St. dichotomies annoying, they're misleading. If anything, the recent financial turmoil has reminded everyone of the importance of treating "the state" and "the market" as complementary, not adversarial, components of our social structure. And in case there was any doubt: Rory and I started the IPE Journal to explore this relationship and try to make some sense out of it all.
How are we doing so far?
Thursday, 20 November 2008
Arsenal in crisis
Despite my futile job search, a global financial crisis, and the lingering feeling that maybe the whole "grad school in London" adventure was poorly timed, I have a much bigger worry on my mind: Arsenal.The Gunners are in crisis, and for the first time in the Arsene Wenger era are at serious risk of falling out of European contention. The club has been shook in the past week by a 2-0 home defeat to Aston Villa (granted, a very good club), the loss of young lion Theo Walcott to shoulder surgery, and the public revelations today from Captain William Gallas. Gallas came out firing to the press, seeking to deflect the blame that has been placed at his feet for the club's poor performance since that horrific day at Birmingham last season (warning- graphic images). The Frenchman aired the young club's internal strife and immaturity, and signaled out one player in particular for undermining the team (referred to as "six years younger than I am"- which many are speculating refers to Robin Van Persie).
Prem followers and Gooners alike will undoubtedly find the captain's comments loathsome, considering his dreadful stewardship since receiving the arm band (breakdown at Birmingham, inconsistent play at best, and the picture last month of him leaving a night club with cigarette in tow- i know a cig seems trivial, but when you've admitted to poor form, it doesn't help your cause). Despite a number of critical goals, Gallas has proven himself entirely unworthy of following Henry. And for a club whose old motto, Victoria Concordia Crescit, means "victory through harmony", such an airing of lockeroom troubles tarnishes the club both on field and off.
But Arsenal' problems run much deeper than Gallas. Wenger's great experiment has produced arguably the most aesthetically pleasing club football since 1970's Ajax. But it has relied too much on youth, shunned the transfer market, and lacked the toughness needed to win the Prem. While criticism of Wenger is near blasphemous to Gooners, many are starting to question his stubborn vision, especially his decision not to sign a replacement for Matheiu Flamini this summer (the Flamini-Fabregas partnership last season was among the best midfield tandems in the world). While Cesc Fabregas will, in my opinion, exceed his already brilliant career to become the best footballer in the world, the 21 year old's maturity and aggressiveness are still an issue. He also seems to have lost the killer instinct he showed last season (only 1 goal through 16 total appearances v. 11 at same point last year), and despite Samir Nasri and Walcott's tremendous potential (and really solid play by Nasri this season), the midfield is still (literally) lightweight. Add to this a down right terrible defense at times, and the club has struggled to equal the brilliant form it showed last fall.
All this adds up to a continuation of the inconsistency we've seen out of Arsenal in recent years. Win the big ones, lose the gimme games. With Eduardo and Tomas Rosicky returning soon, there is hope that the Gunners can make a big push in Europe. But their Prem challenge is done, leaving Arsenal without a league title for the fifth straight season. The club needs big changes, starting with the arm band.
Countries For Sale: A Capital Solution for Stubborn Problems
The Economist has a fanciful, tongue-in-cheek editorial on the possibility of solving some of the world's troubling dilemmas by purchasing bits of other countries. Spurned on by the recent proposal by the Maldivian president to buy a new homeland for his drowning nation - rising sea levels threaten the tiny island nation with extinction - the Economist suggests using this approach elsewhere:
When I was a teenager, I naively toyed with the idea of a land-swap to address some sticky international issues (the citizens of N. Ireland might actually enjoy the weather along the West Bank, after all), but the market solution seems a better approach.
The Israelis, for instance, could put an end to a hundred years of futile hostilities by buying somewhere for the Palestinians. If they clubbed together, they could get somewhere really nice—Florida, maybe. China could stop making aggressive gestures towards Taiwan and buy Malaysia instead. It’s already run by
Chinese, so they’d hardly notice the difference.
When I was a teenager, I naively toyed with the idea of a land-swap to address some sticky international issues (the citizens of N. Ireland might actually enjoy the weather along the West Bank, after all), but the market solution seems a better approach.
Wednesday, 19 November 2008
The Military-Technology Complex
Technology had a significant impact on the 2008 US presidential election. The Obama camp leveraged the technological innovation of Howard Dean's 2004 primary campaign to expand voter and donor outreach to an historic scale.
Despite the enormous impact of this application, a single piece of technology revolutionized the way American's receive, analyze, and interpret political information more than any other. The internet, you say? wrong. Surely the Blackberry, then? nope.
CNN's magic wall.
Ah, the beauty of exploring Ohio congressional districts. The fun of touch-screen graphics. The elegance of John King, the maestro, spanning time and space to deliver trivial and imprecise insights into voter trends. To many, the magic wall was the enduring image of this campaign, without which, democracy would surely have crumbled.
But is the magic wall really so benign? Is John King the Bernstein of touch-screen technology, or something far more sinister? The Daily Show's John Oliver finds out:
Despite the enormous impact of this application, a single piece of technology revolutionized the way American's receive, analyze, and interpret political information more than any other. The internet, you say? wrong. Surely the Blackberry, then? nope.
CNN's magic wall.
Ah, the beauty of exploring Ohio congressional districts. The fun of touch-screen graphics. The elegance of John King, the maestro, spanning time and space to deliver trivial and imprecise insights into voter trends. To many, the magic wall was the enduring image of this campaign, without which, democracy would surely have crumbled.
But is the magic wall really so benign? Is John King the Bernstein of touch-screen technology, or something far more sinister? The Daily Show's John Oliver finds out:
Tuesday, 18 November 2008
Thoughts on Blogging
Willem Buiter - LSE prof and former Bank of England Monetary Policy Committee member - explains why he writes his blog for the FT:
There are minor vanity/ego rents to having people read what I write, and my consulting income may receive an indeterminate boost from these activities. But all that is secondary to my need to write. I don’t know something unless I have written it down.I agree completely. Too bad I can't guarantee the opposite relationship: just because I've written it down...
Monday, 17 November 2008
Thomas Friedman on the auto bail-out
I don't read Thomas Friedman that often. I always found his "flat-world" theory to be lacking an appreciation for the asymmetries in the international political economy. I think a world of "peaks and valleys" is a more appropriate image. But who am I? Friedman's sold a billion books, won multiple Pulitzers, and is rumored to garner circa $50,000 per speaking engagement. Obviously, he's doing something right.
But I do read Dave Hart (regularly in fact), whose great piece on the Big-3 got me traversing the internets for opinion on the prospects of an automotive bailout. This led me to Friedman, whose recent media crusade against the US auto industry I find spot on. His 11/11/08 NYT column, "How to Fix a Flat", sums up his criticism of the US Big-3 automakers:
for years, executives, lobbyists, and Congress (in particular the Michigan delegation) have sheltered these companies from the need to innovate or die. The have been allowed to resist higher environmental and fuel-efficiency standards, and implement bone-headed strategies that prioritized the SUV over hybrid or smaller, fuel-efficient vehicles. And now, as their business model, balance sheets, and beloved SUVs are forcing them into bankruptcy, these companies feel entitled to a taxpayer-funded bail-out?
I share Friedman's (admittedly, everyone's) outrage. I recognize the risks to the real-economy of their bankruptcy. Millions of workers (if you include suppliers) would lose their jobs in a period of rapidly rising unemployment and deflation. I also believe that the sensible arguments against Chapter 11 are important: in the current credit environment, Chapter 11 restructuring might be impossible, giving way to Chapter 7 and the worst-case scenario. But what is the chance that these companies will be compelled into any of the necessary restructuring in exchange for further financial assistance? Remember, the US government has been bailing these bozos out for decades, and what have we received in return? Sasquatch.
As Clusterstock pointed out, a short/medium-term cost benefit analysis might fall in favor of a bail-out. But what then? The shield that would be erected around these three posterchilds of protectionism would take decades to dismantle. The union contracts would remain largely in tact (not a chance Dems are jeopardizing the Rust Belt in 2010)*. CAFE standards are already (predictably) being vilified by the auto companies.
The US economy can't afford an industry collapse. But taxpayers can't afford another waisted bailout. If they agree to the thorough concessions and restructuring Friedman and Ingrassia call for, then bail em out. If they don't, let creative destruction work, and follow Friedman's advice. Allow Chapter 11, compel independent administration, and set these companies toward a restructuring process long overdue. One company might go into bankruptcy, but like the investment banks after Lehman, the others will quickly fall in line and accept strict conditions to assistance.
We must also renegotiate the contracts of remaining workers (on fair terms- whatever those are), increase unemployment benefits, and retrain those who are laid off in green jobs or re-employ them in a massive infrastructure-based stimulus project. And how about universal health care reform as well?
We need the political will (finally) to confront the auto industry and dictate the terms of assistance. This means confronting their stubborness head on. It may be risky, but its a risk worth taking.
But I do read Dave Hart (regularly in fact), whose great piece on the Big-3 got me traversing the internets for opinion on the prospects of an automotive bailout. This led me to Friedman, whose recent media crusade against the US auto industry I find spot on. His 11/11/08 NYT column, "How to Fix a Flat", sums up his criticism of the US Big-3 automakers:
for years, executives, lobbyists, and Congress (in particular the Michigan delegation) have sheltered these companies from the need to innovate or die. The have been allowed to resist higher environmental and fuel-efficiency standards, and implement bone-headed strategies that prioritized the SUV over hybrid or smaller, fuel-efficient vehicles. And now, as their business model, balance sheets, and beloved SUVs are forcing them into bankruptcy, these companies feel entitled to a taxpayer-funded bail-out?
I share Friedman's (admittedly, everyone's) outrage. I recognize the risks to the real-economy of their bankruptcy. Millions of workers (if you include suppliers) would lose their jobs in a period of rapidly rising unemployment and deflation. I also believe that the sensible arguments against Chapter 11 are important: in the current credit environment, Chapter 11 restructuring might be impossible, giving way to Chapter 7 and the worst-case scenario. But what is the chance that these companies will be compelled into any of the necessary restructuring in exchange for further financial assistance? Remember, the US government has been bailing these bozos out for decades, and what have we received in return? Sasquatch.
As Clusterstock pointed out, a short/medium-term cost benefit analysis might fall in favor of a bail-out. But what then? The shield that would be erected around these three posterchilds of protectionism would take decades to dismantle. The union contracts would remain largely in tact (not a chance Dems are jeopardizing the Rust Belt in 2010)*. CAFE standards are already (predictably) being vilified by the auto companies.
The US economy can't afford an industry collapse. But taxpayers can't afford another waisted bailout. If they agree to the thorough concessions and restructuring Friedman and Ingrassia call for, then bail em out. If they don't, let creative destruction work, and follow Friedman's advice. Allow Chapter 11, compel independent administration, and set these companies toward a restructuring process long overdue. One company might go into bankruptcy, but like the investment banks after Lehman, the others will quickly fall in line and accept strict conditions to assistance.
We must also renegotiate the contracts of remaining workers (on fair terms- whatever those are), increase unemployment benefits, and retrain those who are laid off in green jobs or re-employ them in a massive infrastructure-based stimulus project. And how about universal health care reform as well?
We need the political will (finally) to confront the auto industry and dictate the terms of assistance. This means confronting their stubborness head on. It may be risky, but its a risk worth taking.
Vikram Pandit's unconventional pep talk
I woke up this morning to the following headline on the front page of my Financial Times:
"Pandit's Pep Talk: Citigroup boss calls a 'town hall' meeting aimed at restoring morale of 350,000 staff".
Make that 300,000 staff. So much for morale.
"Pandit's Pep Talk: Citigroup boss calls a 'town hall' meeting aimed at restoring morale of 350,000 staff".
Make that 300,000 staff. So much for morale.
Sunday, 16 November 2008
Bretton Woods, the G20 and the International Financial Architecture
As most well-informed observers were stressing all week, yesterday's G20 meeting in Washington was not going to lead to new financial architecture for the glo
bal economic system. "Bretton Woods, the Sequel," this ain't. For one, it was not taking place in the New Hampshire hotel after which the original conference was named (see photo). For two, this meeting was not complemented by several years of preparatory groundwork or by unilateral American leadership coming on the heels of a paradigm-shifting depression and world war. So maybe Mr. Brown and Mr. Sarkozy were getting ahead of themselves with all of their blustery rhetoric.
Now, as is expected for these types of events, the G20 meeting produced a declaration (available here) that contained a fair bit of vague language on what the world leaders are going to do to a) address the current crisis and b) fortify the financial architecture to prevent a repeat performance. But the meeting did produce one, large, significant shift in the way our global economy will be governed in the near future: the G20 appears to have taken over from the outdated G7/G8. On this point, the punditry appears to be unanimous. This is important because the G20 includes powerful emerging economies like Brazil, China, India, Indonesia and Turkey.
This shift is long overdue, but will necessarily make international negotiations that much more difficult. As I alluded to above, the successful completion of the original B.Woods in 1944 was in large part due to the ability of the United States to push its agenda forward unilaterally. Had the Brits not been so crippled by the war, they surely would not have ratified the agreement. It should be clear that, 60 years on, there remain important philosophical differences between the Americans and Europeans on financial governance. Insert China and India into the mix and things become more complicated. But global financial governance is complicated and excluding these countries is a non-starter.
The agenda for the G20 membership from now until the next meeting in April 2009 is to make progress on a number of fronts. Highlights:
- Reform of the World Bank and International Monetary Fund to be more representative of the distribution of economic power (not new).
- Expand the membership of the Financial Stability Forum to include G20 members (relatively new). The FSF is a body that combines governments and international regulatory agencies to establish "best practices" in everything from accounting to insurance.
- Members have agreed to undergo a financial checkup by the IMF and increase funding for IMF lending programs to crisis-stricken countries (that's right, the IMF is relevant again).
- Various other sensible, but hardly revolutionary, promises to beef up financial supervision.
- And finally, a promise to deal with the fact that the Doha round of trade negotiations is dead. It has ceased to be. Bereft of life, it rests in peace. It's bleeding demised. It has rung down the curtain and joined the choir invisible...
bal economic system. "Bretton Woods, the Sequel," this ain't. For one, it was not taking place in the New Hampshire hotel after which the original conference was named (see photo). For two, this meeting was not complemented by several years of preparatory groundwork or by unilateral American leadership coming on the heels of a paradigm-shifting depression and world war. So maybe Mr. Brown and Mr. Sarkozy were getting ahead of themselves with all of their blustery rhetoric.Now, as is expected for these types of events, the G20 meeting produced a declaration (available here) that contained a fair bit of vague language on what the world leaders are going to do to a) address the current crisis and b) fortify the financial architecture to prevent a repeat performance. But the meeting did produce one, large, significant shift in the way our global economy will be governed in the near future: the G20 appears to have taken over from the outdated G7/G8. On this point, the punditry appears to be unanimous. This is important because the G20 includes powerful emerging economies like Brazil, China, India, Indonesia and Turkey.
This shift is long overdue, but will necessarily make international negotiations that much more difficult. As I alluded to above, the successful completion of the original B.Woods in 1944 was in large part due to the ability of the United States to push its agenda forward unilaterally. Had the Brits not been so crippled by the war, they surely would not have ratified the agreement. It should be clear that, 60 years on, there remain important philosophical differences between the Americans and Europeans on financial governance. Insert China and India into the mix and things become more complicated. But global financial governance is complicated and excluding these countries is a non-starter.
The agenda for the G20 membership from now until the next meeting in April 2009 is to make progress on a number of fronts. Highlights:
- Reform of the World Bank and International Monetary Fund to be more representative of the distribution of economic power (not new).
- Expand the membership of the Financial Stability Forum to include G20 members (relatively new). The FSF is a body that combines governments and international regulatory agencies to establish "best practices" in everything from accounting to insurance.
- Members have agreed to undergo a financial checkup by the IMF and increase funding for IMF lending programs to crisis-stricken countries (that's right, the IMF is relevant again).
- Various other sensible, but hardly revolutionary, promises to beef up financial supervision.
- And finally, a promise to deal with the fact that the Doha round of trade negotiations is dead. It has ceased to be. Bereft of life, it rests in peace. It's bleeding demised. It has rung down the curtain and joined the choir invisible...
Saturday, 15 November 2008
That Was The Week That Was
Politique
-G20 leaders arrived in Washington for a summit that had been hailed Bretton Woods II. With President-elect Obama avoiding the summit, and sharp differences between world leaders on the reforms needed to repair the international financial and economic systems, the summit ends like so many before it- with a consensus on principles, little coordinated action, and an agreement to meet again. Declaration text here.
-A regional war looms as the situation in the DRC deteriorates. African peacekeepers are impotent and declared targets by Nkunda, the number of foreign troops/mercenaries in the country grows by the day, and southern African leaders are threatening full-scale military involvement. The NYT looks at the role of minerals in the DRC's history of conflict.
-The EU agreed to restart talks on a strategic partnership agreement with Russia following an EU/Russian summit at Nice. Russia hasn't met the EU conditions set out as a prerequisite to talks following the conflict in Georgia, and it seems only Lithuania has the spine to say so.
-Iraq's cabinet approves new security pact with the US. The agreement extends US troop mandate through 2011.
Economia
-Paulson shocks congress with plan to spend remaining TARP money on capital injections into troubled institutions and companies and consumer spending. The Treasury will no longer purchase illiquid assets, and congressmen/women of both parties are screaming "bait and switch". Paulson deputy Kashkari testified before an angry House, with Rep. Elijah Cummings asking him, "Is Kashkari a Chump?"
-Treasury v. FDIC. FDIC's Bair wants to directly assist 1.5 million homeowners in the US, while Paulson resists a (*cough-cough*) "government spending program"- Paulson believes that his actions are "investments".
-Is a sterling run imminent? That's what George Osborne, Tory shadow chancellor, implied this week in criticizing Gordon Brown's fiscal plans. Osborne's political career is likely done. Sterling has hit a 6-year low against the dollar at $1.49, and Simon Derrick at BoNY Mellon believes sterling's position is now worse than Sept. 1992.
-Eurozone enters its first official recession.
The Rest
-India celebrates first lunar landing.
-This week in Japanese innovation: a robot that feeds you, and bionic legs.
-Arsenal's Prem title run is dead in the water.
-Gordon Brown: control freak.
-G20 leaders arrived in Washington for a summit that had been hailed Bretton Woods II. With President-elect Obama avoiding the summit, and sharp differences between world leaders on the reforms needed to repair the international financial and economic systems, the summit ends like so many before it- with a consensus on principles, little coordinated action, and an agreement to meet again. Declaration text here.
-A regional war looms as the situation in the DRC deteriorates. African peacekeepers are impotent and declared targets by Nkunda, the number of foreign troops/mercenaries in the country grows by the day, and southern African leaders are threatening full-scale military involvement. The NYT looks at the role of minerals in the DRC's history of conflict.
-The EU agreed to restart talks on a strategic partnership agreement with Russia following an EU/Russian summit at Nice. Russia hasn't met the EU conditions set out as a prerequisite to talks following the conflict in Georgia, and it seems only Lithuania has the spine to say so.
-Iraq's cabinet approves new security pact with the US. The agreement extends US troop mandate through 2011.
Economia
-Paulson shocks congress with plan to spend remaining TARP money on capital injections into troubled institutions and companies and consumer spending. The Treasury will no longer purchase illiquid assets, and congressmen/women of both parties are screaming "bait and switch". Paulson deputy Kashkari testified before an angry House, with Rep. Elijah Cummings asking him, "Is Kashkari a Chump?"
-Treasury v. FDIC. FDIC's Bair wants to directly assist 1.5 million homeowners in the US, while Paulson resists a (*cough-cough*) "government spending program"- Paulson believes that his actions are "investments".
-Is a sterling run imminent? That's what George Osborne, Tory shadow chancellor, implied this week in criticizing Gordon Brown's fiscal plans. Osborne's political career is likely done. Sterling has hit a 6-year low against the dollar at $1.49, and Simon Derrick at BoNY Mellon believes sterling's position is now worse than Sept. 1992.
-Eurozone enters its first official recession.
The Rest
-India celebrates first lunar landing.
-This week in Japanese innovation: a robot that feeds you, and bionic legs.
-Arsenal's Prem title run is dead in the water.
-Gordon Brown: control freak.
Thursday, 13 November 2008
Creative Destruction: Automotive Edition
The shares of General Motors, America's largest automaker, are now worth less than those of Goodyear. In a sense, GM is now worth less than the sum of its part. This is bad news, not only for those employed by GM, but for everyone who is even remotely concerned about the government throwing caution to the wind and bailing out uncompetitive, politically-sensitive industries.
You see, GM and the rest of the Big Three are vying for public funds to keep the
m out of bankruptcy, or at least to keep them functional during a bankruptcy. For some firms, like United Airlines, it is possible to enter into bankruptcy proceedings and resume flights a short time later. However, unlike with commercial aviation, car consumers are looking at shelling out anywhere from $20-70K for a vehicle with the expectation that the firm will be there five, ten years down the road to provide ongoing support. The worry is that, should GM, Chrysler or Ford enter into Chapter 11 bankruptcy proceedings, consumer confidence will plummet and they will never recover. Kaput.
Unlike the airline edition of this series, I have nothing personally riding on the outcome of this bailout debate. Nevertheless, the principle is the same. If a firm with as many assets as an enormous automotive company cannot receive financing, there's got to be a good reason. In fact, there are two good reasons. The first is that, due to the credit crunch, financial institutions are currently de-leveraging their liabilities and are thus unwilling to take on a large-scale financing project of this nature.
The second, more relevant, reason is that these firms have been operating under a failing business strategy for at least a decade. These companies are simply uncompetitive: they have over-priced, lower-quality vehicles (pickups excepted), silly-expensive labour union deals and are failing to adjust to environmental concerns.
Moreover, this bailout plan smacks of thinly-disguised politicking. It is a well established fact that the Big Three have considerable traction in Washington, and a Democrat-dominated legislature tends to lean towards protectionism on these issues. In any event, we'll find out on Monday how this one is going to play out. In the meantime, some questions to ponder and some readables to read.
Question first: Do the Big Three pose systemic risk for the economy in the same way that Bear Stearns or AIG do? If not, why are they being considered under TARP?
m out of bankruptcy, or at least to keep them functional during a bankruptcy. For some firms, like United Airlines, it is possible to enter into bankruptcy proceedings and resume flights a short time later. However, unlike with commercial aviation, car consumers are looking at shelling out anywhere from $20-70K for a vehicle with the expectation that the firm will be there five, ten years down the road to provide ongoing support. The worry is that, should GM, Chrysler or Ford enter into Chapter 11 bankruptcy proceedings, consumer confidence will plummet and they will never recover. Kaput.Unlike the airline edition of this series, I have nothing personally riding on the outcome of this bailout debate. Nevertheless, the principle is the same. If a firm with as many assets as an enormous automotive company cannot receive financing, there's got to be a good reason. In fact, there are two good reasons. The first is that, due to the credit crunch, financial institutions are currently de-leveraging their liabilities and are thus unwilling to take on a large-scale financing project of this nature.
The second, more relevant, reason is that these firms have been operating under a failing business strategy for at least a decade. These companies are simply uncompetitive: they have over-priced, lower-quality vehicles (pickups excepted), silly-expensive labour union deals and are failing to adjust to environmental concerns.
Moreover, this bailout plan smacks of thinly-disguised politicking. It is a well established fact that the Big Three have considerable traction in Washington, and a Democrat-dominated legislature tends to lean towards protectionism on these issues. In any event, we'll find out on Monday how this one is going to play out. In the meantime, some questions to ponder and some readables to read.
Question first: Do the Big Three pose systemic risk for the economy in the same way that Bear Stearns or AIG do? If not, why are they being considered under TARP?
Question second: Should the government finance GM's bankruptcy, do they have any prospect of getting their money back?
Yet more questions: For a considerable chunk of the electorate (and thus a considerable chunk of politicians), defending the Big Three is equivalent to defending American industry. But what is an American car anyway? If it's a Ford minivan made in Windsor, Ontario with Japanese parts, does it count? What if it's a Honda made in Ohio? Or that Mercedes engine plant in Alabama?
Links
- FT Alphaville thinks we've moved past moral hazard into a barely-concealed sense of entitlement. Nobody "deserves" a bailout.
- GM wants a bailout? Clusterstock lays out their conditions.
- Clusterstock responds with a counter to its own argument.
Opening material sourced from Planet Money.
Links
- FT Alphaville thinks we've moved past moral hazard into a barely-concealed sense of entitlement. Nobody "deserves" a bailout.
- GM wants a bailout? Clusterstock lays out their conditions.
- Clusterstock responds with a counter to its own argument.
Vladimir Putin wanted to hang Saakashvili by the b*lls
The Times of London has published the leaked details of a conversation between French President Nicolas Sarkozy and Russian Prime Minister Vladimir Putin in Moscow on August 12th. Sarkozy had flown to Moscow to broker a ceasefire between Russia and Georgia, and Putin made his ultimate goal clear. The following is an excerpt from the Times article:Mr Sarkozy was aware from intelligence reports that the Russian army was aiming to overthrow Mr Saakashvili and install a puppet government. He told Mr Putin that the world would not accept this, according to Mr Levitte, Mr Sarkozy's foreign policy chief, who was in the Kremlin for the talks.
"I am going to hang Saakashvili by the balls," Mr Putin replied.
Mr Sarkozy responded: "Hang him?"
"Why not? The Americans hanged Saddam Hussein," said Mr Putin.
Mr Sarkozy replied, using the familiar "tu": "Yes but do you want to end up like (President) Bush?" Mr Putin was briefly lost for words, then replied: "Ah, you have scored a point there."
Wow. It is rare that the private conversations of heads of state are leaked to the public, and really suprising that the French would do so just days before Sarkozy chairs an EU-Russian summit in Nice (ironically, the scene of one of France's biggest diplomatic blunders of the past decade- see EC Nice Summit of 2000). There is little utility in angering/embarassing the Russians ahead of a vital strategic meeting, and the leak can probably be chalked up to Sarko's super ego.
Back in August, I argued that Saakashvili would not survive the conflict. I thought that Russia's intentions were clear, and was both wrong and surprised when the Georgian President survived. The credit for this may very well go to Sarko. But if this conversation highlights anything, it is that the situation in Georgia is fragile. I seriously doubt that Putin's feelings have changed, and given the evidence that Georgia may have been more of an agressor in the conflict than it claimed, it will take very little for the Russian Prime Minister to finish the job.
IEA Report, Russia/China pipeline agreement, and the European Energy Security Plan
A number of important developments in the global energy markets over the past few weeks:
-an IEA report finds that the world's oil output is declining at a rapid pace. The annual rate of decline is projected at 9.1% without a substantial increase in upstream investment. Even after recent investment, output from the world's largest oil fields is falling by over 6%. As my analysis of Russian energy production highlighted, an increase in upstream investment is neither easy nor probable. Falling global demand will only lessen the incentive to invest more in production. With little excess capacity, and OPEC voluntarily cutting production (potentially by millions of barrels of day more in the coming months), the global oil markets risk renewed volatility when demand recovers.
-Russia and China signed a landmark oil pipeline agreement on October 28th. The addition to the East Siberia-Pacific ocean trunk pipeline could ultimately carry up to 15 million tons of Russian oil to China per year. The agreement is significant on two levels: it signals Russia's desire to pursue the "China alternative", and it could portend a greater financial role for China in Russia's energy sector.
-finally, we might look back on October 13th as the beginning of a new era in European energy. The Times of London is reporting that the bloc will announce a European Energy Security Plan. The plan calls for: 1) the construction of a European supergrid, connecting power grids from North Sea wind farms to the Baltics, 2) the construction of two new gas pipelines, connecting Caspian and African gas to the bloc, and 3) a "Community Gas Ring", which would essentially allow for the pooling of European gas supplies in the event of supply disruptions. These measures will directly address import diversification (particularly in natural gas, and specifically away from Russia), security of supply issues, and fragmented national power grids.
This is a highly ambitious plan, and in my opinion, one that has absolutely no chance of being carried out in its entirety. The pipelines just aren't commercially viable yet. Furthermore, the national regulatory and interest-group challenges to EU-wide liberalization in the energy sector are formidable, and to date have blocked any substantive effort towards a single European energy market. The political will simply isn't there in France/Germany/Italy, and national interests always trump regional considerations in European energy. Despite my pessimism, the Plan is an important development, if for only one reason: it coincides with the resumption of talks between the EU and Russia over their economic and energy relationship. It looks like the EU may have finally come around to playing hard ball with Russia, and utilizing its leverage over Russian security of demand. Stay tuned for updates on these discussions over the coming weeks.
-an IEA report finds that the world's oil output is declining at a rapid pace. The annual rate of decline is projected at 9.1% without a substantial increase in upstream investment. Even after recent investment, output from the world's largest oil fields is falling by over 6%. As my analysis of Russian energy production highlighted, an increase in upstream investment is neither easy nor probable. Falling global demand will only lessen the incentive to invest more in production. With little excess capacity, and OPEC voluntarily cutting production (potentially by millions of barrels of day more in the coming months), the global oil markets risk renewed volatility when demand recovers.
-Russia and China signed a landmark oil pipeline agreement on October 28th. The addition to the East Siberia-Pacific ocean trunk pipeline could ultimately carry up to 15 million tons of Russian oil to China per year. The agreement is significant on two levels: it signals Russia's desire to pursue the "China alternative", and it could portend a greater financial role for China in Russia's energy sector.
-finally, we might look back on October 13th as the beginning of a new era in European energy. The Times of London is reporting that the bloc will announce a European Energy Security Plan. The plan calls for: 1) the construction of a European supergrid, connecting power grids from North Sea wind farms to the Baltics, 2) the construction of two new gas pipelines, connecting Caspian and African gas to the bloc, and 3) a "Community Gas Ring", which would essentially allow for the pooling of European gas supplies in the event of supply disruptions. These measures will directly address import diversification (particularly in natural gas, and specifically away from Russia), security of supply issues, and fragmented national power grids.
This is a highly ambitious plan, and in my opinion, one that has absolutely no chance of being carried out in its entirety. The pipelines just aren't commercially viable yet. Furthermore, the national regulatory and interest-group challenges to EU-wide liberalization in the energy sector are formidable, and to date have blocked any substantive effort towards a single European energy market. The political will simply isn't there in France/Germany/Italy, and national interests always trump regional considerations in European energy. Despite my pessimism, the Plan is an important development, if for only one reason: it coincides with the resumption of talks between the EU and Russia over their economic and energy relationship. It looks like the EU may have finally come around to playing hard ball with Russia, and utilizing its leverage over Russian security of demand. Stay tuned for updates on these discussions over the coming weeks.
Wednesday, 12 November 2008
Really, AmEx? Really?
American Express, which recently converted into a bank holding company, plans to ask the US government for $3.5bn under the TARP.
AmEx relies on packaging credit card debt into securitized debt instruments it then sells on to investors. Obviously, this market is gone. Amex now has a serious cash flow problem, making it difficult to, among other things, service its debt.
Really, AmEx? So your cash flow has disappeared, you are having trouble surviving and servicing your debt, and you think that someone should be there to bail you out? You know, cause its not really your fault that you can't service your debt, you are just the victim of extreme circumstances. Really?
AmEx relies on packaging credit card debt into securitized debt instruments it then sells on to investors. Obviously, this market is gone. Amex now has a serious cash flow problem, making it difficult to, among other things, service its debt.
Really, AmEx? So your cash flow has disappeared, you are having trouble surviving and servicing your debt, and you think that someone should be there to bail you out? You know, cause its not really your fault that you can't service your debt, you are just the victim of extreme circumstances. Really?
Monday, 10 November 2008
Lest We Forget
November 11th is one of the most important days of the year and one of the few occasions when I am unashamedly and emotionally patriotic. But it is a very different kind of patriotism that we are celebrating. Rather than glorifying past military successes, Remembrance Day (or Veteran's Day) emphasizes the human cost of our victories, our mistakes, and our freedoms. This can only be a healthy exercise.
But lest we forget that many of our soldiers are currently engaged in a number of hostile environments, here's a sobering PBS documentary on the deteriorating situation in Afghanistan. (Be warned: it contains very raw images). These are the soldiers that will make up the next generation of veterans and, sadly, the next generation of headstone engravings. It is much too soon for Afghanistan to have earned the nickname "the forgotten war."
I will direct my Canadian readers to this list, and this article.
(Photo: Towers Library, St. Andrew's College)
Fitch Downgrades Bulgaria, Hungary, Kazakhstan, Romania
It also revised its outlook to "negative" for the long-term foreign currency ratings of South Korea, Mexico, Russia, and South Africa. From the FT:
David Riley, head of Fitch’s global sovereign ratings group, said: “The profound deterioration in the global economic and financial outlook poses significant threats to the emerging markets. The developed economies are heading for the biggest slowdown in 25 years and this will have a big impact on trade with emerging markets.
“Capital and financial flows to the emerging markets are going to be restricted and more expensive, with those countries with high current account deficits and large external funding needs most exposed.”
It is incredible how silly all the talk of "decoupling" looks now.
David Riley, head of Fitch’s global sovereign ratings group, said: “The profound deterioration in the global economic and financial outlook poses significant threats to the emerging markets. The developed economies are heading for the biggest slowdown in 25 years and this will have a big impact on trade with emerging markets.
“Capital and financial flows to the emerging markets are going to be restricted and more expensive, with those countries with high current account deficits and large external funding needs most exposed.”
It is incredible how silly all the talk of "decoupling" looks now.
Brand Recognition- Where does your country rank?
FutureBrand and PR firm Weber Shandwick have released their annual country branding index. The rankings are drawn from a survey of 2,700 global travelers, and incorporates factors such as ease of business, culture and the arts, and advertising campaigns in measuring the top countries by brand recognition. Australia tops the overall list for the third consecutive year, followed by Canada and the US. Rising stars include China, the UAE, and Croatia.
Countries differentiate themselves through systems of political representation, economic opportunity, and social protection. But they distinguish themselves by reputation and image. Since la cocarde tricolore, "branding" has been central to modern national identity.
Obama's election has been heralded as a "re-branding" of the US. So much of this election's commentary focused on the opportunity American's faced to improve their image abroad, and many outside the US projected their best impressions of the country onto candidate Obama.
Surely, many of his policies will differentiate him from his predecessor. His camp is already telegraphing an immediate use of his executive authority to reverse Bush's more controversial (or just plain conservative- lets not put Obama above partisanship) executive orders. His stance on Iraq, Guantanamo, and climate change endeared him to an international audience disillusioned by the Bush presidency.
But Obama's youth, oratorical skills, color, and image are magnetic. Brand Obama has become the most powerful (positive) American political image since "Camelot", and accounts for much of the support his candidacy gained around the world. Think "change". Or, "yes we can". These simple statements carried more meaning than Obama's health care or tax platform. The Obama campaign grasped the power of branding from day 1, and rode it all the way to his victory speech in Grant Park.
It will be interesting to see if the US gains from an "Obama bump" in next years index.
Countries differentiate themselves through systems of political representation, economic opportunity, and social protection. But they distinguish themselves by reputation and image. Since la cocarde tricolore, "branding" has been central to modern national identity.
Obama's election has been heralded as a "re-branding" of the US. So much of this election's commentary focused on the opportunity American's faced to improve their image abroad, and many outside the US projected their best impressions of the country onto candidate Obama.
Surely, many of his policies will differentiate him from his predecessor. His camp is already telegraphing an immediate use of his executive authority to reverse Bush's more controversial (or just plain conservative- lets not put Obama above partisanship) executive orders. His stance on Iraq, Guantanamo, and climate change endeared him to an international audience disillusioned by the Bush presidency.
But Obama's youth, oratorical skills, color, and image are magnetic. Brand Obama has become the most powerful (positive) American political image since "Camelot", and accounts for much of the support his candidacy gained around the world. Think "change". Or, "yes we can". These simple statements carried more meaning than Obama's health care or tax platform. The Obama campaign grasped the power of branding from day 1, and rode it all the way to his victory speech in Grant Park.
It will be interesting to see if the US gains from an "Obama bump" in next years index.
Sunday, 9 November 2008
NPR's Planet Money
Recently, a friend of mine introduced me to a podcast produced by National Public Radio called Planet Money. If you're looking for in-depth technical economic analysis, this is not the podcast for you. What Planet Money does offer is a very accessible discussion of economics, finance and its impact on society. The podcast is great for regular folk who are all-of-a-sudden asking some very pointed questions about the state of our financial system and how it will impact their lives.
Recent topics have covered: The impact of consumer confidence on the economy; why deflation is more dangerous than inflation; how the economic incentives of America's suburban population impacted the outcome of last Tuesday's election.
Their most recent broadcast is a fascinating piece on the very real impact of the credit crunch on "Main St:" a schoolboard in Wisconsin, attempting to build a fund to pay for staff pensions and health care, invested $200 million of borrowed money into financial instruments which have since lost over 90% of their value. Have yourself a listen.
Recent topics have covered: The impact of consumer confidence on the economy; why deflation is more dangerous than inflation; how the economic incentives of America's suburban population impacted the outcome of last Tuesday's election.
Their most recent broadcast is a fascinating piece on the very real impact of the credit crunch on "Main St:" a schoolboard in Wisconsin, attempting to build a fund to pay for staff pensions and health care, invested $200 million of borrowed money into financial instruments which have since lost over 90% of their value. Have yourself a listen.
Saturday, 8 November 2008
Financial Times report- Lehman Brothers' European Bankruptcy
Jennifer Hughes has an excellent article on the bankruptcy of Lehman Brothers' European operations in the weekend FT. She provides a number of interesting insights into the process to unwind the 158 year old institution:-while Lehman's failure was global, bankruptcy is a very local excercise. Each regional unit faced unique legal and financial challenges, and the PwC executives (and Linklaters legal partners) handling the process in London would have to negotiate "Europe-only" back up plans to the "global" negotiations in New York.
-PwC rushed to get the European bankruptcy notice approved before New York filed theirs. This would protect the European operations from any US claims. They got it.
-one element of banking insolvencies gets overlooked in the popular discourse: the human toll. Tens of thousands of employees lose their savings (the compensation structure at investment banks is heavily oriented towards stock options) and jobs. Unwinding these banks is particularly tricky because it relies on the tireless effort of these very employees- essentially working for nought and under tremendous individual stress. Recognizing this challenge, PwC secured a ₤100m loan early on to guarantee employee salaries. This was critical to winning the support of traders and operations in the bank's unwinding.
-the sheer scale of the immediate bankruptcy process is staggering, and highlights the systemic risk posed by Lehman. Administrators had to: secure IT operations, notify thousands of counterparties and exchanges it dealt with around the globe, assess the risk associated with every open trade, explore the sale options of each unit, and finally, unwind each trade. While Lehman US delayed bankruptcy 5 days to unwind each trade, Lehman Europe essentially had 24 hours. Days later, they were still waiting on some banks to clarify just what Lehman assets they held.
-Some of the bank's immediate trades actually brought in millions of pounds in profits, riding the market volatility. As one trader described it, "We ended up catching both sides of the market".
-Finally, Enron's European liquidation still isn't complete, seven years after its filing. Lehman's probably won't be any quicker.
That Was The Week That Was
Politique
-Senator Barack Obama is elected 44th President of the United Sates of America. He is the first African-American elected to the oval office, and the first sitting senator elected president since JFK. Fun fact: Obama is technically the 43rd prez, as Grover Cleveland served two non-consecutive terms that historians count separately.
-Russian President Dmitry Medvedev throws down the gauntlet to President-elect Obama in his first speech to the national assembly since assuming office. How do you say "tactless" in Russian? (translation: "бестактный")
-DRC's North Kivu province descends into chaos. The ghosts of Rwanda still haunt us.
-Most senior mainland Chinese official visits Taiwan since 1949. New agreements solidify economic, transport, and trade ties.
Economia
-In his first press conference since election, President-elect Obama says that a new fiscal stimulus package will be his first action in office if a package is not passed by the lame-duck congress.
-US unemployment rate hits highest level in 14 years at 6.5%. Goldman Sachs says US job market is now in "full recession mode".
-Bank of England slashes rates 150bp to 3.0%, its biggest since 1992. European Central Bank cuts 50bp to 3.25%, signals further cuts. Many are seriously questioning ECB- rate cut is significantly smaller than expected, and ECB's 75bp cuts since onset of credit crunch is much less than BoE's 275bp and Fed's 425bp.
-US auto industry is on the verge of bankruptcy: cashless, credit ratings cut, and unable to tap the short-term funding. US policymakers are struggling to respond, wanting to avoid costly bailout of uncompetitive industry, but unwilling to let over a million workers fall into unemployment.
-IMF approves stand-by loan to Ukraine, Gordon Brown lobbies Saudis for IMF funding, and Fund reassures that its liquidity is sufficient for "today's problem".
The Rest
-After a terrible week for the club, Arsenal beats ManU 2-1 at the Emirates.
-Birmingham Mail reporter, in Miami celebrating Obama victory, creates a bit of an "internal matter".
-Fiction writer Michael Crichton dies at 66 in Los Angeles.
-Quantum of Solace sets UK box office record with ₤15.5m opening weekend. Six days until US release...
-Senator Barack Obama is elected 44th President of the United Sates of America. He is the first African-American elected to the oval office, and the first sitting senator elected president since JFK. Fun fact: Obama is technically the 43rd prez, as Grover Cleveland served two non-consecutive terms that historians count separately.
-Russian President Dmitry Medvedev throws down the gauntlet to President-elect Obama in his first speech to the national assembly since assuming office. How do you say "tactless" in Russian? (translation: "бестактный")
-DRC's North Kivu province descends into chaos. The ghosts of Rwanda still haunt us.
-Most senior mainland Chinese official visits Taiwan since 1949. New agreements solidify economic, transport, and trade ties.
Economia
-In his first press conference since election, President-elect Obama says that a new fiscal stimulus package will be his first action in office if a package is not passed by the lame-duck congress.
-US unemployment rate hits highest level in 14 years at 6.5%. Goldman Sachs says US job market is now in "full recession mode".
-Bank of England slashes rates 150bp to 3.0%, its biggest since 1992. European Central Bank cuts 50bp to 3.25%, signals further cuts. Many are seriously questioning ECB- rate cut is significantly smaller than expected, and ECB's 75bp cuts since onset of credit crunch is much less than BoE's 275bp and Fed's 425bp.
-US auto industry is on the verge of bankruptcy: cashless, credit ratings cut, and unable to tap the short-term funding. US policymakers are struggling to respond, wanting to avoid costly bailout of uncompetitive industry, but unwilling to let over a million workers fall into unemployment.
-IMF approves stand-by loan to Ukraine, Gordon Brown lobbies Saudis for IMF funding, and Fund reassures that its liquidity is sufficient for "today's problem".
The Rest
-After a terrible week for the club, Arsenal beats ManU 2-1 at the Emirates.
-Birmingham Mail reporter, in Miami celebrating Obama victory, creates a bit of an "internal matter".
-Fiction writer Michael Crichton dies at 66 in Los Angeles.
-Quantum of Solace sets UK box office record with ₤15.5m opening weekend. Six days until US release...
Investment Banker To Become New Zealand's Prime Minister
While much of the world is vilifying investment bankers for their role in the financial meltdown, New Zealand has elected one as the head of government. The impact of the NZ election is perhaps not as exciting as that of the recent American one, but political junkies should keep an eye on the Kiwis for one particular reason: their electoral system.After a lengthy PR campaign, New Zealand introduced a Mixed Member proportionality (MMP) system in 1996. In a nutshell, each voter is allowed two votes: one for the local candidate, and one for the party. The party vote determines what percentage of the seats in parliament they get, with a minimum 5% cutoff. Seats are filled by those elected in local ridings* - if there are not enough local reps to fill up those seats, the extras are filled from a list of candidates provided by the party in advance. If there are too many local reps, extra seats can be added to the parliament.
This is, certainly, a more complicated system than first-past-the-post (FPP) and straight-up proportional representation (PR) - Elections New Zealand has admitted that the idea of adding and subtracting seats is not ideal, and have recommended that other countries avoid it. Moreover, MMP tends to weaken parties, which makes the more powerful parties less than thrilled about adopting it. Those two reasons - complexity and vested interests - were probably enough to scuttle a recent attempt to adopt a variation of MMP in my regional parliament.
Nevertheless, MMP has some aspects that are appealing. First, unlike with FPP, you are not stuck with voting for your local candidate only. Many people get frustrated by FPP because, if you vote for a local candidate that does not win, your vote is effectively "wasted" - this can create cynicism and lead to low voter turnout if there's a strong incumbent. Also, unlike pure PR, you still have the chance to choose your local candidate directly - this is the person who represents your regional interests at the national level and is therefore a very important element of democracy. Finally, there are those who would like to see the balance tipped away from the big parties to allow for more electoral competition from a wider range of smaller parties. MMP provides that.
No single electoral system will have it all, and no single electoral system fits every society**, but New Zealand's MMP provides an interesting case study in trying to combine the pros and cons of two systems into one.
--------------------------------
*There's an additional complication of Maori-specific electoral districts, but that's a particular NZ flavour of MMP that is not required elsewhere.
**I was about to suggest that small, coalition-led governments work best in smaller countries, but woops! there's Belgium's "196 days without a government" transition to prove me wrong. Maybe cultural homogeneity is equally important.
(Photo: National Geographic)
Friday, 7 November 2008
Wednesday, 5 November 2008
Medvedev working hard to ensure a smooth transition in US-Russian relations
Delivering his first state of the nation address since assuming the Presidency this spring, and just hours after Barack Obama was elected the 44th President of the United States, Russian President Dmitry Medvedev issued what the New York Times described as a "wide ranging attack" on the United States.Striking a decidedly hostile tone, Medvedev attacked the US for its missile defense plans, ideology, response to the war in Georgia, NATO expansion, etc. etc. etc. While even America's harshest foreign critics have embraced the opportunity provided by a new administration (even Hugo Chavez, in his typically eloquent manner-*cough-cough*, has called for a thaw in relations), Russia has just drawn a line in the sand.
And oh yeah, he also called for a constitutional extension of presidential term limits. This was probably just a tactic to further distinguish Russia from the US, as America had just displayed the awesome power of its democratic process. Nice to see that Putin's authoritarian consolidation remains on track.
This is all very unfortunate, both in tone and timing.
(Photo: Reuters)
Tuesday, 4 November 2008
Barack Obama will be the 44th President of the United States...
...and I am so proud to be an American.
"And to all those watching tonight from beyond our shores, from parliaments and palaces, to those who are huddled around radios in the forgotten corners of the world, our stories are singular, but our destiny is shared, and a new dawn of American leadership is at hand."
(Full text of Obama's victory speech here)
"And to all those watching tonight from beyond our shores, from parliaments and palaces, to those who are huddled around radios in the forgotten corners of the world, our stories are singular, but our destiny is shared, and a new dawn of American leadership is at hand."
(Full text of Obama's victory speech here)
Trade in Asbestos: Really?
Freer trade is almost always a good thing. Almost. The biggest exceptions to this rule are weapons, narcotics, dangerous chemicals and, uh, people. Most people would agree that restrictions on trade in such things is a good idea. But apparently "most people" doesn't include Canadian lawmakers, who have been lobbying hard to prevent white asbestos from being added to the Rotterdam Convention's list of toxic substances. With success.The Economist has provided an excellent backgrounder on the issue, but the basics are simple: the World Health Organization thinks white asbestos is potentially dangerous and wishes to add it to this list; the substance has been banned by 40 countries; alternatives to white asbestos exist; the industry employs less than a thousand workers in Canada and brings in less than $200 million in revenue; Canada is the third largest miner of asbestos, and exports over 90% of its asbestos to other (mostly developing) countries. Moreover, the health risks of white asbestos are highest for those who mine it - so who exactly is this benefiting?
It is not clear to me where the upside is, and Canada's blatant hypocrisy on this issue undermines its position on the world stage. It is time to move on from this shameful practice.
Monday, 3 November 2008
Weighing the Long Run Consequences
Willem Buiter has produced a rather long post on 10 Do's and Dont's for the current financial mess. It includes several very blunt assessments of the measures taken by governments to address the problems we're facing. Interesting stuff.
There are a couple of points I want to touch on. First, Buiter weighs in against the fiscal stimulus package idea - an idea we've been tossing around quite a bit on these pages. He argues that any immediate increase in public spending is difficult to do without being wasteful. The immediate retort is "wasteful compared to what?" But additionally, we still don't know the full extent of the costs of the crisis: G7 governments have already guaranteed enormous sums of money, and may have to continue doing so. Buiter thinks that introducing additional fixed spending is unnecessarily risky given the already-burdened government balance sheets. Fair enough.
His recommendation is tax cuts and transfer payments. In general, such measures would not be helpful because most consumers will simply take their check and pay off debt or stash it under the pillow rather than spend it and help stimulate the economy. But Buiter rightly suggests targeting "persons and businesses with high marginal propensities to spend out of current disposable income - households and firms that have short horizons and/or are liquidity-, cash-flow and current-disposable-income constrained." I'm not sure how easily that's done. For a pro-fiscal stimulus point of view, see Krugman's recent column.
Buiter's broader point is one that I fully agree with: let's take care of the long-run problems now. During a crisis, the immediate can overwhelm the important, but it is the responsibility of our political and policy leadership to keep an eye on the long-run. As Christopher Caldwell has pointed out, "The problems of 30 years from now will turn out to have been hidden somewhere in the parts of today's bail-out package that were most effective." Try ten years from now.
This crisis has provided the political space to make much-needed changes. As Larry Summers explains, just as the patient is more receptive to dietary advice after a heart attack, so it is with the financial sector during a crisis. Doing nothing in the short-run is not politically feasible, but throwing everything at the problem without regard to long-run consequences is trouble. Opportunities to implement creative long-run policy solutions do not come along very often - this one should not be wasted.
There are a couple of points I want to touch on. First, Buiter weighs in against the fiscal stimulus package idea - an idea we've been tossing around quite a bit on these pages. He argues that any immediate increase in public spending is difficult to do without being wasteful. The immediate retort is "wasteful compared to what?" But additionally, we still don't know the full extent of the costs of the crisis: G7 governments have already guaranteed enormous sums of money, and may have to continue doing so. Buiter thinks that introducing additional fixed spending is unnecessarily risky given the already-burdened government balance sheets. Fair enough.
His recommendation is tax cuts and transfer payments. In general, such measures would not be helpful because most consumers will simply take their check and pay off debt or stash it under the pillow rather than spend it and help stimulate the economy. But Buiter rightly suggests targeting "persons and businesses with high marginal propensities to spend out of current disposable income - households and firms that have short horizons and/or are liquidity-, cash-flow and current-disposable-income constrained." I'm not sure how easily that's done. For a pro-fiscal stimulus point of view, see Krugman's recent column.
Buiter's broader point is one that I fully agree with: let's take care of the long-run problems now. During a crisis, the immediate can overwhelm the important, but it is the responsibility of our political and policy leadership to keep an eye on the long-run. As Christopher Caldwell has pointed out, "The problems of 30 years from now will turn out to have been hidden somewhere in the parts of today's bail-out package that were most effective." Try ten years from now.
This crisis has provided the political space to make much-needed changes. As Larry Summers explains, just as the patient is more receptive to dietary advice after a heart attack, so it is with the financial sector during a crisis. Doing nothing in the short-run is not politically feasible, but throwing everything at the problem without regard to long-run consequences is trouble. Opportunities to implement creative long-run policy solutions do not come along very often - this one should not be wasted.
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