Find your happy place

That last post was pretty rough.  I feel like I need to get myself into a better mindset:

Radiohead sucks
Radiohead sucks
Radiohead sucks
Radiohead sucks
Radiohead sucks
Radiohead sucks

Mmmmmmmm........................

It's not China's fault

We're going over international trade in my intermediate class.  This means that we're going over all the stupid notions people have about trade.  This is frustrating enough for me that I thought I would point them all out so you know not to say these things in my presence:

1) "We have a trade deficit because other countries cheat" - No.  We have a trade deficit because we would like to consume lots of stuff *right now*.  We can't produce all the stuff we want to consume *right now*.  So we pay the Chinese and Japanese to make it for us.  How do we pay?  By agreeing to pay them back tomorrow.

Trading with China is no different than "trading" with Sears for a new refrigerator, bought on credit.  Sears loans you the money ("no payments until 2010!") to buy the refrigerator.  You get the fridge *right now*, and will slowly pay back Sears over the next three years, say.  Equivalently, China loans us the money ("just pay us back in interest payments on U.S. bonds in 2010!") to buy boxes full of cheap plastic Disney princess crap. We get the Disney princess crap *right now*, and will pay them back over the next 3, 7, or 10 years depending on what kind of bonds the Chinese are holding.

Saying that China is "cheating" is like saying that Sears is "cheating".  How dare they allow you to freely purchase goods and services that you enjoy!!   Those bastards.

2) "The Chinese are going to own America."   Really.  China holds, by current estimates, about $740 billion in U.S. treasury bonds.  Japan owns about $640 billion.  That's a lot.  U.S. GDP in 2009, in the middle of the worst recession since the early 1980's, will be about $12 trillion.  That's a LOT more.

And you know what we own that they don't?  Printing presses and the master plates that allow us to rip off all the copies of George Washington that we want.  You know what all those U.S. bonds say on the front?  They say that the interest and principal is payable in U.S. dollars, and U.S. dollars ONLY.  If we wanted to, we could print off $1.38 trillion in new bills and ship them off to China and Japan to pay off all those bonds --- and there is nothing they can do about it.

You think they have us by the balls? No.  Imagine that you could pay off your mortgage and credit card debt by shipping a box full of old newspaper to your bank.  Who do you think would lay awake worrying about that happening - you or the bank?

3) "Trade deficits are bad."  I only have one question for you.  Why?  Give me one coherent reason that does not appeal to the fact that the people with the trade surpluses have funny-shaped eyes and live somewhere else.

4) "We need a strong exchange rate." Okay, that's great.  A strong exchange rate means that your dollars can buy a lot of euros, yen, or yuan.  With all those euros, yen, and yuan, you can buy up lots of Belgian beer, Sony DVD players, and more cheap Disney princess crap.  Oh, and you know what?  That means you'll be running a bigger trade deficit.  Exchange rate up, trade deficit up.  Exchange rate down, trade deficit down.

So shut up about your strong exchange rate and your whining about the trade deficit until you understand that these are mutually inconsistent.

5) "The U.S. doesn't make anything anymore."  Oh, really?  What do you do all day, pick your ass?  Well, for some of you, that's probably true. The rest of us are doing high-skilled jobs that people pay a lot of money for. We're the richest f***ing country on earth for a reason - we are better at pretty much everything than every other country.  You know what we make?  The original Disney movie that spawned all that cheap Disney princess crap.  You know what the Chinese get for injection-molding another Cinderella doll?  About 25 cents.  You know what Disney gets when they sell that cheap plastic piece of crap to me so that I can let Abby pretend that some day she'll have ankles the size of toothpicks?  About $10.  Do the math.

6) "Indians are taking all of our jobs."  Right. Because a lot of you are really dying to answer help-desk calls from Donna the receptionist who can't get her mouse-thingy to do the clicky thing to make the invites for the company picnic print out sideways ("why do they call it landscape, you think? It's not like there's any grass on it? He he.").  In the next 5 years, American companies will probably hire about 3,000,000 foreigners to answer calls and do back-office work.

In a non-recession year, you know how many jobs American companies "destroy" every MONTH through simple attrition and turnover?  Just about 2,000,000.  Every MONTH.  That means in the next 5 years there will be about 120,000,000 jobs destroyed by American companies.  During the same period, American companies will create about 140,000,000 new jobs.

Outsourcing is a rounding error for the American economy. So shut up.

GM

So this article says that the new GM chief is really going to buckle down and provide a real turn-around plan for the hopeless car company.  I understand that trying to change the course of a super-tanker sized company like GM can't be done immediately.  But it seems to me that this super-tanker has actually run aground, and Fritz Henderson can pull on the tiller all he wants, the company isn't going anywhere.

It's done. Let it die.  Auction off the different brands to Toyota, Honda, VW, etc.. and let them pick over the wreckage to salvage as much value as possible.  But stop pretending that GM is a viable company.

Not that this in any way, shape, or form should be seen as supporting the fact that the President of the U.S. fired the CEO of a company.  That is just not right.

Best. Picture. Ever.

So who's the bravest one involved in this?  The kid, the dad who threw him, or the mom who took the picture rather than leaping to catch the kid?

Go Blah...

I don't even know how to bring up the NCAA hockey tournament without vomiting in my own mouth.  We outshoot Air Force 43-12 and *lose* 2-0?  It's the friggin Air Force team.  Seriously?  I am only barely consoled by the fact that both Notre Dame and Denver lost as #1 seeds as well.  Okay, so I am pretty happy Notre Dame lost.

What a weird set of games.  Thanks to the magic of ESPNU, ESPN2, and ESPN 8 (The Ocho), I think I got to watch parts of four different games.  I have honestly no idea what happened to college hockey this year.  I'd say BU has this thing wrapped up, but Bemidji State, Miami, and Vermont all had to beat "better" teams to get here, so who knows.

Bemidji, honestly?

College Hocky Tourney

The brackets for the NCAA hockey tournament went up last night.  Michigan is #1 in the East (along with Alaska, Vermont, and Yale), playing in Bridgeport, CT.  See here for the full bracket.  Things get cranking this weekend.  BU is the overall number 1, and along with them and Michigan the other #1's are Notre Dame and Denver.

Now, does Billy Sauer even get to put on a uniform for the Wolverines?  Or do they conveinently forget to tell him when the bus is leaving? Can Hogan do it without coughing up a hairball?

Standards of scientific proof

There are so many wonderfully stupid things about this.  My favorite is that someone who insists on Biblical inerrancy, and therefore believes that dinosaurs and Jesus walked the Earth at the same time, is willing to state that Jesus probably rode those dinosaurs.  If there isn't a definitive statement to that effect in the Bible, how could you possibly say that?

How much do you want to see the rest of that coloring book?  Oh, and where do I get my pack of Crayola's that includes "Flesh of Christ" and "Omnipotent Yellow"?   Burnt umber can kiss my ass.

More smart takes on Geithner

Here is Brad DeLong's Q&A about the plan and its potential .  He comes down on the positive side, but noting that this is "part of the plan", not "THE plan".  That is, this will not magically fix everything wrong with the economy.

The rationale for the Geithner plan is roughly as follows:
a) "toxic" assets (mortgage-backed securities) are worth less than they originally were, but they are not worthless.
b) Normally, we'd see different financial groups (hedge funds, private equity funds) buying up these toxic assets for pennies on the dollar, and making a handsome profit as either i) the market comes to its senses and they can resell these assets for more pennies, or ii) they just hold the assets to maturity, banking the monthly mortgage payments that fund these assets.
c) Times are not normal, and no financial groups are stepping up to buy these toxic assets. Mainly because they cannot secure funding from the major banks.
d) The Treasury is going to step in and buy up these assets. To manage this, they are going to hire the financial groups (hedge funds and private equity funds) to do the actual purchasing.  They'll pay these financial groups by giving them a share of the profits that the Treasury thinks it could make by buying up the assets for pennies.
e) By buying up these assets from the major banks, the major banks will no longer look like hedge funds and will be able to resume acting like real, boring, regular, banks.

It's important to note that we are not buying these toxic assets for the hedge fund managers.  We are buying them for ourselves.  We're paying the hedge funds to do the buying, and giving them a cut.  It's like engaging a realtor to buy a house. They get a cut of the transaction - you get the house.

Could the Treasury make money on this?  Yes.  Will they?  Don't know.  Why bother?  Because it gets the toxic assets off the bank balance sheets, and therefore banks can go back to being banks. That will help the regular economy get moving.

Toxic Asset Plans

Geithner announced the governments public/private plan to buy off toxic assets from banks, using private investors as a mechanism to figure out the "right" prices.

This post has a nice example of what the situation looks like, told as a story about a car dealership that has a number of lemons in its stock of cars.  I think it gets you the idea of what the problems and potential solutions are.

The upshot - there is no plan that can "fix" the financial system without putting taxpayer money at risk.  If you do not want any taxpayer money at risk, then you have to wait for the financial system to fix itself.  That's a legitimate position - but you might want to ask the Japanese how that worked out for them over the last 10-12 years.

AIG

More economic fun!  Lot's of anger over AIG managers getting bonuses even though they've basically burned through the whole $170 billion we gave them to keep them from blowing up.  Now Congress wants to tax the bonuses at 90%.  A few thoughts on this:

a) I'm really nervous about Congress making retroactive tax changes.  This is just larceny, but legal.  If they want to prevent *future* bonuses of this kind, fine.  But given this precedent, what's to stop them from re-taxing income from 2007, and asking me for an additional $100 or $200?

b) With that caveat in mind, I'm not sympathetic at all to the argument coming from the financial industry in general, and AIG in particular.  They will say that they have to pay these bonuses to keep the upper management types around who actually know what's going on in these companies and are capable of cleaning up the mess.  I'm calling bullshit on this one.

Upper management types at financial companies (and I know I'm grossly over-generalizing here) are not the "best and the brightest" of the world.  They are, by and large, those really fun guys you knew in college who always were scoring chicks and getting C's.  They're salesmen.  While they do know the details of the contracts they wrote, it's quite clear from the past two years that they didn't actually know what they were doing.  So why exactly do I want them "fixing" this mess?

I explicitly want new people to go in and clean up AIG.  I want people without emotional attachments to the business, and in particular, without personal ties to anyone involved in the contract.  I want cold-blooded killer CPA's with a mean streak and some repressed daddy-issues. 

I want to get *rid* of the golf-course financial deal-makers who couldn't be bothered to think about the risk implications of their deal-making.  They were never hired to be good risk-managers.  They were hired because they knew how to stroke pension-fund managers and were a good time in the corporate box at the Super Bowl. 

If those kinds of guys are going to leave AIG, or any other financial company, because their bonuses are going to be taxed away, then let them leave. 

Quantitative Easing

The Fed announced yesterday that they would begin buying up close to $1.2 trillion in long-term debt - mortgages, 10-year Treasury bonds, etc.  So 1) why did they do this, and 2) why might you care?

1) Why do this?  The Fed has the long-run objectives of keeping inflation low and maintaining the economy at close to full employment.  In normal times, they pursue these objectives by setting short-term interest rates - the rate of interest that banks charge each other for short-term loans (short-term as in overnight or for one-month). If the Fed wants the interest rate to fall, they buy up short-term Treasury bills from banks.  To pay for these T-bills, they credit the banks reserve account at the Fed.  In normal times, these additional reserves allow the banks to lend more money to the economy - meaning that there is a higher supply of loans, and their cost (i.e. the interest rate on your car loan) goes down.

But these are not normal times.  The Fed has very aggressively cut interest rates by buying up lots and lots of short-term T-bills from banks.  They have paid for these by crediting the banks reserve accounts.  The banks have taken these reserves.......and done nothing with them.  The reserves are "piling up" in the bank vault, rather than being loaned out to you to buy a new car or to a business to expand their factory.  (They don't really have piles of physical money, just entries in a computer, but it's more fun to think of the Fed operating like Gringott's in Harry Potter, with little Alan Greenspan-cloned goblins moving mining cars full of gold back and forth.)

So the Fed has driven the short-term interest rate down to essentially 0 percent, but the banks have simply sat on their new pile of reserves.  We do not get the expansion of credit that the economy could use to get economic activity moving more quickly again.

This is a rare problem.  The Fed cannot lower short-term interest rates below zero (imagine if they did - this would be like a bank offering to pay you back $98 dollars in a year if you deposited $100 today - not a good deal).  But the Fed would still like to generate more economic activity by driving down interest rates. 

The interest rates that tend to matter to you and me are long-run rates like a) mortgage rates, b) car loan rates, c) student loan rates, d) long-run Treasury bonds (because they matter for retirement accounts and influence stock returns).  So the Fed is going to try to more directly affect long-run rates.  They're going to start by buying up T-bonds, mortgages, and packages of car loans and student loans.  Their increased purchases raise demand for these products, which raises their price.  If the price of a bond or mortgage goes up, the effective interest rate on bonds and mortgages goes down.  The Fed is trying to drive down the rates available on new loans and mortgages, so that you, me, and firms will undertake new investment projects (like re-doing your kitchen or building a new factory).  If we start doing this, it drives up demand for goods and services and the economy recovers. 

2) Why might you care?  Well, for one you can probably score lower rates on any new loans.  So buying a new car or house just got less expensive.  That's pretty cool. 

Perhaps more of an issue is that this quantitative easing contains within it the seeds of higher inflation. Why is this?  Well, the Fed is going to buy up lots of bonds and mortgages.  How do they pay for this?  They "print" money.  Bernanke doesn't literally call down to the boys in the basement and yell "fire up the presses!!".  He "prints" money by crediting the bank acounts of those people from whom it bought the securities. 

So this is similar to just printing about $1.2 trillion in new dollar bills and spreading them around.  Now in a slack economy like the U.S., this should increase economy activity rather than drive up prices.  But if the Fed printed too much money (and they don't really know what the "right" amount is) then some of this additional money will simply go towards driving up prices. 

Why do you care about inflation?  No, not because it makes things more expensive.  Inflation is a general increase in prices, and that includes wages.  So inflation by itself doesn't necessarily make you worse off.  In fact, if you are like me and a) young (ish) and b) in debt, then inflation can actually be good for you.  Those mortgage payments don't rise with inflation, but wages do. So in the long-run, big inflation can actually make me better off.

The problem with potentially high inflation is that it generates uncertainty about the future (how long will my dollars be worth anything?) and therefore tends to stifle economic activity and - perversely - will generate higher interest rates in the long-run.

So you should be worried that the Fed is going too big and too strong, and will ignite large inflation rates that will screw us over in the long-run.  At this point, I can see why the Fed is willing to make this kind of bet.  But it is a bet - not a certainty.  This could go wrong.  My first gut reaction, though, is that this will not turn us into Zimbabwe or Weimar Germany (i.e. places with 1000% inflation rates).

Sexy Sexy

Another website I wished I had thought of.  Scroll down for a personal favorite: Wayne and Jeffrey. They've obviously been told that they will be eating asparagus again for dinner.

And I don't want to implicate anyone - but I'm thinking that somewhere I've got some prom picture of my sister that should show up on this site.  And before you get all indignant, I'll submit it right after I send along my 7th grade yearbook picture. Nerdariffic!

God Bless Ricky Gervais

He gets to ask Elmo what I've always wanted to: "Do you know what necrophilia is?"  Kudos to someone with absolutely NO shame.

How do I get on this list?

I will need to work harder to make my class stand out.  These are the 15 strangest college courses in America. 

They all sound pretty dumb - but honestly, I can see how some of them came about. Trying to explain the financial crisis, the IS/LM model, and the role of inflationary expectations to my intermediate macro class, I have appealed to the following references:  "The Negotiator" with Samuel L. Jackson, the underpants gnomes of South Park, and Spicoli from "Fast Times at Ridgemont High".  So using the Simpsons to teach history doesn't sound that crazy.

Time on your hands....

So I guess this recession is really starting to bite.  These guys had the time to go ahead and remake - shot for shot - the video for Journey's "Separate Ways".  It's either brilliant or sad.  I'm torn.  I think the terrible rug on the lead singer tips the balance towards brilliant.  Steve Perry, eat your heart out.

Dog-sitting Cute

To atone for the lack of pictures lately, here's a bonus from when we dog-sat Bucho.

Overdue Cute

Been too long since I posted one of these:

Lego Farming

Alright, it took them almost 30 (yikes) years, but Lego finally is producing farm sets.  But honestly, the barns I built from loose bricks can kick this barn's ass.  Seriously, could you fit maybe 2 cows in the new Lego barn?  I had a friggin herd, baby, and a full hay-mow that I could drive the tractor into.  This is weak s***.

On the other hand, the combine is pretty sweet. I don't think I could have knocked that out when I was 7.

Don't believe me yet....

Wow, who would have thought that the Bush administration could have considered tearing up the Constitution?  It's almost as if they tried to keep things secret. 

Latest: "In the aftermath of the 9/11 attacks, the Justice Department secretly gave the green light for the U.S. military to attack apartment buildings and office complexes inside the United States, deploy high-tech surveillance against U.S. citizens and potentially suspend First Amendment freedom-of-the-press rights in order to combat the terror threat, according to a memo released Monday."

Here's the memo, in case you think this is a case of the press over-playing the story.

Just to be clear, the chief law enforcement officer of the United States of America, the Attorney General Alberto Gonzales, issued a memo suggesting that the President has the authority to revoke the first amendment to the Constitution at his own discretion.  Not to mention that the President had the authority to use the military to attack domestic locations.  It took the Administration seven years to reject the memo.

So far no invoices for jackboots or brown shirts.  I'll keep you posted.

Sigh.

I guess I shouldn't care that some people are so galactically stupid, but come on.  This article is about people who are planning on lowering their income below $250,000 a year so that they can avoid the tax increase proposed by the Obama administration.

Stop. Think about it for a minute.  Take a look at your tax packet from the IRS.   If the tax rate on income ABOVE $250,000 goes up, that doesn't mean that tax rates on income under $250,000 go up.  If you make $300,000 a year, your total tax bill will go up and your take-home income will go down.  If you lower your income to $249,999.99 a year, your income will go down by MORE.

You can't make more by making less.  But maybe the idiots in this article deserve to make less.

I'm sure it was all legal...

If the previous administration was so proud of torturing people for useless information, then they would certainly not object to someone reviewing the video-taped sessions of this torture. Right?

Oh, wait..."New documents show the CIA destroyed nearly 100 tapes of terror interrogations, far more than has previously been acknowledged."

If this was an ethically justifiable policy, then why won't anyone associated with it actually, you know, stand up and defend it.

Don't you economists know anything?

It seems like economists should have something more to offer everyone with regard to the current recession. Why don't we have an economic early warning system, so that we can track economic crises like we track hurricanes, and get people out of the way before they hit?

The problem is that this comparison gives a) too much credit to NOAA and hurricane forecasters, and b) too little credit to economics.  Think for a moment about what NOAA does.  It identifies tropical depressions out in the Atlantic, and then starts estimating if they will turn into hurricanes, and if they do, estimating where they will go. NOAA does an okay job of that.  You know those bigs "cones of death" that surround the projected path of the hurricane? That's because NOAA is guessing, and lot's of times they are *wrong*.  Remember Katrina? It wasn't supposed to go that way, which was part of the reason New Orleans was unprepared.

Fine, but we don't even have a "cone of death" for the economy, do we?  Actually, we do. The Fed and other macro-economic forecasters have plenty of models (just like NOAA) that predict where the economy will go over time. Some of them have the recession ending this summer, some have it ending this fall/winter. Most have economic growth resuming in 2010.  So the failure of economics is not one of failing to track and predict the path of the crisis.  The failure, if there is one, was in not predicting the crisis was coming in the first place.

This, though, asks for a lot out of economics.  Consider the hurrican analogy.  NOAA is very good at tracking hurricanes, conditional on the presence of a tropical depression.  They are very *bad* at predicting when, where, and how often tropical depressions will form in the Atlantic.  (Remember that 2006 was supposed to be the mother of all hurricane seasons?  Whoops.).  Asking economics to have predicted this recent financial crisis is like asking NOAA to predict (with near certainty) when, where, and how many hurricanes will hit this year.

That said, it seems fair to ask why economists haven't focused more on the nuts and bolts of the financial markets and how they *could* create a crisis, so that we could write down some clearer rules about what to do when those crises actually strike. There is a sense that the Fed and Treasury are really just making this up as they go along.  Well, they are. We've had one (maybe two) of these financial crises in the last 100 years in the U.S. prior to this one.  There isn't exactly a big body of evidence to draw conclusions from.  NOAA has the advantage of at least having a few hurricanes a year, regularly, to study.

The additional problem is that "fixing" the economy is not a technological question for engineers. You cannot enact economic policy without, by definition, redistributing wealth.  From taxpayers to financial companies. From shareholders to taxpayers. From employed workers to unemployed workers. From some corporations to other corporations. From future taxpayers to current taxpayers. From home-owners in the middle of the U.S. to home-owners on the coasts. Or vice versa on any of the above.

Engineers can get into arguments about the best way to fix a problem.  But no one in the engineering meeting ever stands up and says, "Your argument for using 15 millimeter bolts to secure the exhaust manifold to the differential gear assembly is just another example of left-wing bolt-and-tighten liberalism. America was founded by welders and for welders, and therefore we should weld the exhaust manifold to the differential gear assembly!  That is what true Americans want. Your bolts are just another example of trying to import European-style bolt sizing and attachment mechanisms into our economy."

Economics is necessarily strung up together with politics.  So that makes it hard to separate political disagreements from economic one. Economics is pretty good at monetary policy. We have some decent ideas about how/why fiscal stimulus works.  But the failure to have some consensus about "what the government should do" is not the fault of economists. This is how policy gets made.  People argue and dispute with each other.  This is it. This is as certain as things get.

Best. Dream. Ever.

The last five seconds are priceless.

Republican's to the Rescue

It's this kind of pragmatic problem-solving attitude that really makes we appreciate the Republicans more and more. If only they could be back in charge..

"One thing we can all do is stop assuming that the way to beat [the Democrats] is with better policy ideas," - Rush Limbaugh.

(From here)

America's Worst Intersections

This list supposedly lists the slowest, worst intersections in the country. They are all pretty much highway interchanges. In particular, highway interchanges in and around New York City.  Followed by a few choice spots in LA, and several personal favorites from Chicago (Edens and the Kennedy anyone?).  I think a couple of San Fransisco spots are on there, but it is almost totally dominated by NYC.  Go Big Apple.

Correction....

From Fox News:

"Alleged CDC Beer Pong/Herpes Simplex study is a HOAX. Recent news stories about an alleged CDC study showing a possible link between the drinking game, Beer Pong, and herpes simplex 1, the virus that causes cold sores, are false. The Centers for Disease Control and Prevention did not publish the referenced article."

Thank god.