Friday, October 9, 2009
Sunday, September 20, 2009
What is true of traffic is also true of the economy: like speeding on a crowded highway, too much consumer and corporate debt is unsustainable. If A owes B money who owes C money who owes D (and so on), in theory it all cancels out. But if B can't pay, C now needs to find some money to pay D; if the level if debt is too high, a damaging chain reaction occurs. Irving Fisher, who in 1929 declared that "stock prices have reached what looks like a permanently high plateau," later recognized that the plateau was really the edge of a cliff of debt:
Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:
1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
7. pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation.
The above eight changes cause
9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.
The need to repay debt causes distress selling of assets and less spending by indebted consumers and companies, which reduce prices, and therefore profits, leading to unemployment... and to even more fire sales and even less consumption in order to pay off debt. The more effort is put into paying off debt, the worse the economy does, and the harder it is to pay off debt. Noticed falling house prices recently?
Consider the following graph, US total debt to GDP ratio (keeping in mind that data before 1950 or so is less accurate). Notice where were in 1929, and where we are now:
If we really are in a debt deflation, then things are not going to get better anytime soon.
Monday, July 6, 2009
237: number of books on my "want to read" list (I use Amazon to track these).
I'd count the number of books on the floor of my room, but that would be both difficult and embarrassing.
Saturday, July 4, 2009
Friday, May 29, 2009
Wednesday, May 13, 2009
Thursday, April 30, 2009
One R short of a BRIC
Weingast and Marshall: The industrial organization of Congress
Tuesday, March 24, 2009
If you've seen it, notice the progression of TV interviews and where it ends up: politics, and not the sanitized kind.
Thursday, March 5, 2009
Wednesday, January 28, 2009
Friday, January 23, 2009
When discussing the legislative systems in England and France Henshall does explain the essential difference between them. The English Parliament (the Commons and the Lords) created the laws, which were then approved by the king. The king had the right of veto, but after 1688 it was rarely used. According to Christopher Hill, “William vetoed five Bills before 1696, but they all subsequently became law; after that date he used the veto no more. Anne's solitary veto in 1708 is the last in English history.” Of course, many of the bills passed by Parliament were initiated by the monarch's ministers. But not all laws passed by Parliament were to the monarch's liking, even when the veto was not used. For example, in 1698 Parliament resolved that the all forces in the standing army beyond 7000 men were to be disbanded, and though strongly opposed to the measure William complied. In France, on the other hand, Henshall notes that the “French monarch had the exclusive right of initiating laws.” The legal institutions known as parlements only had the role of promulgating the laws (which they could use to delay the application of the law), though they had the right of sending a remonstrance to the king. The English Parliament, representative of the elites, had the right to initiate legislation, and the king could initiate legislation via his ministers, whereas in France only the king could initiate legislation.
A significant area affected by this difference was the raising of taxes. According to John Brewer, “... by the first quarter of the eighteenth century Englishmen were paying 17.6 livres per capita in annual taxes, while the equivalent figure in France was 8.1 livres” a difference which grew by the 1780s to 46 livres in England vs. 17 in France. How did this difference come about? After 1688, confronted with the price of William's wars against France, Parliament chose a land tax over the government's plan to impose a general excise, choosing a tax which affected the landed wealth represented in Parliament rather than one that affected the general public. According to Brewer, the reason for this choice was that the land tax allowed the Commons to exert control over the collection of taxes, unlike a general excise which would involve a large bureaucracy above and beyond that necessary for existing excises. Not only did the Commons control the king's revenue by the necessity of having it approved every year by the Parliament, but Parliament also controlled the monarch's ability to raise money via extraordinary means. At this point in time Parliament took the initiative in choosing the type of taxes the English would pay, and took control of at least some of the process of taxation. Members of Parliament could request papers and accounts from treasury departments when deciding about financial legislation, and this information was presented even for routine legislation such as the annual bill of supply. Parliament reached an accommodation with the need for a centralized state, balancing between the state's needs and the dangers to their control.
The French government on the other hand had systemic problems with taxes in the eighteenth century. Henshall cites Machault's Twentieth tax as an example of how taxes would be negotiated with institutions such as the parlement of Paris. Even so, Machault dissolved the Languedoc Estates for their opposition to the tax. Colin Jones notes that “the secrecy in which the royal finances were immired meant that the government was unable to demonstrate the fiscal prudence of the measure.” Only in 1781 did Necker publish an account of French royal finances that provided “more transparency ... than any previous ruler or minister had dreamt of.” The fact that the tax had to be negotiated with multiple bodies --- parlements, local Estates, the Assembly of the Clergy for taxes on the Church --- also demonstrates the problems faced by the government, the lack of a centralized national institution to negotiate with. According to James Riley, “the most important feature in French finances ... at every point in the eighteenth century is this: the French detested the tax.” The French government “could not overcome [its] subjects' aversion to paying taxes, and they could not overcome their subject's feelings that their liberties were at stake.”
In addition to taxes, the other source of revenue for the state was public debt, used to finance the increasingly expensive wars of the 18th century in both England and in France. Hilton Root argues that the existence of Parliament in England strongly affected the government's expense in raising loans. In England after 1697, the Bank of England had a monopoly on loans to the government, increasing the government's penalties if it defaulted on loans. In 1715, “a political agreement with Parliament established that a specific loan had to be secured by Parliament's vote of a specific tax designed to fund the loan's repayment. As a result of Parliament's backing interest rates on English government bonds fell from 10 percent in 1689 to 3 percent during the eighteenth century.” Root notes that private interest rates in England were about 4 or 5 percent, i.e. the government debt was seen as more secure than private debt. In contrast France paid interest rates twice as high as England, in the period after 1720 when they were actually lower than in the past. In England, where Parliament controlled the debt, it also had less of an interest in repudiating it, as many MPs and their constituents were government creditors. In France, where the debt was directly controlled by the monarch, the government had a motivation to default on its debt, balanced by the lack of trust this would engender in lenders. As Hilton explains, "creditors took into account the king's reputation for repudiating debts and therefore demanded higher interest rates than would otherwise have been needed to elicit loans. Actually, because he was above the law, the king had to pay more for loanable funds than did his wealthy subjects." Necker in 1781 cited the nature of England's government and the access to information about the government's finances as reasons for England's ability to raise immense sums of money.
In both England and France taxes and public loans were necessary ways to raise money to pay for the government's expenses; the king could no longer live on his own. But only in England was the legislative initiative possessed by Parliament. As a representative body of the propertied elites it was able to actively bring about their agreement to financially support the state, a crucial difference from the system in France. Negotiating rights with a variety of corporate groups, while simultaneously claiming unquestionable authority, the French government was unable to raise as much taxes as the English. Furthermore, France had to pay far higher interest rates on loans than did the English government. There were less restrictions on the French government's ability to default on loans, and information about the government's finances and ability to pay interest were considered a state secret, both raising the perceived risk to creditors. The difference between the legislative systems in England and France was thus an important factor in the financial well-being of the state. Paradoxically, the weaker status of the English government led to a stronger fiscal position.
Brewer, John. The Sinews of Power. New York: Knopf, 1989.
Hill, Christopher. The Century of Revolution (2nd edition). New York: W. W. Norton, 1980.
Jones, Colin. The Great Nation. New York: Columbia University Press, 2002.
Jones, J.R.. Country and Court. Cambridge, Massachusetts: Harvard University Press, 1978.
Riley, James C.. The Seven Years War And The Old Regime In France. Princeton: Princeton University Press, 1986.
Root, Hilton L.. The Fountain of Privilege. Berkeley: University of California Press, 1994.
Friday, January 16, 2009
Many Afghans are furious over some actions taken by foreign troops, especially airstrikes that kill unarmed civilians and night raids where unidentified foreigners burst into homes, terrifying families. While the Taliban has swiftly capitalized on such incidents, U.S. and NATO officials tend to initially deny or minimize them, and then fail to publicize investigations or findings.
President Hamid Karzai, the coalition troops' official host, has recently stoked this anger with a series of critical comments about foreign forces, saying they should deploy along the border with Pakistan instead of in Afghan villages. Critics say Karzai is pandering to popular emotion in hopes of winning reelection this year.
I don't get these silly Afghans and their so-called "popular sentiment"; don't they know we're killing them for their own good?
"When the foreign troops first came, every Afghan child said thumbs up, but now, nobody likes them. People have lost their trust," said Fazlullah Mojadeddi, 52, a legislator and former governor of Logar. "They don't want the Taliban back, but they are silent because nobody can guarantee their security. If one or two Taliban fighters come, the people don't inform the authorities for fear the foreigners will start killing innocent people."
Sunday, January 11, 2009
SkyMall is defined by the breadth of its target audience. Most advertising mediums aim for as much specialization as possible: why spend precious advertising money to reach the wrong audience? Even TV shows allow specialization: one can advertise to MythBusters viewers in Boston, or General Hospital viewers in Boise. SkyMall is different. Most anyone is likely to fly sooner or later, excepting the bus-traveling poor. As a result, very little can be said about the readers of the catalog: they have some minimal amount of spending power, and they are likely to be Americans, since most flights in the United States are domestic. An advertiser in SkyMall is targeting the broadest possible audience, an undifferentiated mass of the archtypical American Consumer.
The advertisers in SkyMall are similarly diverse. Those large-scale events that do reach a broad audience are far too expensive for most advertisers. The Super Bowl is the domain of megacorporations able to afford the vast sums required for a 30 second ad slot. SkyMall is far more affordable, including advertisements from a large number of merchants, ranging from the fairly large Sharper Image to small, single-product retailers. As a result, the catalog cannot allow the slightest whiff of provocative, controversial or offensive advertising that might be acceptable in a more specialized medium, since other advertisers will also be implicated.
SkyMall products are sanitized, wholesome mirror images of the everyday desires of the American consumer. And if there is one iconic product that summarizes everything one can learn about the American consumer from reading SkyMall, that product can only be the Creo Mundi Intentional™ Hoody. Also available as a T-shirt ($36), the $79 hoodie is printed with "over 200 positive words in 15 different languages" on the inside. "Fact: Research shows that written words on containers of water can influence the water's structure for better or worse depending on the nature or Intent of the word. Fact: The human body is over 70% water. What if positive words are printed on the inside of your clothing?"
This is what Creo Mundi, which as it turns out is a Canadian company, has taught me about American consumers: they are impressed by science, but aren't educated or smart enough to tell bullshit from the real thing. They are perennial optimists, fervent believers in the power of positive thinking. They are willing to spend money to improve their lives, though that money is often not well spent. In short, nothing much has changed since 1922, when Sinclair Lewis wrote the classic novel Babbitt:
The advertisements were truly philanthropic. One of them bore the rousing headline: "Money! Money!! Money!!!" The second announced that "Mr. P. R., formerly making only eighteen a week in a barber shop, writes to us that since taking our course he is now pulling down $5,000 as an Osteo-vitalic Physician;" and the third that "Miss J. L., recently a wrapper in a store, is now getting Ten Real Dollars a day teaching our Hindu System of Vibratory Breathing and Mental Control."
Ted had collected fifty or sixty announcements, from annual reference-books, from Sunday School periodicals, fiction-magazines, and journals of discussion. One benefactor implored, "Don't be a Wallflower—Be More Popular and Make More Money—YOU Can Ukulele or Sing Yourself into Society! By the secret principles of a Newly Discovered System of Music Teaching, any one—man, lady or child—can, without tiresome exercises, special training or long drawn out study, and without waste of time, money or energy, learn to play by note, piano, banjo, cornet, clarinet, saxophone, violin or drum, and learn sight-singing."...
"Well—well—" Babbitt sought for adequate expression of his admiration. "I'm a son of a gun! I knew this correspondence-school business had become a mighty profitable game—makes suburban real-estate look like two cents!—but I didn't realize it'd got to be such a reg'lar key-industry! Must rank right up with groceries and movies. Always figured somebody'd come along with the brains to not leave education to a lot of bookworms and impractical theorists but make a big thing out of it. Yes, I can see how a lot of these courses might interest you. I must ask the fellows at the Athletic if they ever realized—But same time, Ted, you know how advertisers, I means some advertisers, exaggerate. I don't know as they'd be able to jam you through these courses as fast as they claim they can."
"Oh sure, Dad; of course." Ted had the immense and joyful maturity of a boy who is respectfully listened to by his elders. Babbitt concentrated on him with grateful affection:
"I can see what an influence these courses might have on the whole educational works. Course I'd never admit it publicly—fellow like myself, a State U. graduate, it's only decent and patriotic for him to blow his horn and boost the Alma Mater—but smatter of fact, there's a whole lot of valuable time lost even at the U., studying poetry and French and subjects that never brought in anybody a cent. I don't know but what maybe these correspondence-courses might prove to be one of the most important American inventions.
"Trouble with a lot of folks is: they're so blame material; they don't see the spiritual and mental side of American supremacy; they think that inventions like the telephone and the areoplane and wireless—no, that was a Wop invention, but anyway: they think these mechanical improvements are all that we stand for; whereas to a real thinker, he sees that spiritual and, uh, dominating movements like Efficiency, and Rotarianism, and Prohibition, and Democracy are what compose our deepest and truest wealth. And maybe this new principle in education-at-home may be another—may be another factor. I tell you, Ted, we've got to have Vision—
So what are you waiting for? Buy yours now!