The Power and the Money

Schoolhouse rock, Venezuelan-campaign style

 A friend of mine (who works for the government ... shhhh!) sent me this Venezuelan television commercial.  It's about the referendum on abolishing presidential term limits. 

Kinda catchy, I think.  Can the Sí-side match it?

Department of WTF

  This is bizarre.  And this is really bizarre.  Can anyone explain to me why people would write such nonsense?  Please?  I really want to understand.

Wisdom

  I had a post about the Cristina-Hugo summit and all that good stuff, with two pretty cool pictures, but the damned Typepad editor crashed and the autosave appears to have failed.  Since I have two books and one case to finish, that's the end of that.  Apologies!

But here is some very sage advice about Latin America policy for the Obama Administration.  Short version:  be wary of having a Latin America policy.  My instinct tells me that the Obama-Clinton team will heed this advice.

Another modest proposal

  What, no interest in annexing Iceland?  Ni modo.  Let's turn instead to the stimulus plan winding its way through Congress.

To this observer, it seems quite brilliant as Keynesian countercyclical spending.  Such a stimulus works best when all the money is spent on labor-intensive stuff and spent quickly.  That's why the recent Republican lie that a CBO report indicated that only $45 billion would be spent in the first two years got so much traction.  Sadly for the Republicans, the CBO didn't say what they said it said.  (What did you expect?)  The report is here; it covered a now-withdrawn $61 billion bill proposed in September.  Getting $45 billion of a $61 billion full of big infrastructure projects out the door in two years ain't bad, but like I said, H.R. 7110 is moot. 

So how does the new bill, the American Recovery and Reinvestment Act of 2009, stack up?  I went through its $543 billion in line items and grouped them as follows:

1. An Army of Roofers: people doing stuff like weatherizing homes, retrofitting office buildings with energy saving windows, or replacing old car engines with new ones.  Plus some building of small-scale stuff like schools and army housing.  $91 billion.
2. An Army of Programmers:  people redoing computer systems across government bureaucracies and the health care system.  $24 billion.
3. An Army of Hardhats:  people building bigger cooler stuff like new electrical transmission lines or freeways.  Or, yes, sewers, lots of sewers.  $60 billion.

That comes to $176 billion spent pretty quickly on stuff that's already pre-approved or pretty simple to ramp up from scratch.  Call it 2.0 million jobs for an outlay of 1.2% of GDP.

But there's more:

1. Keeping bureaucrats employed:  $173 billion in temporary aid to state and local governments.
2. Handing out cash:  $116 billion in various types of temporary aid to individuals.

That's an additional $289 billion that will do a lot to maintain demand, since the governments getting the aid will have to pay the associated salaries (instead of laying people off) and the individuals getting the cash are all people in serious economic trouble.  (There's another $79 billion in there that I couldn't classify, mostly R&D and educational spending of various types.)

Anyway, as a Keynesian stimulus, the package seems pretty brilliantly designed to this observer.  A lot of it will even have long-term payoffs in terms of lower energy use and higher administrative efficiency.  No high-speed trains, no universal health care, but a lot of money out the door very quickly in a way designed to maximize the chance that it will be spent.  Not bad, new Administration, not bad at all.

A modest proposal

  I have really got to start cross-posting on AFOE.  They've given me permission; I just don't feel like my Europe stuff lives up to their standards.

Anyway, the Economist had an interesting column about Iceland and the European Union.  The conventional wisdom is that Iceland would like the euro.  But there are political difficulties.

So why not associate with the United States?  I don't mean become a state, that would be stupid.  Icelanders aren't Americans, and truth be told, they don't seem real likely to become Americans.  They don't listen to reggaetón or country, they don't build malls, they don't put neon-tubing on the underbodies of their cars or shoot guns for fun.  (Cue Jussi telling me that I'm a nationalist.  I am coming around to his point of view.  That is not a good thing.)  But what about becoming a Commonwealth, like Puerto Rico or the Northern Marianas?  They'd have to give up membership in the European Economic Area, but what has that ever gotten them?  They wouldn't have to give up membership in all those Nordic agreements, although they would have to allow Americans to become Icelandic citizens after one-year residency, same as Puerto Rico does. 

So what would this magnanimous move cost the American taxpayer?  Nothing!  Icelanders over age-65 wouldn't qualify for social security under current law; they haven't paid anything in.  But let's say the U.S. waived that, and paid Icelandic pensioners the minimum benefit, just to be nice.  What would be the cost?

A back-of-the-envelope calculation:

Recoupling

  Andrew asks me to say something about “decoupling.”  (I am going to resist the temptation to embed an image of an infamous Economist cover.)  The idea was that the U.S. was now a smaller part of the world economy than before, and thus U.S. trouble was unlikely to spread.  Why, he asks, did it turn out to be wrong?

My temptation is to take issue with the premise.  Was the world ever really coupled?  The research on business cycles is mixed, but the upshot appears to be that business cycles were never all that synchronized.    Even when limited to the big economies, there isn't much sign of coupling.  The implication is that although economic troubles do seem to spreading worldwide, they could have spread a lot further and a lot faster. 

You can also take issue with the premise from the other side.  Could it be that emerging markets are holding up well given the scale of the troubles?  After all, Brazil (and elsewhere in Latin America) are certainly coping a lot better than they would have a decade ago; even Mexico is experiencing a slowdown rather than a collapse.  (And you don't get more coupled than Mexico, do you?)  It used to be that when the U.S. sneezed, Latin America caught cold; now Latin America seems to just start sneezing as well.  That's some sort of decoupling.  The same could be said for China and India:  hit but not clobbered.

Finally, there is a third way to take issue with the premise:  “decoupling” was always a hypothesis, and never an accepted part of the conventional wisdom.  That's why the March 2008 Economist article on the subject has the phrase “even if it is the source of a great deal of controversy” in its second sentence.

But I quibble. The decoupling optimists were wrong. Basically, they missed three things.

1. World business cycles have always been more correlated than the underlying trade linkages would suggest. 
2. Lots of financial institutions overseas had exposure to the U.S. market.  There was this bizarre (but explicable) flow of capital from the poor world to the great United States over the past decade.  The good part was a build up of reserve cushions.  The bad part ... well.
3. Lots of financial institutions started borrowing in currencies with low interest rates and lending in currencies with high interest rates.  Whoops.

A fourth may be added soon:  the drying up of trade credit leading to far bigger falls in trade than anyone would have expected. 

Thoughts?

The country of the future

  Randy McDonald pointed out this odd article about Brazil in the Globe and Mail.  The author lauds Brazil as a particularly good exemplar of economic management over the past few years, while blasting Canada: 

“On the other hand, Canada should have done much better too: Our economy grew dramatically, fuelled by a new resource boom, and our banks stayed on a short leash, so none failed.  But for the most part, we were among the champagne-sprayers. Our wealth fund, which shamefully lies in provincial hands, is needlessly tiny. And a decade of lacklustre government spending by both parties has robbed us of the chance to become a world leader: Our measures of equality and poverty are no better than they were at the beginning.” 

To which I respond:  bollocks!  (I like that word.  I don't think I've ever actually spoken it.  I don't think anyone in the United States has actually naturally spoken it since 1892, although I have been known to say “bollixed up.”)  Brazilian economic management has been fine, but not exemplary, whereas Canada has done everything it was supposed to do. 

Point #1:  yes, Brazil paid off its debt to the IMF.  Very nice ... but Canada never had any IMF debt to pay off.

Point #2:  yes, Brazil reoriented its social spending to bring real results in improving public health and reducing malnutrition ... problems Canada does not have.

Point #3:  Between 1998 and 2008, Brazil managed to hold its net federal debt to 25% of GDP.  It also managed to redenominate most of its debt into its domestic currency.  Both excellent accomplishments.  But Canada's debt was already denominated in its own currency, and in the same period Ottawa reduced the federal debt from 63% of GDP to 30%, a much more impressive accomplishment, and exactly what the author accuses Canada of not doing.   

Two more points below the fold.

El Caribe americano

  Lots of Stars-and-Stripes on the Mall of course, a few Texan ones, two French tricolors, one Ghanaian Black Star, a Californian red-star-and-bear ... and multiple Trinidadian, Jamaican, Haitian, Grenadine, Grenadian, and Guyanese flags. 

The Commonwealth Caribbean has an interesting emotional relationship with the United States, all the more so with this inauguration. 

P.S.  Why is Washington overrun with the Miami P.D.?  Dude.  Miami??

P.P.S.  Did Governor Paterson just call Hillary Clinton the best senator that New York City has every had?

P.P.P.S.  That's a lot of booing for the still-President.  I suppose I shouldn't be surprised.  I much prefer the singing, "Hey hey hey, good bye."

Brooklyn is not expanding, and the Mexican state is not failing

  “He’s been depressed.  All of sudden he can’t do anything.”

“Why are you depressed, Albanito?”

“Tell Dr. Parpadeo!  It’s something he read.”

“Something you read, huh?”

“The Mexican state is failing.”

“The Mexican state is failing?”

“Well, the state orders everything, and if the state is failing, then one day it will break apart, and that will be the end of everything.”

“What is that your business!  He stopped doing his homework!”

“What’s the point?”

“What has the state got to do with it!  You’re here in Iztapalapa!  Iztapalapa is not failing!” 

Seriously, people, the Mexican state is not failing.  The Mexican state is weak compared to the United States or Canada.  But it is incredibly strong compared to the places in Africa or Central Asia that are generally called failing states.  Garbage is picked up.  (In more places than Afghanistan, anyway.)  Uniformed children go to school.    Middle-class families take weekend getaways, and do so on motorways better than the ones north of the Río Bravo, with no fear of IED attacks. 

Let's put some numbers on this.  In 1997, the Mexican federation had a murder rate that made it, in per capita terms, about as dangerous as Puerto Rico is today.  Over time, that fell, so that by last year Mexico's homicide rate had fallen within striking distance (or statistical error) of Maryland's.  In 2008, murders appear to have spiked by at least a quarter ... making the country almost-but-not-quite as bad for your health as ... Louisiana.

Crime is the major problem in Mexico; its government's failure to control it is a blight, and Mexican voters should judge their leaders accordingly.  Kidnappings, express or otherwise, should not regularly occur in a country with a halfway professional investigatory service.  In the seven ... practically speaking, eight ... years that I lived in Mexico City both my downstairs neighbor and my best friend suffered carjackings, I lost the entire front end of my 1990 Mercury Cougar when I left it unattended for 15 minutes on a highway access road, and I myself got mugged by cops in Tlalpan. 

That's a lot of crime.  In comparative terms, I managed to traipse around East Harlem, Prospect Heights, Washington Heights, Manhattan Valley, the Lower East Side, and the South Bronx during the 1980s with less experience of mayhem.  (Although I never actually saw any dead bodies in Mexico City, as opposed to three during my youth in Brooklyn and Manhattan.  And no one ever attacked me with a knife on a metro train in el D.F. for no apparent reason.  Nor was my house ever broken into and ransacked.  But the point holds.  Crime is worse in Mexico City than NYC in the bad old days.  I think.)  

In other words, crime is the major problem in Mexico.  And it doesn't help that the cartels have made steps in turning themselves into a Mexican version of the Camorra in states like Sinaloa, or that displaced cartel hitmen have started opportunistically engaging in small-town crime. 

But the Mexican state is not failing.  Mexico is not failing.  Iztapalapa is not failing.  Iztapalapa (and Mexico) has problems, but it is not failing, and little Albano better do his homework.

The expropriation that wasn't

  Kevin Drum and Dan Drezner wonder why the oil companies would get back into Venezuela after the way Hugo Chávez treated them the first time around.  The answer is simple:  Chávez didn’t treat them badly.  When oil prices head back up, they’ll do fine even if he plays the same movie all over again. 

“What???” you say?  How can that be?  Simple.  Between 2004 and 2006, the Bolivarian Republic of Venezuela expropriated the marginal surplus generated by the run-up in oil prices.  It did not, however, reduce the revenues of the oil companies.  They took home about $10 a barrel when the contracts were signed in the late 1990s, and they took home about $10 a barrel in 2008.  In fact, some of the companies that had signed service contracts under the old regime received more money under the Bolivarian regime than they would have under the original rules.

So why not get back in?  It isn’t like there are a whole lot of places around the world for the oil companies to invest in, especially not on-shore.  Most oil reserves are closed to the majors, and political risk is everywhere, including Alaska under its radical socialist governor.   The companies have little chance of enjoying the upside from a return to high prices, but with estimated costs of $6-$7 a barrel, Venezuela is still a good bet. 

Details and money graph below the fold.

America returns, with a New York accent

  Below is an example of intellectual heroism. It was strange to see Senator Cornyn (R-Texas) ask a question that boiled down to: “If you concede that my argument is correct, then isn’t my argument correct?” Do you think he noticed the chuckles?

I got a New York City game

  P.S. 127, yo. And he went to my high school.

“Champagne on Ice”

 This comes from the archives.  It was posted on another blog on January 21, 2008.  Considering that the football postseason is now entering full swing (and that only Philadelphia survives as a team that can grab my interest) I thought it apropro to repost it now.

It was cold yesterday.  It was cold in Massachusetts.  It was even colder in Green Bay, like negative 17 degrees ... negative 31 with the wind.  Third-coldest postseason game in NFL history. 

The New England game ended the way I like.  The Green Bay game did not.  Overtime, Green Bay wins the toss, an interception, and then Lawrence Tynes gets the third field goal attempt after botching the first two.  Did anyone catch Giants coach Tom Coughlin's temper tantrum after Tynes messed up the first?  I hadn't seen anything like it since basic training.  Sadly, though, it seems to have worked as a motivational device.

Anyway, I know Giants fans, and they simply don't deserve the victory.  Everyone disenchanted with money-drenched professional sports has to love the plucky little municipally-owned team.  And anyone annoyed by fair-weather fans (as a former Bleacher Creature, this often afflicts me at baseball stadiums not located in Boston or the Bronx) has got to love the dedication of those who love the Packers.

“It makes me feel like a sissy,” said Troy Aikman on national television when Fox cut to that shot.  I have to agree.  Over to you, Carlos.

Knuckleballer throws a curve

 It seems that a second professional baseball league has opened in Japan.  I am not clear on the business reasons for the new league (which seems to be more of a minor-league operation than new competition for the Japanese majors) but one of the teams appears to have identified a major-league-quality knuckleballer.  The knuckleball, for those of you who don't know, is one of the trickiest pitches in baseball.  Essentially, the pitcher throws a knuckleball with no spin.  Since a baseball isn't a smooth sphere, in theory the lack of spin makes the ball's trajectory unpredictable and almost impossible to hit.  In practice, the pitcher needs to be very very good to avoid (1) handing the batter an easy hit; (2) throwing a lot of balls; or (3) making life impossible for the catcher and thereby allowing any runners an opportunity to advance.   

The curve?  The knuckleballer so-identifed appears to be a five-foot-tall 16-year-old girl. 

I hope this story pans out.  Truly good knuckleballers are rare.  So the odds are that Eri Yoshida won't make it to the incumbent major leagues in Japan, let alone the United States.  But I hope she does.

Data I'd like to have

  Where can I find time series on:

1. Gazprom's revenue, by market;
2. Russia's transit fee revenue, by originating market;
3. The average wholesale price per standardized unit for Russian gas and other gas, by market.

Get me that data, and I might be able to make some sense out of Russian policy.  I will say that current events make me think that Russia doesn't want to snarfle off bits of Ukraine.  You can extract a lot more surplus out of a neighboring vassal than you can out of your own citizens.

Barbados, Jamaica, institutions, and a great reason for a research trip

  There is a debate inside the economics profession about the importance of institutions, broadly defined.  One side of the battle holds that institutions are everything.  Countries can institute all sorts of bad policies and still prosper over the long run if they have “good” institutions — France is a common example.  A subset of this group likes to argue that a particular set of legal institutions is very important.  You can sum their argument up as “Common law good, civil law bad.” 

The “institutions as epiphenomena” side of the debate has mostly given up, with the valiant exception of Greg Clark.  That said, strong opposition still exists in the form of two arguments: “institutions aren't everything” and its subset, “legal origin theory is total b@ll$#/t.”

One obvious experimental laboratory is the British West Indies.  Not a whole lot of good came out of the collapse of the West Indian Federation, but one bit of lemonade coming out of that lemon was that it left us with a collection of independent and quasi-independent states with a similar institutional background.  Now come two authors with a comparative paper on Barbados and Jamaica, arguing that it is macroeconomic policy, not the legacy of history, that explains the different paths of the two nations since independence. 

Are their arguments convincing?  More below the fold.

Newsflash: Boychick from Brooklyn loses Senate race, and word he deserves it

  Official it ain't, but Norm Coleman of James Madison High School in Midwood, Brooklyn, New York appears to have lost to Al Franken. Now, Coleman has always been an a--hole, but he was once the sort of a--hole that I could respect, having unfortunately been a similar one myself.  Frex, the dude wrote, in the late 1960s, “I know these conservative kids don't f--k or get high like we do (purity, you know). Already the cries of motherhood, apple pie, and Jim Buckley reverberate thorough the halls of the Student Center.  Everyone watch out, the 1950s bobby-sox generation is about to take over.”

Nor do I fault Coleman for becoming a Republican in the 1990s; once again, I did that myself, and the past can be forgiven. And my priors are always in favor of the candidate who sounds most like Jerry Ferrara. 

But Norm took a dive off the right end of the pool, hit his head, and never came up for air. That I fault him for.

Plus, Al Franken is whip-smart, right on the issues, and a great writer. I gave dinero to his campaign, to my wife's great amusement, and I think he will make a great senator. Icing on the cake is that Minnesota is one of the few states that deserves no more and no less than its two seats. Go, Al!

The resource curse doesn't exist, and please stop talking about it

  My friend Will hopes that oil prices stay low, in order to insure that the Russian Federation remains behaved.

My response:  Please get the stupid, and I mean truly monumentally stupid, idea of the resource curse out of your heads?  It's a well-accepted idea, but it's just plain wrong.  No matter what Tom Friedman writes about it.

Stephen Haber and Victor Menaldo have a paper coming out that shows that there is no, squat, zero, ningún relationship between democracy and oil resources.  Haber and ... uh ... me ... will eventually have a paper showing the same thing for civil war. 

But hell, maybe Russia is different.  So my question for you all is simple.  Why would an authoritarian government, no, why would a dictatorship give up power because its export revenues went down?  That makes no bloody sense.  It could default on foreign debtors.  It could blame foreigners for any crisis.  It could shoot dissidents, you know, the way Panama did under Noriega. 

Is there any reason to believe that a fat Russia would be more democratic and less expansionist than a lean Russia?  No.  F@&k no.  There isn't any reason to believe the opposite either, of course ... but by God do I wish that people would stop fooling themselves.  Resource money has fueled democratic transitions and dictatorial takeovers, foreign expansion and foreign engagement.  Those who know Russia better will be able to predict that country's idiosyncratic political reaction to declining export revenues ... but why any of the information in this story, about governments trying to crack down on the bearers of bad news, would make an observer hope for sustained bad news is beyond me. 

Ah, here comes my first AFOE cross-post.  But your reactions first.  At least until I can find the damned keys to that blog.