The Power and the Money

Really unbecoming American sensitivity

 Most of the (few) readers of this blog are certainly aware that in 1978 the United States agreed to transfer full control the Panama Canal back to Panama in 1999.  (I'll discuss the reasons benind that agreement that in another post, if anyone's interested.)  The resulting treaties were controversial.  Most Americans forgot about it right quick, but the Texas Republican party continued to rant about it until 2003.  From their old platform: 

“The Party urges Congress to support HJR 77, the Panama and America Security Act, which declare the Carter-Torrijos Treaty null and void. We support re-establishing United States control over the Canal in order to retain our military bases in Panama, to preserve our right to transit through the Canal, and to prevent the establishment of Chinese missile bases in Panama.”

That's a whole lotta crazy.  But it represented a defensive nationalism that seemed pretty much to be over.  After all, the United States is not a country that harkens back to a grand imperial past.  We are not a country bothered by our military defeats.  We are not a country afraid to recognize past wrongs, we move past ours, we ask others to move past theirs.  Nor does relative decline bother Americans; if we become more prosperous and more secure, there is no worry that others have overtaken us.

Oh, wait!  That's some other country I'm talking about.  Maybe Finland.  We get things like this:

My oh my.  But thank God for Geraldo.  America owes a lot to half-Jewish half-Latin guys from the New York metropolitan area, that's what I always say. 

A curious reaction to the Mexican flu

  “The Philippines’ health department urged people to avoid kissing and hugging in public.”

This led a colleague to ask me, “Is kissing and hugging in private somehow safer?????”

The President is smart!

  Regardless of your politics, it is refreshing to have a president who can talk intelligently about economic issues.  It is very hard to imagine George Bush having such a conversation, but that isn't the problem.  The problem is that it is also very hard to imagine Bobby Jindal having such a conversation, although he is also clearly a very intelligent man.  Could he do so and survive a Republican primary?

Unbecoming Canadian sensitivity

  I am an unabashed Canadaphile.  The Canadian constitution is rather better designed than the American one, other than not having a popularly-elected governor-general.  The health care system is not the one I’d design from scratch, but it has ours beat cold.  The federal system makes more sense.  They don’t fetishize local government.  Plus, they play good baseball and make good hip-hop.  And I have in-laws in the Mounties.  How Canadian is that, eh?

 

With that in mind, Canadian defensiveness towards the U.S. perplexes me, and it pops up in the most unexpected places.  Frex, as I didn’t know until I read Randy’s blog, it seems that Janet Napolitano may have accidently confused the Millennium Plot with 9-11 during a press conference.  OK, that’s a little embarrassing.  I’ve been there myself.  But enough to produce this reaction?  Or this one? 

The Globe and Mail column is particularly confusing.  After all, the sensible ripost to any mention of the Millennium Plot is to say, as the column did, that the U.S. blocked the terrorists at the border and the system worked.  Instead it brings up security theater that has nada to do with Canada (shoes in airports) and stuff that’s really aimed at keeping track of Americans, like requiring passports.  And that after a claim that Janet Napolitano is just like Dick Cheney.  Erm?  From whence this excitement?

Now, there are countries where people are understandably worried about perceived slights from the United States.  Like Mexico, where there are umpty-scrump reasons for people to be defensive with respect to their 800-pound neighbor.  Among other things, Mexico lost its war with the United States.  That sensitivity is why the U.S. needs to apply the same border controls to the northern and southern frontier, or at least be publicly seen to be doing that; otherwise key segments of Mexican public opinion would be enflamed, making cooperation unnecessarily harder. 

But similar Canadian sensitivity I don’t get.

Baumol’s disease, perfect competition, and finance

  A colleague points out that Baumol’s model requires perfect competition.  If profits have risen in the financial industry, then it’s probably not the explanation. 

The above graph from Simon Johnson does not at first glance seem consistent with a diagnosis of Baumol’s disease.  The rub is that I don’t know what profits consist of in the financial services sector.  Are we sure that all profits are indeed profits, and not disguised labor payments?

If we are, then we may have to abandon the Baumol hypothesis.  Help?  Anyone? 

Baumol’s disease and the financial industry

  The Baumol effect (or “disease”) suggests that the parts of the economy with the slowest productivity growth are likely to grow the fastest.  Howzat, you ask?  Well, say productivity grows in widget-making but not in article-writing.  The cost of writing articles will rise, because the only way you'll get RA's to write them for you necessary research assistance is to pay higher wages.  Otherwise they'll all go away and make widgets.  So (if you make a bunch of other assumptions that I won’t get into here) the amount of money spent on article-writing will rise.

Simon Johnson recently published a disconcerting chart that showed finance profits rising dramatically as a % of all corporate profits, starting in the 1980s and peaking in 2006 at a rather mind-boggling 41 percent.  I’m honestly not sure how to think about that, so I went to the BEA and downloaded data on the financial industry’s share of value-added and employment.  That produced this chart, of data between 1948 and 2007:

 

Finance’s share of GDP grows monotonically over the last sixty years.  Employment in finance, however, grows about as fast as value-added until the 1980s, when it starts to accelerate, and the 1990s, when it takes off. 

There are three ways to think about this, it seems.  One is that productivity within the financial sector grew dramatically in the 1990s.  “Financial innovation” and the like, whatever that is.

The second is that the financial industry became much less competitive in the 1990s.  The bankers managed to extract rents from the rest of society and increase their share of the pie without producing any equivalent benefit.  Some of those rents went to finance employees, while others went to the firms’ owners and creditors, but is was all about the rents.

The third is that the relative productivity of the financial industry collapsed during the 1990s.  Capital and skilled labor could earn a lot more elsewhere, so the financiers needed to offer them more in order to keep their services.  Some of the higher cost per financial-service went to capital and some to labor, but the growth of the sector was due to Baumol’s disease.

The $64,000 — $64 billion, $6.4 trillion, whatever — question is:  how can you distinguish between these three different hypotheses? 

And the meta-question:  does knowing which of the three best fits the facts change the analysis of the financial collapse?  That is, does the question matter?

Observatorio Argentino 11: The new broadcasting law

  OK, I've been making a lot of fun of the idea that Argentina is run by a dictator and an enemy of the United States.  Obviously, neither is true.  

But a new law proposed by President Cristina Fernández raises some interesting issues.  She proposes to limit the the number of broadcast licenses that a single firm can hold, and allow telecoms companies to operate cable television networks.  The law would also reserve a third of broadcast frequencies for nonprofit groups such as universities, and set minimum quotas for Argentine films, music and programs.  (Her meeting with the movie-makers is pictured.)

I don't have any ideological problem with limits on the number of media outlets that any one person or entity can control ... but I might be wrong on that.  Are there dangers that I don't see?  This proposal seems pretty openly aimed at Grupo Clarín, which is a big critic of the president.  In addition, about a year ago she proposed to establish a government watchdog that would call out media bias, although nothing appears to have come of it. 

What do you think?

Newsflash: Mexico flu

  I'm in Los Angeles, eating breakfast.  As in, that's what I'm doing right now.  And all the people at the table next to me are saying, in Spanish, that the Mexican government just shut down the school systems in the D.F. and Mexico State after 16 people died.  Apparently two people in the their 20s passed away, leading the government to decide that the outbreak was serious enough to close the schools and organize mass vaccinations.  People are urged to go to a hospital immediately if they detect symptoms.

I would like to take the opportunity to repeat that failing states do not react to flu epidemics in this manner. 

Does this post count as a violation of Godwin’s Law?

  She's a dictator, see!  A dictator!  And Argentina is an antagonist!  So we should all be very afraid when Buenos Aires submits maps like the one to the right to the United Nations. 

The nefariousness of it all is clear.  She intends to re-attack the Falklands, and then take over Antarctica.  And look at this:  at home she's accused of “electoral engineering.”  That sounds sounds all dictatorial and everything.  I mean look at what she's accused of:  “abandoning duties to campaign” and “watching polls.”  That's just unconscionable, a perversion of democracy. 

Since we all know that free trade and democracy are inseparable, accusations that her government is engaging in closet protectionism are clearly a sign that the jackboots will be out on the street at any moment.  I mean, nobody could possibly support protectionism.  Nobody.  This is at least semi-dictatorial, right?

I mean, wow.  In December, Buenos Aires announced the “Production and Work Defense Program.”  Under it, the government promised to impose temporary limits on the quantity of imports in such strategic sectors as shoes, clothes, and tires.  Democratic countries would never do anything like that.    It just violates every known principle of everything.  And it sounds scary.  “Production and Work”?  

Add to that the fact that the government has taken over control of the grain export trade.   How dare they try to keep track of the taxes farmers pay the federal government!  There are no democratic governments where the state controls the export of agricultural products.  None. 

I mean, the above picture, it's just terrifying.  Look how those Chilean soldiers have broken discipline, turning their heads out of formation, in what clearly must be fear.  Yes, the Argentine dictator must be stopped. 

La jefa

  I don't know, I guess this could be a picture of a military dictator of some sort.  I mean, she's wearing a jacket that's almost olive drab, and a beret.  Yeah, must be a dictator.

I mean, no American president would ever dress up in military garb like that, just to impress people. 

Oh no he di’n’t

  Well.  One of the leaders of the Republican party, a former Speaker of the House, and a plausible presidential candidate, goes to the Bronx and calls Cristina Fernández a “semi-dictator.”   

No, seriously.  Chávez, though, got to be a full dictator, while poor Danny Ortega got lumped in with Cristina among the “semis.” 

Now that is funny.  Ortega, who unlike the other two has in fact engaged in election fraud, becomes the same as Fernández.  Now, it is true that about a year ago she tried and failed to make an end-run around Congress in order to impose an agricultural export tax.  But our last president tried and succeeded to make an end-run around Congress in order to detain suspects indefinitely and monitor all communications crossing the country's border ... and while George Bush the Younger was many things, a “semi-dictator” was not one of them. 

Meanwhile, I really do need to repeat that Venezuela is not a dictatorship.  Most of the anti-Chavista opposition recognizes that.  And even should Chávez turn it into one, Venezuela poses no threat to the United States.  Let him slosh money around!  He gets nothing for it.   

Still, I can understand how he makes a useful foil for American conservatives.  I've heard lefties say stupider things about President Uribe ... although never anyone as prominent as Newt Gingrich.  But making Argentina into an enemy of the United States?  Huh?  Argentina??

So I've really got to wonder.  Can somebody explain what's going on with the GOP and the crazy pills?  I'm at a loss.

I guess I must reluctantly come around to the position that it is time to eliminate the filibuster. 

Canadian policy on captured pirates: let ‘em go. ¿¿De veras??

  As our few readers know, we've been covering piracy for some time on this blog.  Our first post on the topic, in fact, took on the myth that European navies refused to enforce the law against pirates.  Only now Robert Farley tells us that the Canadian and Dutch navies went ahead, captured pirates, and released them.  Er?

Well, NATO is not the problem.  It is true that NATO, which is not a sovereign state, does not have arrest powers.  But the national navies operating under NATO command do have such powers.  Now, I'd be happy with giving an international organization arrest powers, but I can see why some politicians might be reluctant to take that step.  That said, the truth is that not only do national militaries have the power to arrest pirates on the high seas, since December they've had the ability to do the same thing anywhere in Somali territory, sea or land.

So if this and this story are correct, something isn't working.  In the Dutch case, it seems to have been a low-level screw-up.  Ships under European command have standing orders to turn captured pirates over to Kenya for prosecution and punishment; ships under NATO do not.  There was a deputy from the justice ministry on board the Dutch ship (for precisely this reason), but whoever it was decided to let the pirates go.  Parliament appears to be annoyed.  At some point, I suppose, we'll find out who made the decision and why.  We might even find that circumstances made it a wise choice.  But it isn't Dutch policy, and it seems to be causing the government some headaches at home.

Canada seems to have a deeper problem.  The Globe and Mail has deeply misinformed its readers by reporting, contrary to fact, that “Canadian sailors, like their NATO allies, lack the authority to make arrests in international waters.”  Of course, the Globe and Mail is parroting what seems to be Ottawa's official line.  After all, the Prime Minister said in Port-of-Spain that the Winnipeg did the right thing by releasing the pirates.  “Those were the appropriate measures under the circumstances.”  Elsewhere, a Canadian admiral alluded to mysterious legal difficulties.  “There's the rule of law that needs to be applied, so we're not currently regularly detaining them, no. There are all kinds of challenges with that.” 

Now, I can understand why a country would fear becoming a dumping ground for pirates ... but it isn't as though hundreds or thousands of them are being captured every year.  Nor is organizing a piracy trial under normal criminal rules all that difficult.  (And they have, by definition, been caught red-handed.) 

So, Canadian readers, I ask you, what the hell?

Bandwagoning on the catblogging

  This was one aggressive little dude, not at all put off by cigar smoke.  I almost took him home, but he certainly seemed well-fed enough to belong to somebody.

I got nothin'.

Shallow thought of the day

  I wonder if future generations will have the pleasure of getting to listen to music that they like but haven't actually heard for decades.  Frex, I just came across an old CD of Fourteen Shots to the Dome.  It's far from obscure, but I just hadn't heard it in a really long time, because I lost (well, misplaced, because it turns out to have been at the bottom of an old Army dufflebag, which is weird) my copy before I digitized it.  So it's all, well, fresh, in both senses of the word.

And that was your shallow thought of the day.  1993 and all that. 

Dog Day Afternoon blogging

   So I’m at home, cleaning the apartment, missing my wife, thinking about working, and idly watching Dog Day Afternoon on the teevee. 

And about five minutes ago there’s that scene where the cops set up shop outside the bank and the police helicopter waves off a news chopper, and I’m getting this sense of déjà vu.  Like, didn’t the actual robbery happen in Midwood or Gravesend or one of those two-family home places?  Y’know, like, that street is not in that part of Brooklyn.  Actually, it looks familiar.  Don’t recognize the stores, but isn’t that Bishop Ford?  And that's the Prospect Expressway, no?  Dude!  That sign says 17th Street!  That’s Ninth Avenue!  They filmed Dog Day Afternoon in Windsor Terrace!!

Pretty cool.

And that scene where his wife hears what’s happening over a transistor radio in a McDonald’s?  That was Queens.  Black-on-white street signs, instead of white-on-black, or black-on-yellow, the way God intended.  (Don’t talk to me about this white-on-green thing.)  The things you can get nostalgic about.

“He’s one of them Spanish kids.”  I love that line.

UPDATE:  This movie could have been made yesterday.  I don’t mean in a zeitgeisty sort of way, not at all.  And I don’t mean the clothes or cars, of course.  But these little things, a discussion of cigarettes and cancer, a newscaster mentioning “the gay community,” Al Pacino’s body language.  It seems more modern than 1972.   

The other Castro

  Cipriano Castro managed to make a bit of a hash of Venezuela during his brief regime.  He gained power in 1899, at the head of a revolutionary army.  His army mobilized resources by confiscating property; sometimes of opponents, sometimes not.  Eventually he provoked a bunch of European navies into blockading him.  The resulting diplomatic mess eventually dragged in the United States, who was worried that Germany intended to, say, scarfle off some Venezuelan islands and establish a naval base.  Or something.

So it isn't really clear to me why Hugo Chávez would want to replace a bust of Rómulo Gallegos with one of Cipriano Castro in the presidential palace. 

And then Leticia Arroyo sent me this speech by Castro made on December 9th, 1902, just as the European navies started sinking Venezuelan ships in the harbor of La Guaira:

Venezuelans!

The insolent foot of the foreigner has profaned the sacred soil of the Fatherland!  An extraordinary act in the history of the civilized nations, without precedent, without possible justification, a barbarous act because it is an attack on the most rudimentary principles of international law, an ignoble act because it is the fruit of an immoral and cowardly collusion of force and betrayal, it is something that the English and German squadrons have just done in the harbor of La Guaira just a few moments ago:  in a simultaneous and coordinated action they surprised and captured three undefended ships of our navy that had entered dock for repairs. 

The battle is unequal because two of the most powerful nations of Europe have conducted an attack against our country, which has barely made it out of a  long and painful convalescence ... But justice is on our side, as is the God of the Nations who inspired Bolívar and the constellation of heroes who accompanied him in the great work of bringing us, at the cost of great sacrifice, our Fatherland free and independent ... For my part I am prepared to sacrifice everything on the altar of the Fatherland, everything, including what one might call my anguish over our internal differences.  I have no memory of what disagreements may have occurred in the past.  Erased in my thoughts are the politics and fighting of all who were opposed to my aims, of all who have been able to leave a trace of pain in my heart.  In front of me lies no less than the luminous vision of the Fatherland, of which Bolívar dreamed, of which I dream.

... I open the doors of the Republic’s jails for the political prisoners who still remain in them; I also open the doors of the Fatherland for those Venezuelans who remain abroad for similar reasons and return to them under the constitution the properties of all the revolutionaries who lost them for reasons of public order.  Further still, if I survive these events ... I am prepared to return to private life, leaving behind my sword, of course, at the service of the Republic, and you can be sure that I will retire sans nostalgia for power, because my greatest aspiration is to see my great Fatherland prosperous and happy.

Now I see exactly what Hugo sees in this guy.  I can imagine him giving this speech on Aló Presidente, word for word.  Some things never change indeed.

From Russia, without love? Or a Greek tragedy?

  There is no official definition of “depression.”  Tim Kehoe says a 20% deviation from trend growth over a decade.  Richard Sylla says double-digit unemployment for a period of months.  Brad Delong says unemployment staying in double-digits for three years, or peaking above 12%.  Michael Bordo says a two-year continuous output decline of at least 10%.  By any of those definitions, Finland suffered a depression in 1991-93, or even 1991-96. 

So what caused it?  Well, there was a discussion about that somewhere, but I can't find it.  Anyway, you can sum up the evolution of the conventional wisdom as follows:  “We thought it was the collapse of the Soviet Union, but then we figured out that it was actually caused by a banking crisis.”  Blaming it on the Soviet collapse exculpates Finns:  it all came from Russia.  Blaming it on the banks turns the episode into a Greek tragedy, which Finns unknowingly brought upon themselves. 

Evidence for the banking-crisis hypothesis can be found here and here.  (Another hypothesis holds that Finnish workers decided to take an extended vacation because managers forgot how to run their firms and the government raised taxes.  No, seriously.  I don't have a whole lot to say about that.) 

Now, however, a Ukrainian, a Mexican, and an American have entered the fray to argue that, no, it was indeed the sudden collapse of trade with the Soviet Union what caused the Finnish depression of 1991-96.  Their paper is here.  The argument is pretty simple.  (1) Yeah, there were some signs of financial weakness before 1991, but let's not get crazy.  (2)  Trade shock.  Huuuuuge.  Plus, when you look at the industries that went under first and fastest, it was the ones that relied on the Soviet trade.  (3)  The banking system didn't fall apart until after the trade shock.  Absolutely, it was a weak system, but few systems could have handled a shock that big.

Basically, they argue that you don't have to assume a lot of friction in the real economy to get a slow recovery from a trade shock of the magnitude that hit Finland in 1991. 

But there is that nagging question:  why did Sweden go into a (much less serious) recession around the same time?  Could the Soviet trade shock have precipitated the Swedish crisis somehow?  Or is all just a coincidence, kind of like a man getting hit head-on by a truck and then having a bicycle ride over his hand? 

It's an interesting paper, even if it turns out to be wrong.  Thoughts?

Guest post #5: The Home Front on the edge of Empire

  In Finland, as we saw yesterday, the participation of local soldiers in the campaign against Poland ignited patriotic sentiments, at least among those who had served in combat:  “May our banner call the sons of Finland to perform the highest civic virtues still in the future, to fulfill their obligations and loyalty towards their sovereign.” 

Elsewhere in Europe, the bloody suppression of the November Insurrection aroused, well, different feelings. The Polish independence struggle became an immediate cause célèbre for European liberals. Casimir Delavigne, for example, celebrated the old Napoleonic brotherhood in arms between France and Poland in his exhilarating song La Varsovienne.  In the German-speaking countries, August von Platen’s 1831 sonet collection Polenlieder topped what later generations would call the charts.  

West European sympathy towards Poland, however, hardened Russian attitudes; even the Russian intelligentsia abandoned its criticism of the Tsarist régime and supported Imperial policy in Poland. The anti-European backlash culminated in Aleksandr Pushkin’s legendary (if somewhat unsubtlely-titled) poem, “To the Slanderers of Russia.”  Pushkin’s diatribe, in particular, should be familiar to a modern reader. 

(Uh, Jussi, you give us too much credit.  I’ve never heard of any of the works of music or literature that you’ve cited in here.  Then again, I hope nobody criticizes people in 2145 for their ignorance of, say, “Eve of Destruction” or “Bad Moon Rising.” Right?  Or am I excusing my ignornance?  —ed.) 

Russian officials still reference “To the Slanderers of Russia” in times of conflict.  During the 1999 Kosovo War, for example, the Russian foreign minister, Igor Ivanov, cited the poem in order to give a stern warning to the NATO countries.  Eight years later, in 2007, the Russians once again used the poem for propaganda purposes during the Bronze Warrior crisis between Estonia and Russia. 

Guest post #4: Heroes of the Empire

  The work of art that you see below is a painting by Robert Wilhelm Ekman, a pioneer of early national romantic art in Finland. Ekman is perhaps best remembered for his early attempts at the illustration of Kalevala, but this work, finished in 1848, invokes the memory of the Finnish soldiers who had fought and died in Poland seventeen years before. You won’t find this work on display in any museum; it is part of a private collection, and the owner prefers to keep it that way.

The painting depicts the young lieutenant Adolf Aminoff wounded on the ramparts of Tykocin on May 21st 1831. As you can see, the painting captures two ideals.  First, an officer who leads his men from the front, even at the risk of his own personal safety.  Second, his soldiers, equally ready to risk their lives by rushing to the aid of their wounded comrade. During the following decades, national romanticism claimed these universal ideals as quintessentially Finnish military virtues.  Emphasizing the importance of solidarity and camaraderie is always a natural choice.  After all, it doesn’t really matter what you’re theoretically fighting for, because putting your life on the line for your comrade is always a virtue.  

Geraldo talks sense

  Now, I have many reasons to be favorably inclined towards a half-Jewish half-Latin dark haired fellow who grew up on Long Island and has an almost-but-not-quite buried New York accent of the modern type.  So you should take this endorsement of these comments with a grain of salt the size of, I dunno, at least a Plymouth Champ.  That said, I must ask, are these comments at all wrong?

What's the matter with Texas?

  Nothing, really.  Oh, the governor seems to have gone a little crazy, but that's because his party has decided to do its damndest to commit suicide, and he's got to be crazy in order to win the primary.  Have you read its platform? 

But Texans aren't crazy.  First, the percent who support secession is less than the Crazification Factor.  Second, if you'd asked the question in November 2004, I think you could've easily gotten a similar percentage of Californians or New Englanders to say they support taking up their marbles and leaving.  Remember the "United States of Canada"?    Finally, unlike most of the red states, Texas does in fact generally pay more to the federal government in taxes than it gets back.  Red are payments, blue are receipts, all data in 2008 dollars.

Now, these figures are rough estimates.  Pre-2005, the data are from the Tax Foundation; for 2006-07, they come from me using the same methodology.  And they leave out a lot.  Frex, a lot of federal spending comes from borrowing, rather than taxes, and these figures have made no attempt to allocate the future tax liabilities generated by borrowing.  They also leave out a chunk of federal spending:  mostly interest payments, which aren't allocated to states (and much of which goes to foreigners), but also foreign aid and imports purchased by the federal government. 

In addition, of course, joining a fiscal federation gets you more than just net tax payments.  It makes Keynesian policy much easier:  European countries, for example, have trouble using this tool because so much of any stimulus will leak away to the neighbors.  It adds insurance against asymmetric macroeconomic shocks:  if something bad happens to the economy of your jurisdiction, your residents will pay fewer federal taxes and get more federal benefits.  Finally, it allows for economies of scale in the provision of public services.  All three are why it probably makes economic sense for Iceland to become a Commonwealth, even at a fiscal cost of $109 million per year. 

In short, (1) Texans are no crazier than anyone else, and (2) the Republican Party is really going off the rails.  It isn't just Governor Perry; it's state legislatures in Georgia, Oklahoma, and South Dakota, which have taken to voting in favor of secession.  In another country, these might be worrying in terms of national unity.  In this one, there's no worry about national unity.  (Although I recommend these comic books anyway.)  Rather, there is a worry about the emergence of a de facto one-party democracy.  I know I've got readers who still aren't sure that the GOP isn't in on the road to suicide, but even they have to admit that the Tea Parties and aftermath are a big step down that path.  Right?

Greece in recession

  The Greek economy is slowing, but it is not in recession.  Yet Athens looks like a city in the midst of a severe recession. 

Not in this picture, of course.  This picture is lovely.  Albeit not really because of Athens.

But on the drive in from the airport, you pass myriad empty storefronts, abandoned buildings, and what appear to be stopped construction sites.  

Downtown, you see much of the same.  Even brand-new construction looks empty.  When the storefronts are filled, you can spot tell-tale signs of empty offices.  And then there's the petty vandalism that haunts downtown:  graffiti on private structures, cracked windows, run-down buildings.  All the telltale signs of property owners who have decided for whatever reason that proper maintenance does not pay a sufficiently high return.  

If it had just been the central city, we would have concluded that Athens suffers from a European version of the American disease.  Or that it was just the after-effect of the December riots.  The thing is, the signs of economic distress are worse in the suburbs.  It honestly looks like someplace that suffered from a real estate bubble that has now collapsed. 

Of course, the central city doesn't look so good either.  It looks like someplace where rioters might indeed attack businesses with petrol bombs. 

That said, downtown Athens is not out-of-control the way much of New York City was in the 1970s and 1980s.  For example, when we got off the bus, the first thing that greeted us was a police raid against African street merchants selling counterfeit luggage.  Yet the prevalence of graffiti also suggests that the police (and the public) is fairly lax about enforcing standards; it's not something you see in Boston or London or Paris, not to the same extent, and not on private property.  (Although, once again, much of New York's outer boroughs looked like this back in the 1980s.) 

In other words, while the Greek economy might not yet officially be in recession, our careful powers of observation lead us to predict that the numbers are going to get much worse very quickly, as the statisticians catch up with reality.

So what's happening?  And what is to be done?

Happy tax day!

  So today is tax day in the United States.  I feel like celebrating.  Man, taxes are low in this country.

¡Viva ... uh ... Texaco?

  A while ago, insecure Americans got themselves all worked into a stupid dither about a Mexican vodka ad.  Now, in a sign of great maturity, Mexicans are refusing to get worked up about a European hamburger ad for something called the “Texican” that Burger King has run in the United Kingdom and the madre patria. 

Burger King is going to pull the ad anyway, just like Absolut pulled its.  You be the judge.

Hat tip:  Ganchoblog.

Raisuli my ass

  Who's the biggest pirate-fighter in the last century of American presidents?

From Big Crush, via  Mojo.

Word.

Democracy and the modern central bank

 Libertarians, like Marxists and deep greens, generally drive me nuts.  Why?  Well, they have no objective function outside their beliefs about social organization.  Their preferred way of organizing society is good regardless of the outcome ... something especially infuriating when they refuse to admit it, and insist, fairly crazily, that their desired form of social organization will produce good outcomes and we can't compare the “really existing libertarianism” that the U.S. and much of Europe lived under before 1914 (or 1933) because it wasn't perfect super libertarianism.  Something about the ICC, or maybe the Homestead Act.  I don't know.  Aargh. 

Megan McArdle is not like that at all.  She's a very smart non-doctrinaire libertarian.  She certainly makes you think, even when she's infuriating, and I don't get the impression that she would refuse to change her opinions in the face of facts. 

Here she isn't discussing libertarianism.  Rather, she's thinking about democracy as a way of organizing society.  Her conclusion is that small-d democracy isn't compatible with modern central banking, because “what the Fed is doing now is not much different from what most [non-democratic ideologues] want the Supreme Court to do on some issue or another:  rule it out of the bounds of majority debate.” 

But that's just wrong!  The Fed can be abolished at any moment.  All you need is 218 representatives, 60 senators, and the president to say so.  Less drastically, the Fed's mandate can be changed.  In fact, Congress has done exactly that.  In institutional terms, the Federal Reserve is not one of the undemocratic parts of the American constitution, for the simple reason that it's not in the American constitution.  The only reason that the Fed behaves independently is because there is a democratic consensus in this country that it should. 

The Federal Reserve is like the EPA, or OSHA, or the FAA, or the military.  A somewhat autonomous organization with a mission set by elected officials, plenty of oversight all the way, and an ever-existent possibility of abolition.  I don't see anything undemocratic about it. 

Am I wrong?

Observatorio Argentino 10: French lawyers declare war!

  It seems as though some French lawyers have decided to do a Rogers on the Argentine Republic. 

A few years ago, in 2005, Argentina repudiated a big chunk of its foreign debts.  Since then, the jilted bondholders have been trying to get it back.  On April 7th, the famous NML-Elliott announced that their lawyers managed to get a French bailiff to put a stay on all Argentine accounts in the country.   “The frozen assets in France are not diplomatic, and therefore are not protected by sovereign immunity,” said an Elliott spokesperson. 

Well, Buenos Aires wasn't going to take this lying down.  Elliott had already tied up funds held in France by the Banco Hipotécario and Banco Central.  The Argentine embassador to France, Luis Ureta, complained to the French foreign ministry.  The French diplomats were not happy to hear the news.  “On Monday night, a bucket of cold water landed on the heads of the diplomats at the Latin American Desk of the French foreign ministry,” was how La Nación described it.  The Argentines asked France to unfreeze the accounts “by any means necessary.”  (Argentines are not Filipinos:  I don't think the phrasing was deliberate.)

The French response?  Well ... it was rather American, actually.  A spokesman expressed support for the Argentine position, and then told the Argentine government that if they didn't like it, it was up to them to appeal.  In the interim, the Argentine embassador is paying for burnt-out light bulbs and the like out of his own pocket.  I suppose the embassy employees are getting paid back in Argentina and withdrawing their salaries out of ATMs, or some such.  The account itself is only a million euros or so, but man is it a pain to have to run a big office without any access to, you know, modern finance. (Although many Argentines have some recent experience of doing exactly that.)

Anyway, it's a bit of mess.  Argentina has already lost access to several hundred million dollars worth of bank accounts and all of the nationalized pension funds held abroad.  About the only bright light in the legal firmament is that a New York judge just declared that the recently-nationalized Aerolineas Argentinas is “not an alter ego or agent of the Republic, and the recognition of Aerolíneas’s independent status won't serve as a fraud or injustice against the Republic’s creditors.”  So that's one bright spot.  

In other news, I've added an “empire” tag to this blog.  I'm still not sure what I mean by it, but once I figure that out, I'll try to reclassify past posts appropriately.  Suggestions?

Oh, and go listen to Will.  I need help with this stuff!

When lawyers declare war!

  You know, the more I learn, the more I think that President Correa of Ecuador is really playing with fire in defaulting on his debts.  Brazil is mad at him, and you don't want to get the new imperial rulers of South America mad at you.  But more importantly, he's got his American creditors mad at you ... and it seems as though those creditors may have a rather powerful legal recourse.  It'll all depend on the definition of a “central bank.”

But let's start at the beginning.  What happens when lawyers declare war on a country?  Well, remember this post, on the U.S. sanctions against Manuel “La Piña” Noriega ?  Turns out that the sanctions weren't really Elliot Abrams' idea.  Rather, the credit goes to a lawyer, William Rogers, acting on behalf of his client, former President Eric Delvalle of Panama. 

La Piña, you see, had an anger-management problem.  He decapitated Hugo Spadafora, one of his political opponents.  When the President of Panama, Nicolás Barletta, made the mistake of thinking that he, you know, ran the country, and decided to investigate the head-chopping, Noriega locked him in his office and threatened his family.  At 3am, President Barletta appeared on national television and offered his resignation, which the National Assemby accepted in a late-night emergency session.  Eric Delvalle, the education minister, then became President.  A little while later, Delvalle decided to pass on to La Piña an American offer to let him peacefully resign with all his ill-gotten gains.  In response, Pineapple-face ejected Delvalle from the presidency.  Delvalle got word that he was going to be arrested the next day, and managed to make it to an American military base.  His ambassador-at-large hired Rogers, and then ...

I wuz right! or, the defanging of “socialism”

  A little while ago, I suggested the following: 

“I would venture that the mainstream of the Republican Party is in the middle of leeching ‘socialism’ of its negative connotation for the same reason.  By the time 2012 rolls around I'll bet that the word will have lost all of its, well, ickyness.”

A little earlier, I warned my friend Garri Hendell that the Republicans really oughta knock it off with the “socialist” name-calling, because they were leeching the word of all meaning, and that wouldn't be good for them.

Looks like I might be right!  You call a popular president with popular policies a “socialist,” and suddenly socialism doesn't sound so bad.

The video is from a major motion picture release but is not safe for work.  It includes bad words, of which “socialism” is one.

Funkdoobiest! Uh, no, not quite.

  If you'd told me way back in those dimly-remembered days between the time I turned 17 and the day I reached 25 that less than two decades later I'd be listening to teeny-bopper high school music made by a suburban teenager from the San Fernando Valley and liking it, my response would have one word:  “chale.”

Then again, if you'd told me that blond suburban teenagers would be making music that sounded just like the stuff we used to roll around to back in the day, my response might have increased to two words:  “no m---s.” 

One of my nieces sent me the following video for my birthday.  (The director clearly knows what he or she was doing.  Note some of the shots.)  I do believe she used the phrase “old school” to describe it, which kind of frightens me.   

Geek Love en Yahoo! Video

The really scary thing is that I take my niece's point.  It really reminds me of Funkdoobiest.

I am getting old. 

The end of Nixonland?

  It seems as though the Southern Strategy may have reached its conclusion.  Red is unfavorable, green is favorable. 

 

The only place the Republican Party remains competitive is the South.  In fact, this graph understates the Republican advantage in the South.  Southerners don't like the GOP very much, but they hate the other guys more:

 

And they don't like the President much personally, either.

 

For those of you who found this argument unconvincing, this is a worrisome trend.  (There were some good counterarguments in that thread.  I'm almost convinced that I was wrong.  More debate needed.)

It is also worrisome if the GOP decides that it can't break out of its regional box without alienating its base.  Why?  Because that would mean that the leadership would have no reason but to continue to insist that every vote on every initiative needs 60 votes in the Senate to pass.  That, I want to add, is not normal.  In the past, few bills were filibustered.  Now, it is becoming routine.  That is not a good thing, I don't think.  Thoughts?

Things could be worse

  A while ago I posted a chart that seemed to show that employment losses in this recession rivalled the early stages of the Great Depression.  That chart is true.  By the measure of “total employment,” things don't look all that out of line. 

But the U.S. economy was much more agricultural back then.  In fact, a full 36% of all employment in 1929 was agricultural.  (That figure still startles me, as much as I know that it shouldn't.)  Agricultural employment was far more resistant to the ravages of the Depression, even if agricultural incomes were not. 

If you restrict yourself to nonfarm employment, which is what Justin Fox did, you get a somewhat more reassuring figure.  We don't seem to be tracking the Depression, and the many interventions of 2008 and 2009 have done more than a little good:

I suspect that the 1929 data are seasonally-adjusted, since the NBER cites the source as:  “For raw data: Survey of Current Business, March and August 1941; For adjusted data:  Federal Reserve Bulletin, June 1941.”  But since that is ambiguous, I included the unadjusted modern data in green.  It doesn't really change anything ... except inasmuch as all the people laid off after the Christmas rush in 2007 slowly went back to work over the next few months (as is standard), whereas that is not happening in 2008-09. 

So, yes, we're now officially worse than 1981-82.  By this point then, recovery had set in.  But we aren't close to a second Great Depression.

In this country.  Worldwide, not so clear.

Guest post #3: Battle for the Empire

  The soldiers of the Finnish Guard joined the other units of the Russian Imperial Life-Guard in Białystok on April 11th, 1831. By this time, the Polish-Russian war had been raging for two months, and the insurrection was spreading, with violence and mayhem escalating on daily basis. On the same day as the Finnish soldiers listened Colonel Ramsay’s lecture on the Russian War Articles and the letters of protection issued to the Polish civilian population, one Russian cossack regiment massacred civilians in the small Lithuanian village of Oszmiana. The event was subsequently commemorated in Adam Mickiewicz’s epic poems.  

The Polish-Russian war was fought on two fronts.  In the south, on the eastern side of the Vistula, the main 100,000-man Russian army (under a Baltic German field-marshal, Hans Karl Friedrich Anton von Diebitsch) advanced directly towards Warsaw.  Meanwhile, in the north, Grand-Duke Mikhail Pavlovich’s units of the Russian Imperial Life-Guard (the Finnish Battalion included) approached the Polish capital from the northeast, through the dismal woodlands between the Narew and Bug rivers in Mazovia. You can get a rough view of the surroundings from the map.   (Click on it for a larger image in a new window.)

Diebitsch’s army crossed the frontier on February 5th, fully prepared to crush the Polish rebellion. Resistance, however, proved to be a good deal tougher than anticipated; as mentioned before, the Congress Kingdom had a large, professional standing army, which now proved its mettle. On February 25th, the Poles halted the Russian advance in the bloody battle of Grochów.  The Poles then began a counteroffensive. Lieutenant-General Ignacy Prądzyński, the Polish chief of staff, defeated the Russians at Dębe Wielkie on March 31st, and again at Iganie on April 10th. 

But wars, like baseball games, aren’t over until they’re over. 

The end of the Chimerican balance of terror

  There is some evidence that the era of the “financial balance of terror” between the United States and the People’s Republic is coming to an end.  The financial balance of terror, also called “Chimerica” by Niall Ferguson, are names for the situation in which the U.S. depends on massive inflows of capital from China to keep interest rates low, and China depends on massive outflows of goods to the United States to keep its people employed.  China sells widgets to the U.S. and buys dollar-denominated debt, in the process keeping the price of the dollar high and U.S. interest rates low. 

The balance of terror recently made an appearance in a discussion thread on Charlie’s blog.  The idea was that Chinese holdings of U.S. debt limit American freedom of action ... although the Chinese, of course, would be damaged by an attempt to use their leverage. 

I contend that the balance of terror is rapidly coming to an end, to China’s relative disadvantage.  Emphasis on relative, of course, because everyone will ultimately benefit from getting out of this rather insane situation in which poor countries lend huge sums to rich ones.

Consider the recent indirect exchange between the President of the United States and the Chinese government.  China worried about the value of its Treasury holdings.  The President said, “Pshaw,” and went on to tell the G-20 that they could not expect the world of America as a consumer of last resort to return, and the Chinese president seemed to agree.  Meanwhile, the head of Chinese central bank emulated St. Augustine.  “America should buy less, and we should consume more, but not yet.” 

In other words, the Chinese are starting to flex their muscles just as they begin to atrophy.  More below the fold.