The World Bank's Annual Conference on Development Economics is going on right now, and the proceedings can be watched live (and perhaps later, not sure about that) here. Speakers include Elinor Ostrom, Joseph Stiglitz, and Robert Solow.
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Monday, May 31, 2010
Saturday, May 29, 2010
Robert Shapiro surveys the literature:
The New Policy Institute (NPI) asked me to review all of the available data and economic studies of recent U.S. immigration. With my colleague Jiwon Vellucci, we found, to start, that more than one-third of recent immigrants come from Europe and Asia, while less than 57 percent have come from Mexico and other Latin American nations. The popular portrait of recent immigrants is off-point in other respects as well. While more immigrants than native-born Americans lack high school diplomas, equivalent shares of both groups have college or post-college degrees. That finding should make it unsurprising that 28 percent of U.S. immigrants work as managers or professionals, including 38 percent of those who have become naturalized citizens or the same share as native-born Americans.
Many Americans would probably acknowledge that their concerns about immigration lie principally with those who are undocumented. No one likes being reminded that the world’s most powerful nation hasn’t figured out how to effectively police its own borders. But the data also show that these undocumented people, who account for 30 percent of all recent immigrants, embody some traditional values much more than native-born Americans. For example, while undocumented male immigrants are generally low-skilled, they also have the country’s highest labor participation rate: Among working-age men, 94 percent of undocumented immigrants work or actively are seeking work, compared to 83 percent of the native born. One critical reason is that undocumented immigrants are more likely to support traditional families with children: 47 percent of undocumented immigrants today are part of couples with children, compared to just 21 percent of native-born Americans.
The evidence regarding the impact of immigration on wages also turns up some surprising results. First, there’s simply no evidence that the recent waves of immigration have slowed the wage progress of average, native-born American workers. Overall, in fact, the studies show that immigration has increased the average wage of Americans modestly in the short-run, and by more over the long-term as capital investment rises to take account of the larger number of workers. Behind those results, however, lie winners and losers – although in both cases, the effects are modest. Among workers, the winners are generally higher-skilled Americans: For example, when a factory or hotel hires more low-skilled workers, demand also increases for the higher-skilled people who manage those workers or carry out other professional tasks for an enterprise that’s grown larger.
I am now starting to argue that either we move soon on this, or Germany will inevitably have to go back (temporarily) to the Mark. The system won’t hold otherwise.
That is Edward Hugh, writing not about Greece but Spain, and advocating a 20% internal devaluation. Much more at the link, including second-hand commentary from Dani Rodrik.
My question: if Germany goes back to the Mark, why would it be temporary?
UPDATE: Rodrik comments here.
Friday, May 28, 2010
In The World in Depression, Charles Kindleberger argued that the hegemon must provide five public goods to the rest of the globe:
1. Purchaser of last resort for distress goods.
2. Lender of last resort for governments and provider of liquidity to the global system.
3. Maintain a stable system of exchange rates.
4. Ensure macroeconomic coordination.
5. Provider of countercyclical lending.
Arguably the U.S. has fulfilled #s 1, 2, & 4 pretty well, while #5 has been taken over by export-biased economies and #3 is less necessary in a system of flexible rates. But Brad DeLong argues that there is a sixth:
The hope is that, by Walras's Law which tells us that excess demands across all markets must sum to zero, that relieving excess demand for AAA assets will produce as a consequence the relief of excess supply and full-employment balance in the markets for goods, services, and labor as well. ...
[W]e are extremely far from cracking the U.S. government's status as the supplier of AAA assets to the global economy right now. When we see signs that further issues of Treasury bonds or loan guarantees by the U.S. government are starting to erode the AAA status of U.S. government debt, then will be the time to back off of expansionary U.S. fiscal, monetary, and banking policy. Then--not now.
This is similar to #2 in reverse: creating highly rated, largely liquid instruments when the demand for such assets outstrips supply, and selling them to soak up excess liquidity in the system. When might demand for AAA assets outstrip supply? I can think of two scenarios:
1. When there is a negative shock restricting the supply of AAA assets.
2. When financial markets are not functioning normally.
Obviously both of these have recently occurred. In the first case, many assets formerly thought to be safe and liquid -- Eurozone debt, mortgage-backed securities and other asset-back securities -- are no longer thought to be safe and liquid, so all of the money that was previously in those assets has to go somewhere; they have largely gone to U.S. Treasuries. In the second case, financial markets are still not functioning smoothly, so investors are still looking for quality. Right now, that means T-bills.
This is policymaking-in-crisis, of course; as financial markets normalize and other safe/liquid investments return to markets supply will meet demand, the price of Treasuries will drop (i.e. interest payments will rise), and the U.S. will need to pull back its expansionist domestic policies. But until that day, the U.S. is not only helping itself by spending in deficit. It is helping foreign investors (including governments) as well.
If this is actually a game of chicken as Dan argues, how might the policy dilemma be framed in such a way that North Korea, who actually wants to avoid war, might start to believe that it's not the craziest party in the equation anymore or the one with the least to lose?
Easy. Fire Gates and appoint George W. Bush as Secretary of Defense, and pass a constitutional amendment giving him power to do whatever he wants. Game. Set. Match.
Thursday, May 27, 2010
your Presidents confess that the euro was a bad idea imposed on the EU by a Franco-German cabal. I am surprised that Barosso doesn't mention that the Germans didn't want it either. (and Van Rompuy isn't crazy; 1992 refers to the Maastricht Treaty).
Herman Van Rompuy, President of the European Council, the body that brings together EU leaders in summits, ... confessed that the euro had been flawed from the moment of its creation in 1992, a situation that had not been made clear to voters.
José Manuel Barroso, the Commission President, has criticised Mrs Merkel for not taking on opponents to the euro bailouts "Until now Germany has been one of the big winners from the euro. More politicians in Germany should say that clearly," he told the Frankfurter Allgemeine Zeitung. "It was not Greece, Ireland or Spain who invented the euro. It was a German-French project."
Tuesday, May 25, 2010
Who spends more on social welfare: the U.S. or Sweden and other Nordic countries? Nearly everybody will say Sweden. But the answer, at least as of the mid-2000s, might surprise you. It depends heavily on how you deal with taxation, unfunded mandates, and whether you discuss spending as a share of the country’s output or in absolute dollars. ...
People’s perceptions are driven by the standard statistic reported in the news and in the OECD database: gross public social welfare spending as a percentage of GDP. In 2003, Sweden spent 37 percent relative to GDP, Denmark 32 percent, Norway 28 percent, Finland 26 percent, and the U.S. lagged behind at 17 percent. ...
If we take into account these differences in style [ed.: not quoted here, but described in the link above], the appropriate measure is net public and private social welfare expenditures per capita. By this metric, the U.S. then leads the way at $7,800, followed by Sweden at $6,700, Norway at $6,300, Denmark at $5,800, and Finland at $4,900.
I await the inevitable rebuttals, but this is did surprise me quite a bit.
UPDATE: Here's the inevitable rebuttal.
The new issue of International Affairs is out, and is titled "Global economic governance in transition". That is obviously a topic that interests me, so I was happy to find it, and a contributors list including Paola Subbachi, Andrew Cooper, Alexander Payne, and others is more than enough to attract my attention.
I'm still working my way through the articles, but I did want to highlight Eric Helleiner's contribution, "A Bretton Woods moment? The 2007-2008 crisis and the future of global finance." (Ungated pdf here.) Helleiner argues that those expecting the 2007-2008 crisis (which did not end in 2008 and still has not) to be a transformative moment spawning a new global order to be disappointed. But this is not because the system is irredeemably controlled by bank lobbyists, or obstructionists in Congress, or Chinese planners, or recalcitrant Greeks. Rather, it's because Bretton Woods itself was not a moment, but a process:
The success of the Bretton Woods conference was a product of a remarkable combination of concentrated power in the state system, a transnational expert consensus and wartime conditions. The absence of a similar political environment today makes its accomplishments very difficult to replicate. Even more important, the significance of the Bretton Woods conference itself should not be overstated. Not only did the innovative aspects of the conference agreements have long historical roots, but the implementation of the agreements after the conference was a troubled and painstaking process. The creation of a new international financial system, in other words, was not a product of that single meeting but rather the outcome of a much more extended historical process. The importance of this analytical point is brought out even more clearly when we examine the successor to the Bretton Woods financial system—what I call the ‘neo-liberal globalized’ financial regime—which emerged through a process with no clear foundational moment.
Helleiner identifies four phases in the process of change of governance structures: a legitimacy crisis, an interregnum, a constitutive phase, and an implementation phase. He claims that the global economy is currently in the interregnum, and a new global order could yet emerge. Helleiner argues that the subprime meltdown and ensuing policy responses have destroyed the legitimacy of the 'neo-liberal globalized' financial regime based on the Anglo-American model. Interestingly, he argues that the legitimacy crisis did not arise because of the crisis itself, but rather the responses of governments to it:
The fact that US and British policy-makers have responded to the crisis in a much more interventionist way than they recommended to East Asian countries during the 1997–8 crisis has undermined their credibility abroad. Since this crisis originated in their own markets, US and British policy-makers can no longer offer up their own regulatory practices as a model. As one Chinese official recently put it, ‘We used to see the US as our teacher but now we realise that our teacher keeps making mistakes and we’ve decided to quit the class.’
I have heard this claim quite -- that the Anglo-American economies were more interventionist in 2008 than the Washington Consensus proscribed for East Asia in 1997 -- a lot in the past few years. (I recall Emmanuel making it, for example, tho I'm too lazy to dig up posts right now.) It's always struck me as completely wrong-headed in two ways: first, it assumes that the Anglo-American economies were anti-interventionist; second, it assumes that the East Asian crisis and the subprime crisis are similar events.
It doesn't more than two seconds of thought to realize how absurd these claims are. On the first point, as Joshua Green's recent profile of Timothy Geithner (discussed here) emphasizes, large intervention in financial crises has be the modus operandi of the U.S. for quite some time. Green emphasizes the experiences of Geithner and Summers in the Mexican crisis in 1994 and the Asian crisis in 1997 in formulating this instinct, but the pattern is more entrenched than that: the U.S. has not hesitated to intervene in financial markets during panics since the Great Depression.
Which brings us to the second point, which is that the Asian financial crisis and the subprime crisis are not remotely similar. The former was a currency/balance of payments crisis, while the latter was a banking crisis*. Asian countries in the late-1990s had very different economies than Atlantic countries in the late-2000s. Why in the world should we expect the same reaction to different types of crisis in different countries? And why in the world does divergent responses to these crises represent a loss of legitimacy? Wasn't the big criticism of the Washington Consensus its "one-size-fits-all" ideology? If the Asian crisis had been a banking crisis, and if Asian governments had responded by bailing out their banks, does anyone think the US/UK/IMF would have been critical of that policy?
In fact, the Atlantic economies have been very consistent in their policies: they intervene when necessary to support their financial firms, boost their economies, or protect their investments. The conditionality attached to IMF loans given to Asian countries didn't exist because the Atlantic economies wanted to be mean to Asian upstarts, but because they wanted their money back. And here's why this was necessary: because unlike the US and the UK, Asian economies could not borrow in their own currencies, nor could they borrow from private markets at less than pecuniary rates. More developed economies can do those things, and when they can't they face fairly significant austerity as well. Witness Greece.
So no, I don't think the subprime crisis represents the beginning of a transformative process, according to Helleiner's own typology: if there is no crisis of legitimacy, there can be no interregnum. Whether the EU crisis eventually does remains to be seen, and in my opinion it represents a much greater chance**. What the Atlantic economies have done in this crisis is combine the monetary lessons from Friedman with the fiscal lessons from Keynes in pretty much textbook fashion. I'd hardly call that a paradigm shift.
*The Asian crisis eventually led to the collapse of LTCM... which caused the U.S. government to intervene in financial markets. I.e., the US reacted the same then as it did now: it protected its firms when their collapse would have broad systemic consequences.
**I don't necessarily consider the subprime crisis and the EU sovereign debt crisis to be two separate events, but I do think they have very different implications for global governance.
Friday, May 21, 2010
The World Bank's World Development Indicators data set is now free and open to the public. To celebrate, somebody put together this handy graphing tool that will plot any series in the set. Pretty cool.
(ht to someone in my RSS feed. Sorry, but I don't remember who.)
A while back I commented that the Euro stabilization fund required approval of domestic legislatures, and noted that this might be difficult to achieve in some places. Well Germany passed it, but only just. Germany's signature is the most important, so the stabilization plan is basically operable.
Remember that this is just putting a bandaid on a gunshot wound; Europe still has still decide what it's going to be.
The current debate goes beyond the emergency bailout for indebted nations to questions about the future of economic integration among the countries using the euro currency. The bloc has neither a common fiscal policy nor a consensus of how best to balance stability and growth. Many members, including France, feel that Germany’s historic fear of inflation has led to a monetary policy that has unduly restricted economic growth.
“In terms of ideology, Germany is blind in the deflation eye and France is blind in the inflation eye,” said Ms. Guérot of the European Council on Foreign Relations. “It’s about economic cultures, how you want to organize your societies and your social cohesion. And it’s hard to find the appropriate mechanism because it goes right to the heart of how your society is structured.”
Tuesday, May 18, 2010
Study after study has shown that immigrants grow the economy, expanding demand for goods and services that the foreign-born workers and their families consume, and thereby creating jobs. There is even broad agreement among economists that while immigrants may push down wages for some, the overall effect is to increase average wages for American-born workers. ...
[Congressman Gary] Miller makes it all sound so easy: Eight million illegal immigrants working in the U.S., 15 million unemployed American citizens and legal immigrants — we could cut the number of unemployed in half if we just booted out the illegal workers. "The numbers are simple," he says.
The numbers certainly would be simple, if they worked that way. But they don’t.
The whole thing is worth reading, and there is a list of citations for those who wish to dig deeper.
Friday, May 14, 2010
UNC Assistant Professor of Political Science Anna Bassi just wrote a guest post at The Monkey Cage on the formation of the coalition government in the UK. (This follows another recent post which cited the work of Georg Vanberg, another UNC Prof. Good to see UNC represented so well at the Cage.). She finds a few surprises:
Taken together, the recent events in the UK offer important insights about how the coalition formation process should be analyzed as an endogenous free-style negotiation process among parties, rather than as formalized by specific rules concerning the selection of a formatuer. They also provide questions about what could happen in other parliamentary legislatures. If coalitions among extreme parties can form and survive despite the popular belief, intra-party politics may harshen, leading to possible parties’ splits in search of new coalition agreements.
This is not at all my area of expertise, but it sounds right enough. The question is whether it's surprising. Bassi argues that it is if you buy into dominant models of coalition-formation. I wonder if it makes a difference that the LibDems campaigned as the center-left alternative to Labour? If the LibDems are interested in building a larger constituency and increasing their role in UK politics it could make a lot of sense to show voters they can govern without Labour. This interpretation would seemingly be supported by the fact that the LibDems' price for forming a coalition was electoral reform (to proportional representation from the current first-past-the-post system) rather than any particular policy. Labour was hesitant to grant that wish -- presumably because it would weaken their traditional position as the dominant center-left party -- and the Conservatives seem willing to put it up for a referendum. Hence, the coalition with the Conservatives.
Again, I don't know much about this so all of that could be completely wrong. Bassi in fact argues that it is:
Third, if instead parties are not policy pursuing, but just office seekers, a coalition between the Liberals and the Conservative is –theoretically- not the best coalition to seek. The Liberal Democrats(57 seats) could have coalesced with Labour (258 seats), SDLP (3 seats), Plaid Cymru (3 seats), Alliance(1 seat), and either SNP or Green which would very likely agree on coalescing in the left wing government and get just the required majority (SinnFein does not take any seats, thus the quota required is 323). In this coalition, the relative weight of the Liberal Democrats would be larger, and therefore they could get away with a larger share of offices.
But that depends on the LibDems discount rate, no? If they wanted a greater say in the government in the short run then the above is certainly right. But if they want greater long run influence on UK politics, then it makes sense to side with the party who is willing to at least countenance electoral reform. In this case, that was the Conservatives. It remains to be seen if the strategy will be successful, but it seems like that's what Clegg was thinking of. Again, though, I could certainly be wrong.
The whole post is worth reading. I suspect we'll be seeing a lot of new comparative research on this election, and Bassi is probably correct in saying that previous theories might need some revisiting.
UPDATE: As I suspected, I was wrong about at least one thing. Emmanuel corrects me in the comments.
You've got to hand it to the shills of the Nursing State. They keep plugging away at their narrative regardless of reality. It takes your breath away, but in a strange way, I have admiration for them, if only for their sticktuitiveness.
The latest morality play unfolding begins by promoting the narrative that Americans are undertaxed and have a long way to go until they reach Eurosocialist standards. Maybe so. We've been hearing for a long time that our gasoline is way too cheap at $2.50 a gallon when by Euro standards it should be $5.00-$10.00 a gallon. Of course, by Euro standards our unemployment should be 15%, so we still have some room for improvement.
Of course our taxes are too low on a per-capita basis. Half the adults in the nation don't pay any federal income taxes at all. A tenth of the nation is on food stamps. But the people that do pay taxes and buy their own lunch are taxed to the gills. Are the We are all Keynesians Now people really promoting higher taxes during a severe recession as the latest iteration of their hero's ideas? Can't we go back to Mao's Red Book to see if that can't be plumbed for a few hidden gems?
Before raising taxes and increasing regulation as the way out of our malaise, can't we try a few more spending cuts? Have we really exhausted the ways in which we can trim back Leviathan? I'd start by ending all subsidies to the students of North Carolina University. They're clever people and on the top of the economic food chain. They should be able to fend for themselves without, Robin Hood style, holding up other people to pay for their classes in Keynesianism 101.
Of all the lunacy and murder that came out of the Mao days, and I hesitate to write this, but I admit to a secret pleasure seeing the college students and professors herded into the fields to feed pigs and chickens. I'd wish it had been otherwise, but if you're going to promote that beast, don't be surprised if the beast you think you're directing turns around to bite you (or worse).
Mr. Kindred Winecoff. Keep shilling for the Nursing State and one day you'll get your wish to leave academia.
Well done, Tony Petroski. A slight quibble: my wish is to someday join academia, which is a prerequisite to leaving it. Here's hoping it doesn't lead to a career of pig-feeding!
Martin Wolf, eulogizing Gordon Brown:
All British political careers end in failure.
The rest of the op-ed is a discussion of how Brown was a product of his times, not a primary cause of them.
Added a few minutes after initial posting:
I go back and forth on this kind of thinking. On the one hand, it's basically a huge cop-out: "Everyone else believed in the Great Moderation, so why shouldn't he?" We should hope for more from our elected officials even if we don't expect to get it.
On the other hand, if everyone else believed in the Great Moderation and wanted to set policy based on it, then it would be awfully hard for Brown to maintain public support by legislating against it. Could you imagine him saying the following in 2004: "Yes, I know the business cycle has moderated over the past 25 years, but I think the vast majority of economists are wrong and doomsday is coming. Therefore, I am going to massively re-regulate Britain's financial sector, tossing off international competitiveness and ending London's run as a major financial center in the process."
Of course not. Even if he believed that, and he had little reason to, he would have been laughed out of office. It would have been like Noah's Ark: he might have been right in the long run, but nearly no one would have seen it that way in the short run, and it's unlikely that he would have survived politically in the interim.
So I guess I'd side with Wolf. Brown's mistakes were made because he trusted his expert advisors. That's too bad for him and for Britain, but what else could he have done?
For some reason, IR students and scholars seem to be much more interested in soccer. Maybe it's because it's the world's sport. Maybe it's because significant international events like the Football War have been influenced by the game. Maybe it's because researchers can link soccer performance to national cultures of violence (pdf). Pop social scientists and public intellectuals have also found soccer a ripe subject for examining the world.
IPE@UNC is no exception. We've had a lot of posts discussing soccer and its role in international politics. So I was pleased today to see a couple of news items relating soccer and international studies. First, Emmanuel points out how soccer broadcasts may be used as a type of weapon by South Korea on North Korea:
Recently, the South Koreans have claimed that the fatal sinking of one of their military vessels was due to foul play from the North Koreans. While we wait for more solid evidence to this effect from the South Koreans, it seems they have come up with their own unique way to get back at Dear Leader Kim Jong-il's strange play acting. It turns out that, in the absence of a solid telecommunications infrastructure, North Korea relies on South Korea to provide a retransmission of international broadcasts of the World Cup. So, if South Korea really wants to turn the screws into North Korea, it's "no World Cup football for you, murderous regime."
If this is true it will have to go down as one of the strangest sanctions threats in the history of international politics, if it even qualifies as a sanctions threat. Is there a demand attached, or is this mere retaliation? And could this possibly have a real effect on politics within the DPRK, or on relations between the North and South? I doubt it, but I suppose stranger things have happened.
Gize? Srsly. South Africa is not a continent. But if it were it wouldn't be South America. Unless, as Deadspin notes, South Africa just won a war that nobody knew about. Come on, people! It's almost World Cup time! Time to start figuring out where other places are! We've only got a month!
Thursday, May 13, 2010
(click on image for bigger version)
A few days ago I posted on the recent report that U.S. tax receipts as a percentage of national income are at their lowest point in the past 60 years, although the reason why isn't perfectly clear. I also suggested that this fact may surprise many Americans. Surely this OECD report, showing that the U.S. also has one of the lowest tax burdens among advanced industrialized countries, would be more expected.
I don't have much to add to this, except to note that this gives the U.S. room to move in coming decades. We can afford to raise taxes if needed to balance the budget, pay down debt, or finance welfare programs as the country continues to age. Perhaps that is one reason why U.S. sovereign debt is still so affordable. However, this also may indicate that the country does not have the political will to accept higher taxation in order to finance debt and a larger welfare state.
How did I not know that this existed?
Tuesday, May 11, 2010
Who says formal theory has no relevance to real life? Apparently Liberal Democrats have been using game theory to model potential negotiations over the formation of a government for at least several months. After the election, but before Cameron and Clegg came to terms, Tony Price tried to model those negotiations:
Game theory says you need to understand your "outside options": what the alternative to a deal with this group is. How well you do depends on how good you can make all the outside options. Here's a go at the decision tree Clegg faces. ...
The logic of my version is:
- A deal with Labour now is unlikely to deliver PR, which is what would make it worthwhile from LD's point of view
- A deal with Tories will not deliver PR
- A Tory minority government risks giving Tories a majority in 9 months and missing the historic moment
- Clegg will be very tempted to do a deal with the Tories with inbuilt failure so that LD's can return to a PR negotiation with other parties in 9 months
- Present that deal as stesman-like: "The economic crisis demands it, and I will not make the country suffer for PR ... but once the economy is on the mend, I will insist on my PR reward"
Price came up with the game tree below.
Not bad, as it has turned out.
UPDATE: Apparently the embed of the game tree isn't working perfectly. It is here.
As a percentage of income, that is. How many Americans would have guessed this was true?
Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.
I actually don't find it all that surprising. Here's one list of contributing factors:
Three big reasons: The stimulus was in fact a major tax cutter, and increasingly progressive tax rates means that as we've fallen in income, we've fallen into lower tax rates. What's more, we're consuming less, so spending less on taxes.
I don't think these are the best explanations. The stimulus plan did include tax cuts, but they weren't especially large and if the fiscal multiplier is above one then they could have increased tax revenue (because one person's spending is another person's income, which increases income taxes plus sales and other taxes accrued along the way).
Tax rates are not "increasingly progressive" relative to the previous 60 years. In fact, the opposite is true. However the tax structure is still somewhat progressive, and this recession is especially nasty (graph taken from DeLong):
I'm not sure we're consuming less, relative to income. Here's a graph of net national saving from Bloomberg, showing that savings are the lowest since the Great Depression:
I think the best explanation is the simplest: tax receipts have fallen as a percentage of income because this recession has been so severe, and originated in the real estate sector. As house prices have dropped and foreclosures have risen, property tax receipts have fallen. The other explanations may be contributing factors, but are not unique to this recession.
Monday, May 10, 2010
Well. The much-anticipated Euro bailout plan has been revealed, and it's impressive: just short of $1tn, $625bn of which comes from Euro governments, and the rest from the IMF*. Why so large?
Officials are hoping the size of the program — a total of $957 billion — will signal a “shock and awe” commitment that will be viewed in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008.
Yes, that's part of it. But the reason why TARP was so big was so that it wouldn't actually have to be. In other words, the U.S. government hoped that by making an enormous commitment to secure illiquid/insolvent institutions that were susceptible to runs, it would prevent those runs from even occurring, thus saving the actual financial commitment in the long run. To some extent this happened, as only about half of TARP's funds were ever disbursed (even after extending loans to non-financial firms, like the auto makers). I'm sure that Euro governments are hoping for the same thing; if the commitment is perceived as being sincere, then part of the follow-through may become unnecessary.
Euro governments aren't the only ones hoping to instill confidence:
Underscoring the urgency of the situation, President Obama spoke to the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, on Sunday about the need for decisive action to restore investor confidence. And in a sign of the spreading anxiety, the United States Federal Reserve, along with the European Central Bank and the central banks of Canada, Britain and Switzerland, announced the establishment of instruments known as swap lines. The swaps are intended to ease pressure on European banks and money markets by providing more liquidity. ...
The actions by the United States represented significant concern that the European crisis could spill over and hinder the American recovery.
Why might that be? Well, who owns all the sovereign debt of Greece and the other PIIGS? Already-weakened banks in the U.S. and Europe. U.S. banks are exposed to European banks to the tune of $3.5tn (yes, trillion), and if Greece or any other countries default, those European banks will go under and take U.S. banks with them. Obviously that can't be allowed to happen. The recent ratings downgrades of Greece's debt have already dealt a blow to banks' capital ratios. A default or restructuring would be devastating.
But this new bailout cash has only been pledged, not actually raised, so here's what I'm going to be watching over the coming days:
In a statement after their meeting, the ministers emphasized that the [funds] would expire after three years and that its use would be strictly dependent on “national constitutional requirements.”
The language most likely reflected the reservations of some governments to providing even more money than is available in bailout packages already approved.
Remember that TARP did not pass the House the first go-round. Europe now has to pass several of them in several different countries. There are strong domestic political pressures in some countries (notably Germany and Britain) to not bail out the PIIGS at all, and it might be very difficult to muster enough domestic support to actually procure this huge level of funds. Perhaps more distressing is the fact that Greece could end up defaulting anyway because of domestic politics there. A lot of national polities have to play ball in order for this to work the way it's supposed to work, and I'm not sure whether that will actually happen.
One thing is clear: one way or another, the eurozone will never again be as it was from 1999-2009. The mandate of the ECB is already shifting, the likelihood that one or more countries will leave the monetary union is still somewhat high, and the rise of economic nationalism throughout the zone indicates that there is less camaraderie than previously thought. Something's gotta give.
*Presumably the IMF funds will also be coming from Euro governments, although I'd be interested to see if that's actually the case. How will voters respond if the U.S. is spending $100bn to bail out Europe? Not well, I imagine.
Sunday, May 9, 2010
But the trouble with blogging is that the more you blog, the less you read.
That is Niall Ferguson, criticizing Richard Posner (of all people!) for... something. (I can't tell whether it's blogging, or not reading, both, or neither.) It is certainly not my experience that blogging has led to less reading. Quite the opposite, in fact: the bloggers that I know read more things from more sources than non-bloggers. How else would we find things to blog about?
On the other hand, I imagine that dating celebrities and making the rounds on the cocktail circuit would reduce reading time, but I have no personal experience there.
Thursday, May 6, 2010
The dregs of the semester are here, and we're finishing up papers and grading and etc. Normal blogging should resume in the next few days. Until then, everybody else is linking to this, so I will too; Esther Duflo, most recent John Bates Clark Medal winner, talks about the usefulness of randomized controlled trials in helping guide social policy. I am not likely to ever do this sort of work (because the research questions I'm interested in don't lend themselves to RCT), and questions always exist about external validity, but I think that these sort of experiments are interesting and worthwhile.