Please continue reading John Droz at Master Resource to learn the full story.Suppose you began this morning by learning that some investors and developers had stepped forward with a reportedly new type of commercial grade electrical power called “Zephyr Integrated Power” (ZIP). Being clever, they are spending a LOT of time and money marketing ZIP, knowing that this is their chance to break into the grid in a BIG way.
Their message– ZIP is “FREE, CLEAN, AND GREEN”–sounds great! Oh yes, and for good measure, ZIP will create oodles of jobs.
So the basic question is this: exactly what do we do before we allow these people and their new product on the electric grid?
We wouldn’t be so gullible to just take their word for it, would we? Yet this is exactly what we are doing today!
And there is more: our politicians are so enamored with ZIP that they tell these promoters that we will not only allow them on the grid, we will FORCE utilities to use ZIP. (Hmmm. Wouldn’t utilities WANT to use ZIP if it was so great?) How are utilities going to be forced to use ZIP? Lobbyists have sold our politicians a clever tool called the Renewable Portfolio Standard (RPS) to do just that.
Yet there is more. Despite the supposed benefits (which a free market would obviously jump on without government involvement), our wise government is going to offer the ZIP promoters billions of dollars of taxpayer money and ratepayer guarantees to support their product.
Remember, all this is without independent proof that ZIP has any real benefits…
(…)
Sadly, this astounding state of affairs is how our currently lobbyist-driven system operates.
This is not good. Reiner Grundmann at Die Klimazwiebel reports on the climategate damage to public opinion.
The Guardian has a comment today. It says:
[The] closing of intellectual ranks witnessed at UEA was serious and, in the end, self-defeating.That point is made by the briefest glance at the sort of polemical denials which instantly found their way into the mainstream media after the emails first emerged, and was underlined yesterday by a new BBC poll which showed public scepticism has increased since November. What Copenhagen did for the chances of a meaningful climate deal, East Anglia has unwittingly done for the prospects of prevailing in the battle for hearts and minds.
The BBC poll referred to here shows an increase of climate skepticism among the British public. Here are the two graphs:
[From BBC poll shows shift in public opinion]
Today’s WSJ opinion notes that Milwaukee’s voucher schools graduate 18% more students for 45% of the per student expenditure. Does that satisfy Obama’s definition of ‘what works’?
The report shows that 77% of the choice students graduate vs. 65% in the public schools. Both rates are unacceptably low, but it is encouraging that the choice schools are doing that well given their student population is ALL low income. More here.President Obama’s fiscal 2011 budget calls for a 9% increase in federal education spending, and he has famously said that the money should go to “what works” in education. So he ought to take another look at Milwaukee, where the nation’s oldest and largest publicly funded school voucher program is showing academic gains.
A report released last week by School Choice Wisconsin, an advocacy group, finds that between 2003 and 2008 students in the Milwaukee Parental Choice Program had a significantly higher graduation rate than students in Milwaukee Public Schools.
“Had MPS graduation rates equalled those for MPCP students in the classes of 2003 through 2008, the number of MPS graduates would have been about 18 percent higher,” writes John Robert Warren of the University of Minnesota. “That higher rate would have resulted in 3,352 more MPS graduates during the 2003-2008 years.”
In 2008 the graduation rate for voucher students was 77% versus 65% for the nonvoucher students, though the latter receives $14,000 per pupil in taxpayer support, or more than double the $6,400 per pupil that voucher students receive in public funding.
The Milwaukee voucher program serves more than 21,000 children in 111 private schools, so nearly 20% more graduates mean a lot fewer kids destined for failure without the credential of a high school diploma. The finding is all the more significant because students who receive vouchers must, by law, come from low-income families, while their counterparts in public schools come from a broader range of economic backgrounds.
Vouchers are of course taboo among most Democrats, and Mr. Obama has done nothing to stop Congress from killing the small but successful voucher program for poor families in Washington, D.C. The Milwaukee program has survived for 20 years despite ferocious political opposition, and it would have died long ago if parents didn’t believe their children were better off for it.
The Kirchner’s are doing their best to destroy Argentina.
Please continue reading…
After a month of wrangling, Argentine President Cristina Kirchner succeeded in sacking central bank President Martin Redrado last week. In his place she named Mercedes Marcó del Pont, a Yale-trained economist who has expressed the view that central bank autonomy ought to be limited.
The opposition howled at the news. Felipe Sola, former governor of Provincia de Buenos Aires, warned that the new bank president “is going to do what the executive decides and they are going to modify the bank charter to justify her doing what the executive tells her.”
Of course that would seem to be the point. Mr. Redrado was fired because he refused to turn over $6.6 billion in bank reserves to Mrs. Kirchner, who wants to pay foreign creditors but doesn’t want to use treasury revenues. Ms. Marcó del Pont, if she wants to keep her job, will follow the orders of the president.
Mrs. Kirchner is not the first politician to covet the wealth available from the monetary authority. Closer to home, there is Barack Obama, who didn’t back Ben Bernanke’s controversial second term as head of the Federal Reserve out of magnanimity. Mr. Bernanke kept his job because he has shown a willingness to finance Mr. Obama’s big-government agenda.
If the administration implements effectively on the “nuclear nod” of the SOU speech, and this initiative, then I will be impressed. The following budget language is encouraging, at least as a strategy statement. I couldn’t guess if there will be any execution behind this, as the agencies who own the computing cockups are remarkably resistant to innovation. BTW, saving 85% is not at all crazy if the American government switched to doing software like Google:
Please continue reading.
When it comes to cloud computing, the Obama Administration is putting some skin in the game.
Everyone talks about the capacity of cloud computing to transform government and reduce costs (one study estimates that federal agencies could eventually save 85% of their IT budgets by moving to the cloud). But the vast majority of the federal government’s IT spending today is spent on traditional desktop or client-server computing. And until that changes, the federal government won’t have the ability to tap the true potential of cloud computing.
That’s why the inclusion of cloud computing in the Obama Administration’s new FY 2011 budget is a big deal. Check out page 42 of the budget overview which identifies the problem:
“Under the leadership of the Federal Chief Information Officer, the Administration is continuing its efforts to close the gap in effective technology use between the private and public sectors. Specifically, the Administration will continue to roll out less intensive and less expensive cloud-computing technologies; reduce the number and cost of Federal data centers; and work with agencies to reduce the time and effort required to acquire IT, improve the alignment of technology acquisitions with agency needs, and hold providers of IT goods and services accountable for their performance.”
It is often claimed that “free, deregulated markets failed,” bringing about the housing collapse and financial crisis. In fact, the free, relatively deregulated equities market absorbed mas- sive losses this time, as last time, with relatively little turmoil. It was the regulated, supervised part of the market that failed.
Chicago economist John Cochrane examines the why and the what-we-learned (PDF). John offers up a lot to ponder:
Please continue reading. And note that John’s proffered policy foces upon making the incentives driving the politicians healthy — in particular by removing the legal bailout authority.Why did Lehman fail — along with Fannie Mae, Freddie Mac, aig, Wamu, and ver y nearly Citigroup and Bank of America?…
…in 2007 most commentators and the Fed (who, remember, is going to be regulating all this the next time around) were saying that the problems in housing finance were “contained.” Most estimates put subprime losses around $400 billion. The stock market absorbs losses like that in days. But it turned out that housing risks are spread very differently from stock market risks.
The difference is that mortgages were held in very fragile financial structures. An extreme example: many mortgages were pooled into securities, and the securities were held in special purpose vehicles (spvs), funded by rolling over short- term commercial paper with an off-the-books credit guar- antee from a large bank. Less extreme: when Bear Stearns failed, it was holding a large portfolio of mortgage-backed securities (mbss) funded at 30-to-1 leverage by overnight debt. In both cases, when the mortgages lose value, the debt- holders refuse to renew their loans and the whole thing blows up. In contrast, when your (and my) pension account loses value, we cannot run for the exits and tr y to make someone else hold the losses.
These structures attempt to take risky assets — mort- gages — and turn them into risk-free assets in the form of short-term debt. But we all know you cannot do that; you can slice and dice risk, but you cannot get rid of it.
Here is what this financial structure does instead: First, it tur ns a “smooth” risk, like equities, which are repr iced routinely, into “earthquake” risk that either pays a steady stream or fails catastrophically and unpre- dictably.
Second, it turns a “non- systemic” risk into a very “sys- temic” one. For the funda- mental investors to lose any money, we need to see a default or a bankr uptcy, which is always expensive and chaotic. The losses can drag down brokerage, derivatives, market-making, and other “systemic” businesses having nothing to do with simply sitting on credit risk.
(…) P O L I C Y
Given my diagnosis of the central problem, it should be no surprise that I think much of the thrust of current policy- making is misguided.(…)
…The only way to limit expectations of a bailout is for the government to give up the legal authority to do it. Lehman is actually a great example: it went to bankruptcy because the government could not save it. We need more of that. If everybody had known that ahead of time, rather than have it emerge from the usual weekend conclave in Washington, there likely would have been no panic because Lehman’s failure would not have signaled anything about the government’s commitments to Citigroup.
The following is how GMU economist Tyler Cowen chose to summarize his NYT op-ed. I agree with most of Tyler’s points, though please keep in mind that the median voter theorem is a one-dimensional (L/R) simplification of voter preferences. And that voter preferences are illusive, especially given that only a few voters are informed (see comment below on the Homer Simpson Voter Theorem).
I was amused by AndyfromTuscon’s comment on this piece at Mark Thoma’s blog: the Homer Simpson Voter Theorem .That’s the header of my New York Times column today, here are some excerpts, starting with the health care issue:
The point here is not to belittle or praise the president, but to point out that his hands are tied. The biggest leftward move in American economic policy occurred during the Roosevelt and Truman years, when the Democrats had the upper hand for five consecutive presidential terms. Because of depression and war, people were looking for real change. Competitive forces in politics were relatively weak, and the Democrats had the chance to make their policies stick.
The Supreme Court’s recent ruling on campaign spending also comes into clearer focus through the median voter theorem. The court ruled that the government may not ban political spending by corporations in candidate elections. Critics fear that the political influence of corporations will grow, but some academic specialists in campaign finance aren’t so sure.
For all the anecdotal evidence, it’s hard to show statistically that money has a large and systematic influence on political outcomes. That is partly because politicians cannot stray too far from public opinion. (In part, it is also because interest groups get their way on many issues by supplying an understaffed Congress with ideas and intellectual resources, not by running ads or making donations.) It is quite possible that the court’s decision won’t affect election results very much.
Here are the concluding two paragraphs:
The median voter theorem doesn’t predict that the legacy of the Obama administration will be a wash. But it does imply that we might find the most important achievements in areas that don’t always linger on the front page. For instance, the president’s ideas on education, which involve accountability and charter schools and pay for performance, may please the American public and thus make their way into policy. And because education transforms the knowledge and interests of the median voter for generations to come, such acceptance could make for a lot of other improvements.
If you’re looking for change to believe in, and change that will last, the odds are best when political competition is pushing the world in your direction.
Jacob Weisberg has a not unrelated column. And, for another perspective, here are the comments over at Mark Thoma’s blog. A few further points:
1. “How tough Obama is” matters less than is usually portrayed. That is the fallacy of anthromorphizing the outcome of political battles. Obsessing over either positive or negative evaluations of key actors probably interferes with one’s abilities to understand underlying structural forces.
2. Even the Supreme Court usually tracks voter sentiment reasonably well.
3. On the health care issue, I don’t think the electoral calculations of the Democrats are over.
[From “When Politics is Stuck in the Middle”]
(…) Here is my alternative to the median voter theorem, which I call the Homer Simpson Voter Theorem. Approximately 30-50% of voters have coherent views on political issues, and these opinionated voters are more or less evenly split between conservative and liberal points of view. The remaining 50-70% of voters have no coherent views on political issues, mostly because they don’t spend any time thinking about them. When it comes time to vote, or answer questions from pollsters these “Homer Simpson Voters” decide on their votes/answers based on what they perceive as normal or mainstream at that moment, and they base their perception of what is mainstream on the smidgen of political information in the media that has managed to slip into their awareness despite studiously not paying attention to political matters. Thus, the Homer Simpson Voter Theorem predicts that politicians cannot stray far from what someone not paying much attention would think is the mainstream view based on headlines casually scanned and snippets of cable news overheard in public places.
Michael Rosenberg wrote this article (PDF) for the Bloomberg Financial Conditions Watch, 27 Jan, 2010. The derived fed funds forecasts based upon Taylor Rule variants look plausible:
I recommend the Financial Conditions Watch, you’ll likely find other useful data and analysis. The Bloomberg Financial Conditions index has climbed back to the 4.5 range — worse than 2004-07 but better than1999-2003.(…) Research on the history of financial crises finds that in episodes where financial stress has been highly elevated, the decline in output has often exceeded 5% from peak to trough, and that it often takes several years before economic growth returns to pre-crisis norms. Indeed, a newly released report by the McKinsey Global Institute (”Debt and Deleveraging: The Global Credit Bubble and Its Economic Consequences”) finds that real GDP growth tends to contract during the first 2-3 years of a typical post-crisis deleveraging process, with GDP growth not returning to pre-crisis norms until the fourth or fifth year of the deleveraging cycle (see Figure 3).
While it is certainly the case that the Fed will eventually have to push its policy rate higher, there is reason to believe that the policy-rate path predicted in Figure 4 might be overly aggressive. Indeed, as we demonstrate below, the market’s projection for Fed rate hikes is not consis- tent with the path forecasted by conventional Taylor Rule models. If we input the Federal Reserve’s forecasts for core inflation and unemployment into a variety of Taylor Rule-type models, we actually end up with a zero or nega- tive Fed Funds rate projected for all of 2010 and, in a number of cases, for 2011 as well.
Japan looks like a pending train wreck to me: 0.1% growth since 1991, a rapidly aging population, debt to GDP destined to pass into the 200%+ range. But the credit markets do not agree with that gloomy assessment. The home bias (93%) is the main reason that Japan has been able to carry the high debt service. And the government’s balance sheet is still in the black with financial assets well in excess of the debt.
Please continue reading Tackling Japan’s debt: A load to bear | The Economist.(…) Even the bears acknowledge that there is scant likelihood of Japan blowing up in the short term. There are several reasons to remain calm, notably the remarkable loyalty of Japanese debtholders over the past 15 years. By some estimates more than 93% of Japanese debt is held domestically, which means that the government need never default because it could simply print money to pay the debt off.
This home bias also helps explain why, though the stock of debt is huge, debt-servicing costs as a percentage of GDP have been relatively low compared with Japan’s OECD peers (see chart). Even at the peak of their recent run-up, ten-year Japanese-government bonds only yielded a miserly 1.43%, but in a deflationary environment they were still attractive to Japanese investors in real terms. What’s more, the government is the world’s largest creditor, with plenty of foreign assets to sell. And Japanese citizens are sitting on another {Yen}1,410 trillion of financial assets. These comfortably exceed the government’s debt. As a last resort they could be heavily taxed if the government ran into trouble.
How similar to Japan are the challenges in the rich world? This is not clear to me. I think the Federal Reserve’s actions and the public statements telegraph that the board of governors has been very worried about preventing a slide into the deflationary feedback loop. FYI, there is a bit of light in Same chords, different tune, including a useful chart summarizing the relative financial balances:
Buttonwood at The Economist November 28, 2009:
(…) Matt King, a strategist at Citigroup, cites IMF figures showing that the debt-to-GDP ratio of the leading 20 developed nations is already twice that of the top 20 emerging markets. By 2014 it will be three times as high.
Every bubble needs a plausible narrative, whether it is the transformative power of the internet or the growth potential of emerging markets. It usually needs easy money as well—and near-zero short-term interest rates in America, Europe and Japan fit the bill, as they encourage investors to search for yield. Bubbles also normally need a trigger event to give them impetus. In this case the credit crunch gave investors cause to doubt the growth prospects of rich-world markets and to favour developing countries.
The bullish argument for emerging-market bonds is based not just on the state of government finances but on the outlook for foreign-exchange markets. The American government may talk about the desirability of a strong dollar but it seems to have no intention of doing anything about it. Governments in Japan and the euro zone are hardly applauding the resulting strength of the euro and yen. By contrast, argues Mr King, some emerging countries may find their currencies appreciating, no matter what policy they follow.
(…) Buying emerging-market debt is not quite as straightforward as buying equities. The countries to which investors may most desire exposure (China and India, for example) are underweighted in emerging-market-bond indices relative to the likes of Venezuela and Lebanon. There is also the question of whether to buy debt denominated in local currencies, which is less liquid but carries a higher yield. Regardless of the country’s chequered financial history, Brazil’s local-currency debt, yielding 11.8%, must look awfully tempting to income-seeking investors at the moment.
Please continue reading…
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