There's a lovely passage in John Le Carré's The Secret Pilgrim in which George Smiley explains why governments don't simply rely on open source information instead of spending gazillions on their own intelligence operations: "governments, like anyone else, trust what they pay for, and are suspicious of what they don't."
Oddly enough, in studying the global political economy, the sentiment often works in reverse in the academy. Scholars, understandably, tend to prefer open source research while looking askance at private sector work that requires $$$ to unlock.
I'm genuinely on the fence about this kind of question. In writing about sovereign wealth funds, for example, I found the private sector stuff far superior on the empirics to the open source research. The private sector stuff is also usually published before academics enter the breach (a good rule of thumb for aspiring IPE types -- if your literature review consists mostly of corporate research, then you are ahead of the academic curve on a new issue area). On the other hand, the private sector work often lacked the analytical bite of scholarly work. For some of it, I could not escape the sense that someone was trying to sell me something.
I raise this conundrum because Martin Wolf's latest column is essentially a precis of a Goldman Sachs report that requires cashy money to read. Wolf's summary:
The paper points to four salient features of the world economy during this decade: a huge increase in global current account imbalances (with, in particular, the emergence of huge surpluses in emerging economies); a global decline in nominal and real yields on all forms of debt; an increase in global returns on physical capital; and an increase in the “equity risk premium” – the gap between the earnings yield on equities and the real yield on bonds. I would add to this list the strong downward pressure on the dollar prices of many manufactured goods.
The paper argues that the standard “global savings glut” hypothesis helps explain the first two facts. Indeed, it notes that a popular alternative – a too loose monetary policy – fails to explain persistently low long-term real rates. But, it adds, this fails to explain the third and fourth (or my fifth) features.
The paper argues that a massive increase in the effective global labour supply and the extreme risk aversion of the emerging world’s new creditors explains the third and fourth feature. As the paper notes, “the accumulation of net overseas assets has been entirely accounted for by public sector acquisitions ... and has been principally channelled into reserves”. Asian emerging economies – China, above all – have dominated such flows....
The authors conclude that the low bond yields caused by newly emerging savings gluts drove the crazy lending whose results we now see. With better regulation, the mess would have been smaller, as the International Monetary Fund rightly argues in its recent World Economic Outlook. But someone had to borrow this money. If it had not been households, who would have done so – governments, so running larger fiscal deficits, or corporations already flush with profits? This is as much a macroeconomic story as one of folly, greed and mis-regulation.
I'm pretty sympathetic to this argument, but I can't fully embrace it unless I can read the friggin' paper.
Question to readers: compared to academic work, how reliable is private sector research?
General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth quarter, as national auto production fell 82 percent.
Then, GM accounted for about half the cars and light trucks sold in the country. Now, GM controls just 20 percent of the market, and analysts say its bankruptcy filing will barely register in the broader economy.
GM’s drawn-out restructuring, an increase in U.S. manufacturing by foreign carmakers and the recession-induced decline in auto sales all have meant more to the economy than today’s legal filing.
“Bankruptcy now is irrelevant in terms of the economic consequence of what’s happening to GM,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “Either way, it’s going to be a shadow of what it was, in terms of jobs and income.”
GM has been reducing payrolls for three decades. Its U.S. employment peaked in 1979 at 618,365, when it was the nation’s largest private employer and auto manufacturing accounted for 4.1 percent of GDP. At the end of this year’s first quarter, autos were 1.5 percent of the economy, and GM had 88,000 U.S. workers.
One of the most difficult and painful aspects in any mature economy is the phasing out of uncompetitive sectors. Delay and denial, however, accomplish nothing but deferring the pain until later (one oddity of the auto sector is that even most people who blame Ameria's industrial decline on globalization/Japan/China/slave labor in Bangladesh tend to shed very few tears for Detroit. I suspect this is because it's very, very hard to defend the long-term performance of either management or labor in this sector).
It's not like I'm thrilled that GM is going under or anything, but as transitions go, this one has been pretty drawn out. When GM lost a record amount in the early nineties, there was a fair amount of speculation about when the firm was finally going to go under.
Now we know.
This story, on the other hand, scares the ever-living crap out of me for reasons that I still need to process.
The New York Times runs two op-eds today on the future of the dollar's status as the world's reserve currency, particularly with regard to China.
Victor Zhikai Gao's essay doesn't actually say a whole lot on the matter, except for this excerpt:
Beijing recently called for a greater role in international trade for the special drawing rights currency of the International Monetary Fund. But China is also fully aware that the United States can veto an I.M.F. decision. China’s call was more meant to sound an alarm to the United States.
Many Chinese people increasingly fear the rapid erosion of the American dollar. The United States may want to consider offering inflation-protection measures for China’s existing investments in America, and offer additional security or collateral for its continued investments. America should also provide its largest creditor with greater transparency and information.
As Brad Setser points out, it's a bit rich for the Chinese to fret about U.S. inflation, since if the renminbi started appreciating, many of the macro imbalances currently plaguing the international monetary system might be lessened. Of course, talking about "currency appreciation" puts the onus on Beijing, while talking about inflation conveniently puts the onus on the United States.
The other op-ed is by Nouriel Roubini -- a.k.a., Dr. Doom. It's a good primer on the benefits that accrue to the United States from having the dollar as the world's reserve currency. That said, this part confused me:
We have reaped significant financial benefits from having the dollar as the reserve currency. In particular, the strong market for the dollar allows Americans to borrow at better rates. We have thus been able to finance larger deficits for longer and at lower interest rates, as foreign demand has kept Treasury yields low. We have been able to issue debt in our own currency rather than a foreign one, thus shifting the losses of a fall in the value of the dollar to our creditors. Having commodities priced in dollars has also meant that a fall in the dollar’s value doesn’t lead to a rise in the price of imports (emphasis added).
The other parts of that paragraph make sense, but that last sentence mystifies me. Wasn't part of the reason that oil and other commodity prices spiked last year was the declining value of the dollar?
In general, both op-eds urge the U.S. to get its financial house in order. I certainly don't disagree with that recommendation. Still, it's a bit disingenuous to suggest that the U.S. is the only country at fault for the current overhang of dollar reserves. Beijing needs to take a good hard look in the mirror on this issue.
I'm off at a conference today, so blogging will be light. Talk amongst yourselves.
Here's some topics of conversation: The National Interest has some fascinating essays in its latest issue. In particular:
[Full disclosure: I'm a senior editor at TNI.]
Newsweek has two long profiles this week -- one on Tim Geithner, and one on Paul Krugman.
The Krugman profile was more interesting, because Evan Thomas managed to encapsulate my own feelings whenever I read Krugman these days:
If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?
The fundamental question is whether Krugman is a brilliant hedgehog, an insecure pain in the ass, or -- as frequently is the case -- both at the same time.
The rest of Thomas' essay does suggest a little pique on Krugman's part:
Obama aides have invited commentators of all persuasions to the White House for some off-the-record stroking; in February, after Krugman's fellow Times op-ed columnist David Brooks wrote a critical column accusing Obama of overreaching, Brooks, a moderate Republican, was cajoled by three different aides and by the president himself, who just happened to drop by. But, says Krugman, "the White House has done very little by way of serious outreach. I've never met Obama. He pronounced my name wrong"—when, at a press conference, the president, with a slight note of irritation in his voice, invited Krugman (pronounced with an "oo," not an "uh" sound) to offer a better plan for fixing the banking system.
This kind of lament suggests that Krugman is less the lonely voice of reason and more someone who wishes he was on the inside looking out. And yet, what if he's right?
The Geithner essay, by Michael Hirsch, suggests that that the Treasury Secretary is finally hitting his stride. One would ordinarily dismiss this as a standard magazine puff piece, but Hirsch isn't really known for writing those. It's worth reading, side by side, with our own David Rothkopf's
jeremiad against mild tweaking of Geithner in yesterday's Washington Post ("he looks like Harry Potter").
Whenever there is a discussion about the structural shifts taking place in the American economy, there's usually a question along the lines of, "where will the new jobs come from?"
This is a fantastically difficult question to answer. The answer requires an ability to predict future sectoral trends in the economy, which last I checked is pretty difficult. For example, we know that many journalists are going the way of do-do, but what will they do instead?
The New York Times' Noam Cohen, however, has pointed the way towards future employment opportunities for writers:
In its short history, Twitter — a microblogging tool that uses 140 characters in bursts of text — has become an important marketing tool for celebrities, politicians and businesses, promising a level of intimacy never before approached online, as well as giving the public the ability to speak directly to people and institutions once comfortably on a pedestal.
But someone has to do all that writing, even if each entry is barely a sentence long. In many cases, celebrities and their handlers have turned to outside writers — ghost Twitterers, if you will — who keep fans updated on the latest twists and turns, often in the star’s own voice.
Because Twitter is seen as an intimate link between celebrities and their fans, many performers are not willing to divulge the help they use to put their thoughts into cyberspace.
Britney Spears recently advertised for someone to help, among other things, create content for Twitter and Facebook. Kanye West recently told New York magazine that he has hired two people to update his blog. “It’s just like how a designer would work,” he said.
Guest Twitterers are just the beginning. I see a robust future for Twitter script doctors ("the first clause is great, but the last three words died in the 18-24 demographic."), Twitter proofreaders ("are we using the English or American version of 'harbor'?"), and -- in world politics -- Twitter translators and diplomatic advisors ("Mr. President, I'm not sure that twittering 'the dollar is here to stay, motherf***ers!' is really the right message to send right before the London summit.")
And, as Tom Ricks points out, foreign actors might need some assistance on this front as well.
Apparently the foreign exchange markets got taken for a ride earlier today in response to Tim Geithner's chat at the Council on Foreign Relations. This makes me wonder if anyone working in forex markets actually listened to the words that came out of Geithner's mouth.
Here's Kathy Lien at FX360 explaining what Geithner said that caused markets to go into a tizzy:
In a blink of an eye, the U.S. dollar has collapsed against the Euro, Japanese Yen and other major currencies. The trigger was comments from Tim Geithner who said that the U.S. is "quite open" to China's suggestion of moving towards a Special Drawing Right (SDR) linked currency system. If the world adopts the SDR, which was created by the IMF as an international reserve asset, it would mean that countries around the world would need to hold less U.S. dollars. (emphasis added)
Except that this is not what Geithner actually said. To be more specific, he did say "quite open," but that's not all he said in his first response. This is from the CFR transcript:
[A]s I understand his proposal, it's a proposal designed to increase the use of the IMF's special drawing rights. And we're actually quite open to that suggestion. But you should think of it as rather evolutionary, building on the current architectures, than -- rather than -- rather than moving us to global monetary union.
Geithner is asked about China (not my question) and the IMF's new proposals for expanded lending. He responds by praising Zhou Xiaochuan, China's central bank governor, but claims that he hasn't read his proposal in detail. Geithner makes it clear that he is quite open to expanding the IMF's Special Drawing Rights for less developed countries. Still, he wants it to evolve and be integrated within the current international monetary system -- as opposed to the de novo creation of a new global currency.
I've read the report (Tim, it's not that long, take a look!) and Zhou is not proposing anything so radical so soon, so this is a bit of a red herring. Still, Geithner's statement here carries the same kind of firm pushback that Obama gave yesterday about any move ending the dollar as the global reserve currency.
SDRs are intended for least developed countries, so expanding that program would not profoundly affect the distribution of currency reserves among the world's principal players.
And yet, after Geithner reaffirms this point later in the talk, Lien interprets it as follows:
A few minutes after saying the U.S. is open to an SDR linked currency, Geithner clarified his comments by saying that there is "no change in dollar as world's reserve currency and likely to remain so for long time." In our alert, we said that the dollar would rebound if he attempts to clarify his comments. These contradictory statements are clearly the act of an amateur Treasury Secretary that has been thrust onto the public forum and is struggling with the need to be very particular in his choice of words.
Okaaaaaay..... except there was no contradiction between his statements, and anyone who's been following this stuff for the past week should have understood Geithner's point the first time.
Question to readers: shouldn't the forex markets have interpreted these statements better than your humble blogger? What does this say about the wisdom of crowds?
UPDATE: The Financial Times' Krishna Guha, Tom Braithwaite and Peter Garnham provide more precise reporting on this point:
The dollar fell 1.3 per cent against the euro as headlines saying “Geithner open to SDR currency” flashed across traders’ screens. With the currency falling, Mr Geithner’s interviewer – Roger Altman, a deputy Treasury secretary in the Clinton administration – gave Mr Geithner the chance to clarify.
The Treasury secretary said: “I think the dollar remains the world’s dominant reserve currency.” The dollar subsequently recovered much of its losses.
One fuzzy headline, and you get majoy gyrations in the forex markets.
James Carville once said, "I want to come back as the bond market. You can intimidate everybody." I want to be reincarnated as a headline editor.
Your humble blogger is listening in to a Q&A with Treasury Secretary Timothy Geithner, courtesy of the Council on Foreign Relations, which has said, "Chatham House Rules be damned" and is allowing bloggers like me to prattle on. This post will be updated through the next hour. On to the show!!
9:15 AM: We're also allowed to e-mail questions. I resist the temptation to write, "Just how much do you want to gut-punch Paul Krugman?" and instead submit a question about China. Let's see if it gets in the queue!
9:20: Roger Altman is moderating, and opens by noting that the Fed has provided an estimated $14 trillion in various of guarantees and injections of capital into the global financial system. Gulp.
9:22: Geithner opens with a shout-out to his old staff at the New Yor Fed. This is one reason why past staffers like him so much.
9:23: Quotes former Mexican president Ernesto Zedillo: "Markets overreact, so policy should overreact." Says we've borowed too much, taken on too much risk, and ordinary Americans are now bearing the cost, which makes it fundamentally unfair. American people are justifiably pissed (he did not use that word). Notes that the absence of a serious recession over the past two decades created false expectations of continued prosperity.
9:24-9:31: Basically a reprise of his testimony from yesterday.
9:31: Now pushing for global coordination of standards at the G-20.
9:32: OK, let's get to the actual Q&A!!
9:37: Altman asks about the future of the plan if Congress does not authorize any additional TARP funds. Geithner tap-dances, basically says that they would need to muddle through.
9:43: Oh, sweet Jesus, Benjamin Barber is asking a question. And Timothy Geithner just said he sounded like an economist!!!
Seriously, Barber asks a semi-decent question about whether the bank plan socializes losses and privatizes the benefits. Why not nationalize?
Geithner responds by saying that governments, in a time of crisis, have to be prepared to assume risks that private actors cannot absorb -- but still have o avoid assuming too much risk. The complexity and scale of these financial institutions would force the government to assume way too much risk if nationalized.
9:46: A lawyer asks whether the Treasury has an estimate of the value of the toxic assets held by the ten largest financial institutions. Geithner responds : "If that was a knowable, high enough number, we wouldn't have a crisis." Then says that they're relying on a range of public sector and private sector estimates. States that the market value of these assets now is probably much less than they might be in a less panicked future.
9:52: Geithner is asked about China (not my question) and the IMF's new proposals for expanded lending. He responds by praising Zhou Xiaochuan, China's central bank governor, but claims that he hasn't read his proposal in detail. Geithner makes it clear that he is quite open to expanding the IMF's Special Drawing Rights for less developed countries. Still, he wants it to evolve and be integrated within the current international monetary system -- as opposed to the de novo creation of a new global currency.
I've read the report (Tim, it's not that long, take a look!) and Zhou is not proposing anything so radical so soon, so this is a bit of a red herring. Still, Geithner's statement here carries the same kind of firm pushback that Obama gave yesterday about any move ending the dollar as the global reserve currency.
Geithner follows up by saying that the future of the dollar in the international system is really a function of long-range U.S. fiscal policies. Wants to keep U.S. debt-to-GDP ratio stable, and asserts that there is now a consensus in Washington about fiscal rectitude. This is juuuust a little strange to hear given this year's fiscal balance sheet.
10:00: Asked a question about what he expects from the G-20. Boilerplate response, which is not encouraging. Wonder if he's read the Czech PM's recent statements.
10:08: A good follow-up to the G-20 boilerplate, asked about the Scandanavian plan to rescue banks. Geithner's response: "We are not Sweden," though looking at the Seems his chief concern is that there will be a premature withdrawal of rescue efforts
10:09: Herb Levin asks the extent to which exchange rates play a role in these decisions. Geithner: "Is this a trick question?" and laughs it off. A little too much tap-dancing here.
10:10: Asked if there is a limit to the Fed's balance sheet, and Treasury's ability to backstop that balance. Geithner punts it to Bernanke, then references this joint Treasury/Fed statement.
10:13: Asked what headline he wants from the upcoming G-20 summit, and he replies something like "Broad, coordinated action across range of issues by G-20." And this is why Geithner is not in the newspaper industry.
10:14: Last question. Roger Altman asks Geithner "on behalf of the markets" to clarify his response to the PBoC plan on the future of the dollsar. Says he continues to see the dollar as the world's reserve currency for both the short-term and the long-term. Also stresses the need for macro-fundamentals to be strong enough to ensure that this continues to be the case.
That's a wrap!
My latest commentary for Marketplace is now available. I expanded upon one of my observations from this essay -- the point about generational office politics at the workplace. And, being a good Generation X-er, I did what my generation does best -- add a lot more snark and whine.
You can listen to the result by clicking here. The key paragraphs:
In 2008, U.S. workers aged 55 to 64 who had 401(k)'s for at least 20 years saw their retirement balances drop an average of 20 percent. A recent YouGov poll showed two-thirds of this generation have not made the necessary adjustments in their financial planning. This is not a recipe for leaving the workforce anytime soon.
What does this mean for the rest of us? Younger workers who expected promotions when the boomers cleared out are going to have to stew in their own juices. With this job market, looking for a better opportunity elsewhere is not in the cards. Which means that Gen X-ers are going to have to listen to baby boomers doing what they do best -- talk about themselves.
Be sure to read the comments to the essay. Here's my fave so far:
These people, these people who call themselves generation y or x, have come to my attention for all this whining and contempt that they feel for "Baby Boomers," which they like harping on in their "blogs."
The markets loved it, but, if you think about it, part of the reason there's been a financial meltdown is that the markets has the ability to misprice a lot of stuff, so let's discount this data point juuust a wee bit.
I'm not sure, and I'm really jet-lagged. However, this is important, here's my quick and dirty and partially-informed take:
Krugman's position is the statement that Geithner's plan is just a warmed-over version of Paulson's initial TARP plan to buy toxic assets. I don't disagree with that assessment. By implication, however, Krugman thinks that since so may economists thought this idea was bad back in September, it is therefore bad now.
If memory serves, however, the reason for this economic consensus at the time was the idea that it would take too long for this buyback program to work. With credit markets near frozen, the idea of injecting the banks with capital was thought to be a better and quicker idea.
Fast forward six months. While the bottom has fallen out of a lot of markets, the credit crunch has eased. There is now time to execute some version of the original TARP idea. Furthermore, the people doing the implementing have more political legitimacy than the lame-duck Bush administration.
In other words, I think this plan has a much better chance of succeeding than the original TARP plan. But I'm nowhere near sure of this.
Comments on the intrinsic merits of the plan are very much appreciated.
I'm listening via conference call to Federal Reserve Chairman Ben Bernanke deliver this speech to the Council on Foreign Relations.
There will be Q&A afterwards, which I shall liveblog with updates to this post.
I also will not say much about the international dimensions of the issue but will take as self-evident that, in light of the global nature of financial institutions and markets, the reform of financial regulation and supervision should be coordinated internationally to the greatest extent possible.
[G]iven the global operations of many large and complex financial firms and the complex regulatory structures under which they operate, any new regime must be structured to work as seamlessly as possible with other domestic or foreign insolvency regimes that might apply to one or more parts of the consolidated organization.
Y'know, you can't just wish these things into being.
ANOTHER UPDATE: Ah, I'm seeing the Fed requests for greater supervisory authority:
Currently, the Federal Reserve relies on a patchwork of authorities, largely derived from our role as a banking supervisor, as well as on moral suasion to help ensure that critical payment and settlement systems have the necessary procedures and controls in place to manage their risks. By contrast, many major central banks around the world have an explicit statutory basis for their oversight of these systems. Given how important robust payment and settlement systems are to financial stability, a good case can be made for granting the Federal Reserve explicit oversight authority for systemically important payment and settlement systems.
And here on whether the Fed should be the institution to provide "macroprudential" supervision for systemic risk:
As a practical matter... effectively identifying and addressing systemic risks would seem to require the involvement of the Federal Reserve in some capacity, even if not in the lead role. As the central bank of the United States, the Federal Reserve has long figured prominently in the government's responses to financial crises. Indeed, the Federal Reserve was established by the Congress in 1913 largely as a means of addressing the problem of recurring financial panics. The Federal Reserve plays such a key role in part because it serves as liquidity provider of last resort, a power that has proved critical in financial crises throughout history. In addition, the Federal Reserve has broad expertise derived from its wide range of activities, including its role as umbrella supervisor for bank and financial holding companies and its active monitoring of capital markets in support of its monetary policy and financial stability objectives.
ANOTHER UPDATE: OK, now the Q&A!
Bernanke does not expect any "major disagreements" with either Treasury or the Obama administration on any proposed legislative reforms.
He sees recovery beginning in 2010.
He observes that between 1929 and 1931, the Great Depression was your garden-variety financial panic. It was the collapse of Austria's Creditanstalt Bank in 1931 when things really went south. Obviously, he'd like to avoid a replay of that trigger event.
On proposed reforms of accounting rules: "These things move slowly... there's a lot of more deliberation." Wants to see more rapid movement at the global level.
In response to a question about whether he's worried more about inflation or deflation: "Mostly I'm worried about the overall economy."
When asked about the international dimension, he gives a pretty vanilla response -- greater coordination between jurisdictions, etc. He is skeptical of the G-20 producing a detailed coordination proposal (as opposed to providing overall guidance). Bernanke praises the actions following up the October G-7 meeting by central banks at injecting liquidity into the system.
His closing comment: "economics is not music or math... it's useful only to the extent that it helps people. Economics is not worth the effort unless it's applied in a way that helps people in the world."
LAST UPDATE: Here's a link to Jack Healy's write-up in the New York Times.
When Paul Krugman and Megan McArdle agree on Obama/Geithner's lackluster reaction to the economy, that's usually a good sign to go long on duct tape and shotguns. And this Brad DeLong post doesn't make me feel much better -- because I think he has the political economy just about right.
Still, I'm going to wait a month before allowing my freaking out flag to fly. Why? Because in the time that Barack Obama has been forced to react in real time, I've noticed two tendencies:
So maybe a month from now Treasury will actually have some appointments besides Geithner, and markets will be more certain about what Obama is planning to do. If these things don't happen, however, I have every confidence in my commenters saying, "I told you so."
UPDATE: OK, now we're seeing some movement! This Reuters story lists three incoming nominees at the assistant secretary level. It also explains the dithering at the more senior levels:
On Thursday, sources said former Securities and Exchange Commissioner Annette Nazareth withdrew from consideration to become a deputy Treasury secretary for personal reasons and that she would remain in her private securities law practice.
In addition, Geithner's choice for international affairs undersecretary, Caroline Atkinson, also pulled her name from consideration. Atkinson, a senior official at the International Monetary Fund, has decided to remain at the institution, a person familiar with the decision said.
Both Nazareth and Atkinson had been vetted for the jobs but had not been formally nominated.
Lee Sachs, also currently a counselor to Geithner, is widely considered a top contender for undersecretary for domestic finance, but also has not been formally nominated.
One wonders if the reasons for the withdrawal have to do with the people involved or the rigors of the vetting.
During the first month of the Obama administration, there have been a few proposals coming from the Treasury Department, and it's safe to say that markets have not been too thrilled about them. A large part of that is because the proposals are so vague and opaque that even Felix Salmon is having difficulty interpreting them.
To be fair to Geithner, however, it's not like he has a lot of help. Check out this Treasury web page listing all of the political appointees at Treasury.
ABC's Matthew Jaffe reported in fuller depth on this problem earlier in the week:
Treasury has not moved quickly enough to fill key positions -- such as deputy secretary, various undersecretary posts, and general counsel -- which may have contributed to a lack of details in Treasury's plans, which in turn caused a dive in the stock market.
"If the secretary had a full staff he would've been in a stronger position to work out the details, so I'm sure that has been part of the problem," West said....
Some analysts believe Geithner is suffering from the lack of a complete staff at his disposal.
"It's an overwhelming job even if you have a full staff, and that's certainly not yet the case," said Rob Nichols, president of the Financial Services Forum.
Nichols, a former Treasury spokesman, estimated that right now Geithner "probably has 10 or 20 percent of the political appointees around him that he ultimately will have."
"Treasury is not moving fast enough," West said. "Given all of the enormous economic and banking challenges that we face, we really need a full team on the field."
The story gives a couple of possible reasons -- the new ethics rules, difficulties with vetting -- but they don't really pass the smell test. What I don't understand is why the Obama White House is not making this staffing issue its first, second, and third priorities right now. Given the gargantuan tasks facing Treasury right now, I guarantee that the deputy and undersecretary positions at 1500 Pennsylvania Ave. are far more important than the Secretary of Commerce.
I woked at Treasury during the last transition, when it took close to six months to get the Deputy Secretary confirmed. It was.... a difficult time, to say the least. And that was when countries like Argentina and Turkey were in trouble -- not all of the the OECD and the BRICs.
Paul Volcker is pretty angry about this -- as well he should be. But the person he should be angry at is his boss.
A prominent institution issued the following warning about the "Buy American" provisions in the stimulus package:
History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships.
Name that institution:
Click here for the answer.
Admittedly, the title of this post gives the game away, but it nicely highlights one of the many oddities of the current crisis.
Props to my colleague David Rothkopf for this concise description of the Department of Commerce:
The Commerce Department is a bureaucratic hodge-podge held together by those old Washington stand-bys of inertia, habit, and the self-interests of Congressional appropriators. Oh, and neglect. And ignorance. Not only do most Americans not know what the Commerce Department does -- its various missions are so diffuse most people who work there don't know all that it does.
David is being modest, however. As near as I can figure, the Commerce Department does perform one task exceptionally well -- it allow people to step up from foreign policy middleweights to heavyweights.
Prior to being at Commerce, these people are working in the think tank trenches struggling to get their op-eds placed in the Washington Post. After being at Commerce, these people are jetting to Davos, writing august tomes for Knopf, pulling down medium five figures for speeches, popping up on Sunday morning talk shows, and becoming Deans at the Yale School of Management.
Not that I'm bitter about this or anything.
Writing in the Financial Times, Jeffrey Sachs fires a warning shot across the bow of stimulus enthusiasts:
The US debate over the fiscal stimulus is remarkable in its neglect of the medium term – that is, the budgetary challenges over a period of five to 10 years. Neither the White House nor Congress has offered the public a scenario of how the proposed mega-deficits will affect the budget and government programmes beyond the next 12 to 24 months. Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package....
The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor. We seem all too eager to rectify a generation of a nation saving too little by saving even less – this time through expanding government borrowing. First it was former US Federal Reserve chairman Alan Greenspan’s bubble, then Wall Street’s, and now – in the third act – it will be Washington’s....
Perhaps Mr Obama should reflect on the fact that the Clinton-era boom began in 1993 with tax rises and a congressional rejection of a fiscal stimulus package. This time, there is certainly a cyclical case for deficit- financed public spending, but accompanied by phased-in tax increases to provide proper financing of crucial government functions in the medium term.
Hmmm... Sachs makes some valid points here. Maybe we should take a moment or two to ponder this.
Hey, what's this Sam Dillon story in the New York Times saying?
The economic stimulus plan that Congress has scheduled for a vote on Wednesday would shower the nation’s school districts, child care centers and university campuses with $150 billion in new federal spending, a vast two-year investment that would more than double the Department of Education’s current budget.
The proposed emergency expenditures on nearly every realm of education, including school renovation, special education, Head Start and grants to needy college students, would amount to the largest increase in federal aid since Washington began to spend significantly on education after World War II.
You know, it's nay-sayers like Sachs that are keeping our country mired in recession. I can't believe his nitpicking is going to stand in the way of
my tasty slab of pork getting America going again.
It's been fashionable as of late to predict the end of the dollar's hegemony as a reserve currency. And, to be sure, the U.S. performance in recent years does not recommend the dollar as a great store of value.
World politics is a relarive game, however, so while the dollar might have its problems, what are the alternatives? China might have its fiscal house in order, but the renminbi is not fully convertible. The yen is appreciating, but Japan's economy is too small (and its growth opportunities are not exactly robust).
The only viable alternative is the euro. But as Landon Thomas Jr. story in the New York Times suggests, that currency's odd political status is creating economic fissures within the Eurozone. The key paragraph:
For some of the countries on the periphery of the 16-member euro currency zone — Greece, Ireland, Italy, Portugal and Spain — this debt-fired dream of endless consumption has turned into the rudest of nightmares, raising the risk that a euro country may be forced to declare bankruptcy or abandon the currency.
As the story makes clear, the odds of this happening are still small. Because they are not trivial, however, uncertainty surrounding the euro will remain high. Which means that it is not going to displace the dollar anytime soon.
John Thornhill explains in the Financial Times why I've been drowning in conference requests:
Amid the economic gloom, at least one business is booming this year – conferences on the crisis of capitalism.
This week, a host of policymakers and economists – including four heads of state or government and three Nobel prize-winning economists – descended on Paris to debate how to stick the shattered world economy back together again. A flurry of similar meetings is taking place in advance of the Group of 20 summit in London in April, which aims to redesign global governance.
Read Thornhill's article to see what Francis Fukuyama, Amartya Sen and Joe Stiglitz think.
Question to readers: if you could have your dream conference on this subject, who would you invite?
After bailouts designed to pump up the flagging finance and auto sectors, you knew that this was going to come at some point:
As the 2009 AVN Adult Expo opens in
Las Vegas this week, Girls Gone Wild CEO Joe Francis and HUSTLER magazine publisher Larry Flynt are petitioning the newly convened 111th Congress to provide a financial bailout for the adult entertainment industry along the lines of what is being sought by the Big Three automakers, a spokesperson for Francis announced today.
Adult industry leaders Flynt and Francis sent a joint request to Congress asking for
$5 billion in federal assistance, "Just to see us through hard times," Francis said. "Congress seems willing to help shore up our nation's most important businesses, we feel we deserve the same consideration. In difficult economic times, Americans turn to entertainment for relief. More and more, the kind of entertainment they turn to is adult entertainment."
But according to Flynt the recession has acted like a national cold shower. "People are too depressed to be sexually active," Flynt says, "This is very unhealthy as a nation. Americans can do without cars and such but they cannot do without sex."
While not to the degree felt by banks and automakers, the Adult Entertainment industry has been hit by the effects of the economic downturn. DVD sales and rentals have decreased by 22 percent in the past year as viewers turn to the internet for adult entertainment.
Crazy as this sounds, Flynt and Francis do make one penetrating insight in their complaint -- adult entertainment sales and rentals are shrinking much more quickly than overall DVD sales and rentals. So it would be fair to say that compared to mainstream Hollywood, the adult entertainment sector is getting pounded. Unless the economy can manage to mount a robust and vigorous upturn sometime soon, it makes sense for the adult entertainment industry to beg for a more direct and forceful stimulus package.
Hat tip: Free Exchange
What is truly worrisome, however, is that a lack of cooperation on trade could spill over into a lack of coordination on fiscal policy. Coordination on these two issues are linked. States running trade deficits worry that export engines like Germany and China will free ride off of their own fiscal expansions, boosting the growth prospects of these exporters without any serious fiscal expenditures on their part. Already, other Europeans are upset over Germany's inaction on the fiscal front. German Finance Minister Peer Steinbruck's warning against "crass Keynesianism" to NEWSWEEK's Stefan Theil has merely stoked these concerns even more. If this fear persists, there is a danger that any Keynesian boost will come attached with protectionist provisions to ensure that the benefits remain within national borders. Some reputable economists are already advocating this kind of action in the absence of global policy coordination. As the global downturn persists, these political pressures will become harder to ignore. What has been a mild backlash against trade liberalization could quickly turn into a tsunami. If trade wars break out in the wake of the global financial crisis, they will not take the form of Smoot-Hawley—but they will be equally dangerous.And, hey, on cue, the New York Times' Louis Uchitelle reports the following on the U.S. steel industry in the United States:
The industry itself is turning to government for orders that, until the September collapse, had come from manufacturers and builders. Its executives are waiting anxiously for details of President-elect Barack Obama’s stimulus plan, and adding their voices to pleas for a huge public investment program — up to $1 trillion over two years — intended to lift demand for steel to build highways, bridges, electric power grids, schools, hospitals, water treatment plants and rapid transit. “What we are asking,” said Daniel R. DiMicco, chairman and chief executive of the Nucor Corporation, a giant steel maker, “is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘buy America’ clause.” (emphasis added)What it truly disturbing about this request is that it contradicts the narrative about the U.S. steel sector in recent years, a narrative tat Uchitelle comments on later in his story:
Not since the 1980s has American steel production been as low as it is today. Those were the Rust Belt years when many steel companies were failing and imports of better quality, lower cost steel were rising. Foreign producers no longer have an advantage over the refurbished American companies. Indeed, imports, which represent about 30 percent of all steel sales in the United States, also are hurting as customers disappear.The political economy implications of this are pretty disturbing. Steel, which can compete with the rest of the world, should be one of the last sectors to seek protection from foreign competition. With its mini-mills, Nuxor is one of the most competitive firms within the U.S. steel sector. If this is how Nuxor is behaving, however, how much protectionist lobbying will come from the less competitive sectors of the U.S. economy? Developing.....
If you can fake authenticity in the new year, you will have it made. Authenticity was already a buzzword in business and politics before the credit crunch. It will become an essential virtue following the curtain twitch that revealed so many Masters of the Universe to be Wizards of Oz. At one executive leadership seminar I attended recently, the trainer explained that authenticity was the main attribute delegates needed to radiate, including “different types of authenticity for different audiences”. This means being a technocrat in the boardroom, a pragmatist among middle managers and an Average Joe on the shop floor.One does wonder if this increases the likelihood of bloggers -- who were in on the ground floor of this whole "constructed authenticity" deal -- making it in the corporate world.
My favorite part is the initial B-roll, during which Megan towers above me.
The New York Yankees represent the very worst of America. Overstatement? Consider the times. Cornerstone industries are faltering, taxpayers are being asked to bail out mismanaged financial institutions and their overpaid CEOs, and decent, hard-working men and women are being laid off or worrying that they could be next. Now consider the eight-year, $180 million contract the Yankees reportedly handed first baseman Mark Teixeira Tuesday. Stack it on top of the $161 million deal signed by pitcher CC Sabathia and the (relatively) modest $82.5 million promised to A.J. Burnett and you have the most egregious display of financial irresponsibility in the history of sports. The Yanks' insane overspending would be bad for baseball in the best of times. These are not the best of times.... What's wrong here is obvious. It's also not really new. Unlike the NFL, NBA and NHL, baseball has no salary cap. Those leagues do not have caps for the sheer, unbridled joy of finding loopholes and exceptions. They have them as part of an effort to maintain some kind of competitive balance among teams from different-size markets in disparate parts of the country.Sheridan's response is pretty typical of non-Yankee fans -- which is disturbing, because it's so wrong on so many levels. First, it would be awesome if American corporations acted more like the Yankees. One cause of the deepening recession is that firms are afraid to do anything other than hold cash in hand at the moment. The smart ones should invest in expansion -- capital is ridiculously cheap right now and they'll be well-poised once the economy takes off again. If enough firms acted that way, the economy actually would take off again. In signing these players, the Yankees have made long-term investments while keeping their expenditures constant relative to last year's payroll. Given their move to a new stadium, their revenues should increase. They have made these moves in order to improve their chances of competing. That's how corporations should behave. As for Sheridan's point about competitive balance -- well, let's go to Joe Posnanski, who has some useful data on this point:
it always gives me great comfort to see the following facts: -- Over the past 10 years, eight different teams have won the World Series. In all, 15 teams made the World Series -- half of the teams in baseball. -- Over the past 20 years, 14 different teams have won the World Series. In all 22 teams made the World Series. Now, we're at more than two-thirds who have reached the Series. -- Over the last 30 years, 20 different teams have won the World Series, and only four -- Cubs, Mariners, Rangers and the Expos/Nationals -- have failed to get there... I'm not saying that the Yankees will not win in 2009 -- that's an awfully good team now, absolutely the best that money can buy. But just remember that key fact: 20 teams have won a World Series in the last 30 years. And by comparison: -- Only 14 teams have won the Super Bowl over the last 30 years. -- Only 14 different men have won Wimbledon over the last 30 years. -- Only 13 teams have won the Stanley Cup over the last 30 years. -- Only nine teams have won an NBA title over the last 30 years.It is telling that the team sports with salary caps actually have more dynasties than baseball. In baseball, more money can make the Yankees better, but it can't guarantee them anything. As a Red Sox fan, I'm perfectly happy to have the rest of America hate the Yankees along with me. Holding them up as the symbol of what's wrong with the country, however, is pretty ludicrous. UPDATE: Thanks to YFSF, I see that Dan Szymborski has made a similar argument over at Baseball Think Factory:
The Yankees do spend more money than other teams in MLB, but the differences would be less drastic if the payrolls of many teams had been rising up to the waves of new cash that have entered baseball in recent years. Going by the NFL formula, very generous considering the MLBPA is far more powerful an entity than any other union in sports, the payroll floor for 2009 would almost certainly be in the $100 million range. 58% of league revenue, as the players in NFL get, would be, in baseball, an average team payroll of a hair under $120 million. It's pretty clear that while the Yankees are outspending everyone comfortably, the rest of baseball has just as much to do with the payroll disparity as the Yankees do. Now, what about the Yankee mindset? The Steinbrenners aren't anywhere near as rich or as liquid as some other owners in baseball such as Carl Pohlad of the Twins. The difference is that the Steinbrenners have always invested in their team, always striven to put the best product possible out on the field. The Yankees have certainly made some terrible trades, especially when King George was hands-on the most, but they were done with the motive of making the team better. Yes, the Yankees got a huge, undeserved payday from the locals for their stadium, like most teams in baseball did, but it's a mitigating factor that they're actually plowing those funds back into the on-field product. And the team never threatened to not compete until they got their sweet check. Perhaps a small difference, but I see it as a good bit more ethical than Kevin McClatchy demanding taxpayer moneys to help the Pirates compete and then turn around and use all the money to fund his failing media empire.
Students are applying to the state's public colleges and universities in record numbers, as the nation's financial crisis forces more families to consider less expensive schools. The new application figures confirm a widely forecast "flight to price" among students. They also follow a sharp increase in fall enrollment in the public system, which consists of 15 community colleges, nine state colleges, and the five University of Massachusetts campuses. The increase will sharpen competition for spots in this fall's freshman classes, bumping some students who in previous years could have counted on being admitted, college counselors say. Applications for early admission to UMass-Amherst, the state's flagship campus, rose 29 percent over last year, and applications for regular admission have climbed 23 percent at UMass-Lowell. Framingham State and Westfield State colleges have seen more than 40 percent increases in applicants from this time a year ago, while the Massachusetts College of Liberal Arts in North Adams has seen a 60 percent jump. Early-action applications at the Massachusetts College of Art and Design in Boston have risen 75 percent.... With most four-year public colleges unable to handle a significant increase in enrollment, the heightened competition will probably have a ripple effect across the state, college officials and high school guidance counselors say. The shift toward public colleges takes place as small private colleges in Massachusetts, which educate a sizable portion of the state's low- and moderate-income students, grapple with heavy financial losses from stock market declines, jeopardizing their ability to award financial aid. "You might have a perfect storm where public colleges will be the only place to get your foot in the door, and they don't have enough seats," said Bob Giannino-Racine, executive director of ACCESS, a Boston nonprofit that helps students find ways to afford college. "They've always been a fail-safe, but now they have a real challenge to remain places of access."I seriously doubt that this phenomenon is limited to the state of Massachusetts.
President-elect Barack Obama this morning named Daniel K. Tarullo to the Federal Reserve Board of Governors, the first step in an unusual opportunity Obama has to remake the Federal Reserve at a time the institution is undergoing dramatic change.Although it is common for presidents to appoint several Fed governors by the end of a term, Obama will be able to appoint three of seven members of the Fed's board of governors immediately upon taking office, subject to confirmation by the Senate. He can either reappoint or replace Chairman Ben S. Bernanke when his term expires in January 2010, and he will make the same decision for Vice Chairman Donald L. Kohn when his term ends that June. Governors serve a 14-year term, though in practice, slots turn over every few years. Thus, within 18 months of taking office, Obama will likely have appointed five of seven Fed governors, including its top two members. Tarullo, if confirmed, will be one of them. He was a top aide to President Bill Clinton for international economic policy in the 1990s and since then has taught at Georgetown University's law school. He published a book this year on the Basel II international standards for bank regulation, arguing that the approach needs to be changed in major ways to prevent financial crises like that now underway. He is thus well poised to represent the Fed in its coordination with bank regulators around the world in responding to the financial crisis, and to take part in what is likely to be a vigorous debate on how the U.S. financial regulatory system should be overhauled and what the Fed's role should be.... The Obama administration is likely to move quickly to fill the three open governors slots, said Democrats who have been in touch with the transition team. Two of those slots are currently vacant -- nominations were held up by congressional Democrats -- and a third is occupied by Bush appointee Randall Kroszner, whose term has expired but who is serving until his replacement takes office. In filling the three governor slots, Obama should seek to bring a diversity of experience to the Fed in an effort to manage the various dimensions of the crisis, said economists who study the central bank. With Tarullo, he has filled one with an expert in international banking regulation. For the other two, he might appoint one person with a background in financial markets and another academic experience in macroeconomics and monetary policy.
With plunging exports and economic contraction overtaking inflation and liquidity as concerns, Asian central banks are starting to buy dollars, raising devaluation worries. Patrick Bennett, Asian currency strategist at Société Générale, said there was evidence that central banks in Singapore, Malaysia, India and South Korea had started dollar buying “in the last couple of days”. HSBC has highlighted “a shift to depreciation policy”, notably in Thailand and Taiwan, which recently bought dollars for the first time since August 2007 and April of this year respectively. The Asian Development Bank gave warning last week that “we need to avoid unnecessary and excessive interventions in the foreign currency markets, especially to depreciate domestic currencies”. Writing in this week’s FT, Michael Pettis, finance professor at Peking University, expressed caution about “a grave risk” that Asian countries would seek to force overcapacity adjustment on to trading partners through currency depreciation and other trade-related measures.A restriction of global trade is not going to happen through traditional means, like high tariffs. It's going to happen through domestic content rules on any fiscal programmes and on currency manipulation. [Um... any good news?--ed. Well, I suppose it is encouraging that the developing world has its financial house in sufficient order that it can engage in fiscal expansion. But that's about it.]
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.