I apologise for the rather trite sub-heading but it was a bit of attention grabbing to promote the results of a recent conference called Let Markets Be Markets. It was published by the Roosevelt Institute and had one very impressive line of speakers.
One of the speakers was Simon Johnson of Baseline Scenario fame, a Blog that Learning from Dogs has followed since our inception.
Here’s 8 minutes of Simon pulling no punches.
If you want to read and watch other presentations, then Mike Konczal’s Blog Rortybomb is the place to go.
As this Blog has repeated from time to time, this present crisis is a long way from being over.
When lending is motivated by politics, losses are not far behind.
Years ago, in the summer of 1980, I worked as an intern in the Federal Home Loan Bank Board at the Department of Agriculture. I was a senior in college majoring in business and had been accepted to the University of Chicago doctoral program. I didn’t want to take the internship because I wanted to take more courses over the summer to help prepare me for the rigors of grad school, but my college advisor had openly worried that I was far too serious for a young person. He strongly encouraged me to accept the internship and take a break from academics before I immersed myself in graduate school, and buried myself once again in all things economics!
The U.S. Department of Agriculture was a major lender
I agreed, but only after I had arranged to take 6 credits of independent study in D.C. I chose to examine the Negative Income Tax program, one of the largest social experiments in U.S. history. More on that at another time. Today, I want to talk about what I learned from being an employee of the U.S. federal government.
The first thing I learned was that the “problem” with government work is not the people; well, not all the people. There was one man who spent his entire day going back and forth to feed quarters to the parking meter rather than pay for public transportation or do his work. He represented the worst in government employees. Most all of the others I met were hard-working and honest people, trying to do a good job and make a difference.
President George H. W. Bush
No, I learned that the real problem was the way the “work” was done in government. I worked for the Federal Home Loan Bank Board (FHLBB) that summer, which was one of the largest lenders in the world. The FHLBB was responsible for small business, rural, agricultural, and economic development lending. My job was to review loan applications from community groups, fairs, farmers’ markets, and various municipal organizations to make sure that they were complete.
We did not analyze the applicants for creditworthiness. Instead, if the application was correct and complete, and satisfied the application process, it was approved. The FHLBB, which was publicly trashed by the first President Bush as being largely responsible for the savings and loan crisis, was abolished and replaced by the Office of Thrift Supervision (OTS) under the Department of the Treasury in 1989.
Little did I know back in 1980 that I was witnessing, from the inside, a government lending process that would lead to the most significant financial crisis since the Great Depression. Looking back, the outcome was perfectly predictable: when politics replaces profits as the motivation of the lender, it should be no surprise that losses result.
In the latest development in his campaign to show how dramatically the Tories have changed, David Cameron has published the party’s first-ever official list of openly gay MPs.
The Conservatives say they have 20 openly gay candidates standing in the Election. Of those, 11 told party chiefs they were ‘happy’ to be named in the first authorised list of gay Conservative candidates.
David Cameron
Homosexuality is no longer – thankfully – a crime. It has always existed and no doubt always will. It is therefore – logically – a normal feature of human society. Isn’t it time to accept it as such and stop flaunting it constantly in the media? Can we not keep private those parts of our lives which are private? Do heterosexuals go around flaunting their heterosexuality?
Why on earth does a potential government-forming party feel obliged to publish lists of people’s sexuality? Why do I suddenly feel as if I am bizarre in thinking that one’s sexuality should be something private? Personally I haven’t got the faintest interest in other people’s sexual inclinations. Like religion, it should be personal and not eternally flaunted in the media.
And it is all illogical. Either homosexuality is normal or it isn’t. If it is (as it is), then why the constant need to bang on about it, as for example in the Tory party? What on earth has it got to do with running the country? Are the Tories supposed to be better-qualified to run the country the more homosexuals they have? Is there a point at which having TOO MANY becomes a negative point? Would they then start to proclaim how many heterosexuals they had? On a personal level, I keep my sexuality to myself. It is nothing to do with you and certainly not with running the country.
It is analagous to sex in the media. It is overdone. The endless superficial titillation and flaunting of sexuality is demeaning of the Human Spirit. Sex is – or should be – a private matter. It’s better that way. It is more mature that way, but the media – and now the political parties – sink to the lowest denominator instead of focusing on what really matters.
Please, please give us some politicians with common-sense.
Which international, taxpayer-funded organisation has an unelected crony of the British Prime Minister in a high-level post (though not the highest) who earns more than the President of the United States and double the salary of Hillary Clinton?
Clue!
Yes, you’re right. It is the European Union. This is an organisation of member states that in principle is supposed to be
Baroness Ashton
about creating a free, democratic and open market in Europe. It has turned into a proto-state (in the eyes of the Brusselocrats) which – therefore – has to have a “Foreign Minister”, in this case Baroness Ashton.
This is a person with very little knowledge of international affairs sent by Gordon Brown to Brussels because he couldn’t afford to lose Peter Mandelson or David Milliband. This is a person never elected to any public post, yet who receives a vast salary and benefits package higher than that of ANY of the Presidents and/or Prime Ministers of ANY of the member states of the EU.
As “The Daily Mail” points out, in addition to this very large salary the Foreign Minister also enjoys an extraordinary raft of other benefits:
“Her basic pay of £250,000 is double that of her U.S. counterpart, Hillary Clinton (who’s on £124,000). And on top of that, Lady Ashton is entitled to a raft of benefits including a £38,000 yearly accommodation allowance, £10,000 annual entertainment budget, two chauffeurs, plus thousands of pounds more in sundry allowances and – if she survives – a pension of £64,000 pa (three times the average salary in Britain) plus a “golden handshake” of over £450,000.”
All this goes hand-in-hand with billions spent on the new EU “diplomatic service”.
But hang on a minute! The EU is NOT A STATE!
The EU has no army! Baroness Ashton as “Foreign Minister” can decide on practically nothing that the key heads of government do not agree to. So what is going on here? Is all this vast waste of public money in a time of financial crisis either A) the bloated pretention of Brusselcrats who have a delusional idea of their own importance or B) another brick in the wall which one day WILL be a United States of Europe.
One can see how the thinking goes: “We’ll set up a “Foreign Ministry” so big and powerful that one day they will just have to agree to creating a single state to justify it. And of course the more it costs, the more important it obviously is and therefore the more powerful we ourselves will be. And naturally, the more jobs there will be for us to go to on the Brussels merry-go-round.
Of course, it is both A AND B. And how can they afford these humungous salaries? Well, because they can get away with it. In theory they are accountable, but in reality? How many people even know who their European MP is? Once you get onto the Euro Gravy Train it disappears out of sight. Nothing the voter says or does seems to stop the bloated upward creep of salaries, allowances and pretentions.
How ANY Brusselocrat can justify such a ludicrous salary for an unelected and essentially unimportant “minister” is a mystery. The main justification seems to be “self-interest”. The EU is NOT A STATE. States have Foreign Ministers.
It is dishonest and amounts to theft of public funds. But that is not the WORST of it. The saddest thing is that it damages the morale of those who – like me – used to believe in a Europe united but not “statefied”. I want a free and open market. I do NOT want a United States of Europe. But this is where they want to lead us, and – like a black hole – each year sees a tiny creep in that direction, or in the above-mentioned case, a BIG creep. I also do not want a venal, money-grabbing, bureaucratic elite in Brussels which makes 80% and rising of British law.
Once again, one wonders if delusional pretentions will bring the whole edifice crashing down and the baby go out with the bathwater …
To publicly comment on the singular importance of the Iraqi elections without crediting President Bush for having the courage and fortitude to free those people from a tyrannical leader who threatened the security of the free world – shameful.
Of course, you also failed to acknowledge President Bush’s role in enabling the historic Afghanistan elections of 2009. I just hoped you would have matured a little since then.
The media is not doing much better on this issue. But then we expect less of our media than our President.
An economics professor at a local college made a statement that he had never failed a single student before, but had once failed an entire class.
That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on Obama’s plan“. All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A…
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little. The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F. The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.
The Armenian “genocide” of WWI is once again in the news. The Americans seem to be on the point of recognizing what happened as genocide, much to the fury of the Turks. (though Obama is – once again – apparently wobbling ….)
To my mind, what happened WAS genocide or as near it as makes no difference, but that judgement is best left to historians and is not what interests me in this matter. No, once again it is the absolute hysteria that nationalism can provoke that intrigues me. I take hysteria to be a form of insanity; it is certainly as potentially destructive. How can most of an entire nation be insane?
The point is – but logic seems to go straight out of the window when nationalist hysteria takes over – that this happened nearly ONE HUNDRED YEARS AGO. Any Turks involved are long dead. Present-day Turks cannot POSSIBLY be blamed for what their predecessors did, no more than Germans today can be blamed for Hitler or indeed today’s Mongols for Genghis Khan.
What is the POINT of Turks protesting so loudly about what was the appalling mass killings of Armenians? Nobody is going to blame TODAY’S Turks, are they?
The Turks’ current position could be described as anything from wrong through illogical to insane. For goodness sake, just admit the truth and let’s get on with the future. It happened, it wasn’t YOUR fault but THE TRUTH must be told. Without the truth, we are lost.
The irony is – and irony is never far from human experience – that one supposes the Turkish reluctance to admit that it WAS a genocide or as near as dammit is because to do so would mean they “lost face” or “were guilty”, whereas in fact what is reprehensible is the very FACT that they refuse to admit it, not the original events themselves for which THEY TODAY cannot be held responsible.
This seems to me such a self-evident truth that I truly do not understand the Turkish position. Perhaps someone else can help me here ……
As for “we must avoid damaging relations with Turkey”, I can only throw up my hands in despair. The truth is the truth, and what is the VALUE of “relations” based on lies?
As for joining the EU, forget it. There is enough hysteria within our borders already without adding another 90 million people’s worth.
PS And while we’re on the Turks and Armenia, it is time that the Japanese made a more convincing admission that their army was guilty of appalling atrocities in WWII.
Germany is baulking at a Greek bailout ….. 84% of the people are opposed according to polls, and Frau Merkel is decidedly lukewarm. This is no surprise; the Germans are pretty commonsensical after all. They are going through a “spot of fiscal turbulence” themselves and hardly in a mood to bail out a feckless, tax-avoiding, economic basket case on the flaky south of the Brusselian Empire ….
Instead, they have come up with a cunning plan; the Greeks should sell some of their islands. I can see the attraction; at knock-down prices, no doubt a good many Germans themselves – short of coast in the homeland – would be only too keen to snap up a firesale bargain.
But if I were Greek I would beware of Germans with cunning ideas. After all, it could be the islands today and the Acropolis tomorrow. Selling capital assets to clear debts built up on a binge of tax-avoided short-term consumption is hardly the long-term solution, and it is remarkable how we humans do tend to go for short-term, quick-fix solutions (see my post on the Fat Pill) . Of course, in Europe at least the Sun (can I capitalize it? It is after all the source of my existence …) plays a large part here, for the further south you go the hotter it is, the more corruptly-shambolic the taxation system, the flakier the economy and the higher the debt. Of course, Britain is an exception to the rule, since it must be put in the Mediterranean basket of cases even though it is far up in the north. Still, Britain was ever exceptional ….
No, I would advise the Greeks to hang on to their islands for a rainy day and do the right thing, which is take the medicine, invest long-term rather than on frivolous consumption and in general live within your means. Selling the islands is desperation stakes, even if the ultimate solution would be to sell the whole country to the Germans and let them sort out the mess, and – more to the point – pay for it all as they did with East Germany.
But though this is hardly a laughing matter – especially for innocent Greeks (I assume there are some!!) – I did have a chuckle yesterday when I saw the headline.
“Greece calls for EU to play its part.” – in other words, bung in billions to bail them out. I am I confess mystified to understand exactly why the thrifty Danes should play their part in bailing out the hapless Greeks, though I suppose we do still owe them for democracy and stuff. When does the statute of limitations run out on this?
Well, good luck Greece, but don’t count on my pfennig, and don’t sell the islands either!
Representative Dennis Kucinich (Democrat – Ohio) is on the media circuit promoting his rather novel idea on how to “create” jobs for younger people who are trying to enter the work force but can’t because of the recession.
The Congressman has proposed legislation that would allow people to take voluntary early retirement at age 60 instead of age 62, as the law now stands.
Kucinich, who ran for the Democratic nomination for President in both 2004 and 2008, estimates that about 25% of those eligible to retire at age 62, or about 1 million people, would choose to take early retirement under his plan. He claims that this is a conservative estimate, since about 70% of those who can retire at 62 do so now.
These early retirees would, of course, collect social security earlier, after having worked fewer years and contributed less to Social Security. And then we’d have to assume that these workers would be replaced by the younger people now looking. And that they would generate the same tax revenues for the government that the early retirees did.
What a plan! Lock in higher costs, with no guarantee of any benefits. This is the kind of logic that put the U.S. into this pickle in the first place.
How does Mr. Kucinich propose to pay for this plan? Why, with government funds, of course! Specifically, with the “extra” unspent stimulus and TARP funds. This, despite the fact that he has spoken repeatedly about voting against the TARP funds because he opposes government interference in the private economy. But, hey, he goes on to say, “Since the money is lying around anyway, let’s use it!” You’d think tax revenues fall out of the sky!
I do not know which is worse, the hypocrisy or the ignorance. What folly! This man has absolutely no business talking about how to create jobs when he has no idea how the economy actually works.
Here’s an idea that is guaranteed to help the economy recover. Why doesn’tMr. Kucinich take voluntary early retirement!
A friend on another site just posed this question.
Why is it that a recession is described as two or more successive quarters of “negative growth”, but being out of recession is just one quarter of (estimated) growth?
I felt emboldened to pen an answer as follows ….
In Britain, the definition of recession-emergence is from the same school of economics as growth predictions for next year (any year), which are always about 5 zillion% more than actually turns out to be the case.
Recession in Britain
The cunning idea is that future growth will be vast enough to cover the even vaster existing debts and commitments. And, of course, by the time we KNOW what the growth actually turned out to be, most people will have forgotten the predictions on growth from the financial and economic wizards running the country. That’s also one of the great things about a new mess or crisis; it always takes the mind off previous crises, which are likely to be ongoing but less in the media and therefore not to be bothered about too much.
This is, of course, in addition to the fact that growth in itself is incompatible with reducing global warming, but here we are getting a bit too technical.
Well, that’s how we do it in Britain anyway. How do you manage it over there?
by Chris Snuggs
A reply from a U.S. economist.
Hello there Chris!
Recession in the U.S. is also defined as two successive quarters of negative GDP growth. At least, that’s how its officially defined. And to add my answer to your friend’s question — either the economy is either in a recession — i.e., two or more consecutive quarters of negative GDP growth — or it isn’t, which means that the string of negative GDP growth rates is broken. And that only takes one quarter of positive growth.
Most of the economists I know personally tend to look at a bigger picture than the stated GDP figures, however. I focus on capital and labor utilization rates as I believe that they are more important measures of a well-functioning economy. The final GDP figures in both of our countries are national income accounting figures, and have all the weaknesses of any income statement variable. They are flow variables, which ignore the stock of economic wealth. For example, if you invest $100 this year in the stock market, and it grows in value by $20, only the $100 is counted. The increase in wealth is never captured in measures of GDP.
Another problem with current measures of GDP and GDP growth is that government spending is considered on par with private spending, which brings into question the sustainability of growth measures based on GDP, although President Obama and perhaps Prime Minister Brown are both fine with growth rates being fueled by large increases in government spending. Finally, a significant fraction of economic activity, like the value of work in the home — is not measured.
So, yes, the official measurement of GDP is all wrapped up in technicalities. But most economists I know pay little attention to it. They are more concerned with how well the economy is functioning, whether the growth is sustainable, and whether people who want to work can find work. If you are unemployed, the economy is in a recession, regardless of what the GDP figures say!
Learning from Dogs 