hard heads soft hearts
Friday, March 11, 2011
Obsidian Wings - Earthquake in Japan
NY Times coverage of Libya
Obsidian Wings - how do you like living in Omelas? (Bradley Manning)
Glenn Greenwald - Amnesty calls for protests over Bradley Manning's treatment
Obsidian Wings - FOGcon literary convention in San Francisco
Dorothy L Sayers - Are Women Human?
notes on financial reform and austerity:
Henry T. C. Hu & Terrance Odean - Paying for Old Age (NYT op-ed)
Leading question: To what extent do our finance-sector intermediaries resemble the Somali warlords in Phil Hartman's "Clinton at McDonalds" sketch?
My opinions on UCB's "Austerity" panel go with my opinions on financial reform.
It seems to me that the goal of financial reform should be to allow the small, outsider, passive investor to get, as John Bogle always says, their "fair share" of the returns, with minimum fuss and minimum fraud. The reason I had no strong opinion on financial reform is that I have no idea what the fair share of a small, outsider, passive, investor should be. It obviously should not be as much as the manager, taking line responsibility for a piece of a revenue stream. It also shouldn't be as much as an active, informed investor, who tries to develop expertise in order to get above-average returns. (in practice, passive investors often do better than active investors. But this seems to me one of those facts that, even if it's true, you shouldn't rely on) But how big a toll is it fair to expect SOPI to pay to these savvy insiders? I didn't & don't know, and therefore had no strong opinion on financial reform.
Discussing Austerity, Delong says big downturns are
Bad for workers
Bad for entrepreneur and managers
Bad for equity holders
Bad for governments
Bad for bondholders
And so asks why should it be difficult to build political consensus for recession-fighting policy i.e. running deficits and printing money. I would counter that question with another question: If I am employed, why is it in my interest to to support the government assuming an extra $20K of public debt in order to create a job? That's one objection, from the currently employed, that they get a burden of a new debt without sharing in the benefit of a new job.
The objection to printing money obviously comes from people who fear inflation. Who fears inflation? People who a) have assets and b) fear that they lack access to an inflation hedge. Why do a significant number of people fear they lack access to an inflation hedge? I would argue because they don't trust either the equity or bond markets to deal fairly with them, for some reason. In other words, they're SOPIs' afraid of not getting Bogle's "fair share", afraid of being cheated by either managers, or informed investors, or both.
Another way to put it: When SOPIs' can't or won't trust the asset markets to provide an inflation hedge for the basket of goods they're interested in, they will not be in favor of running deficits or printing money.
yet another way to put it: When the citzen doesn't trust the experts, active policy dies.
One way to deal with this fear of inflation might be to issue more TIPS, perhaps even an asset specifically tied to a retiree basket of goods, i.e. TRIPS.
A Brad Delong post, and 2 comments to it that have stuck in my head:
Brad Delong - Neoliberal Economists Agonistes
I guess the obvious point is that there's a difference between creating value and capturing value. An example which goes the other way is Sun & Java: probably no for-profit company created more value than Sun did with Java, without being able to capture any of it for itself.
Even if you acknowledge that there is a real distinction between capturing and creating value, it's not clear what, if anything, you should do about it. The policy implications are very tricky, I think, and possibly too confusing and subtle to be really useful. But it's probably something worth keeping at the back of your mind.
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