hard heads soft hearts

a scratch pad for half-formed thoughts by a liberal political junkie who's nobody special. ''Hard Heads, Soft Hearts'' is the title of a book by Princeton economist Alan Blinder, and tends to be a favorite motto of neoliberals, especially liberal economists.

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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

Charlie deTar: There's an elephant in the room during this discussion: Wikileaks. The US government is torturing a whistleblower in prison right now. How do we resolve a conversation about the future of new media in diplomacy with the government’s actions regarding Wikileaks?

Crowley: I spent 26 years in the air force. What is happening to Manning is ridiculous, counterproductive and stupid, and I don't know why the DoD is doing it.

Obsidian Wings - FOGcon literary convention in San Francisco

Dorothy L Sayers - Are Women Human?

from the foreword by Mary McDermott Shideler:

. . .biological characteristics determine in part the kinds of work that any human being is capable of. But degrees of bodily strength, muscular co-ordination, auditory and visual acuity, stolidity and excitability, cut across the classifications by sex, color, background, age, and intelligence. . .

. . .as we cannot afford to squander our natural resources of minerals, food and beauty, so we cannot aford to discard any human resources of brains, skills, and initiative. . .any natural or human resource can be good or evil depending upon how it is used, what work it performs. . .

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

Once we had concluded that the Federal Reserve had the tools and the competence to absorb financial shocks. . .Leverage then appears to be a positive good rather than a danger. . .

. . .And they are the result of the economists' insight that whenever there is an area of economic activity that pays huge, outsized rewards the odds are that we need more of it done. . .

Bill Murray said...

Doesn't this imply that we need more drug running and illegal arms sales? Those are certainly said to pay huge, outsized rewards.

David Petraitis said in reply to Bill Murray...


And this is where economics parts ways with politics. For politics as we learn in Civics 101 is the use of power to do the greatest good for the greatest number, not just for Number 1. What Delong's Apologeia says is: what we needed more of in the run up to the Great Recession was more NINJA loans. . .what we need now is more foreclosures...

What we need now, in short, is whatever the princes of Wall Street (and other people in the know) deem will pay outsized rewards. OMG

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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