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Monday Message Board

April 27th, 2009

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

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  1. April 27th, 2009 at 13:38 | #1

    In 2007, before the crash, I asked Angrybear
    “Yeah, yeah, the system’s stuffed, but that’s a problem for you yanks. What I as an Australian want to ask you, as economists, is how America can have a competitive economy under these constraints. You have approximately 1% of the population in gaol and another 1% looking after them, 2% of the population in the prison system where most other nations have at the outside 1%; that’s pure loss. You have a military that’s between .6% and 1.2% of the population, depending on how you count reserves, and that’s what, 2-3% of GNP? in any case, vastly higher than any other developed country. In other words, between the correctional system and the military you’re taking about 5% of GNP and pissing it up against the wall, compared to 2% everywhere else. And you’re still surviving and under some measures almost thriving. Is the US economic system really 3% better than anywhere else, allowing you to compete on a more or less even footing? I’ve never seen an economist address the point, and it’s driving me crazy.”
    The answer at the time (http://angrybear.blogspot.com/2007_07_08_angrybear_archive.html) wasn’t particularly satisfactory; do you postcrash have any ideas?

  2. O6
    April 27th, 2009 at 14:17 | #2

    Australia’s prison population has risen about 50% in the last decade (acording to ABS), mainly because of the so-called war on drugs. We’re trying to follow the USA in this as in so many other important matters. Are we competitive? If not, are we in a good position to criticise, or shouldn’t we think of setting our own house in order?

  3. jquiggin
    April 27th, 2009 at 14:24 | #3

    ChrisB, I had a go at a similar question here

    http://johnquiggin.com/index.php/archives/2006/01/24/an-ounce-of-inefficiency/

    My general view is that all countries accept a fair bit of inefficiency for good or bad reasons. Even if this amount to a 10 per cent reduction in average income, it’s only a few years worth of economic growth.

    For any given person, this trend effect will be swamped by year to year fluctuations in income and expenses. And in most households, there are probably inefficient arrangements that cost a fair bit, but are maintained because that’s the way things have always been done in the family.

  4. gerard
    April 27th, 2009 at 17:03 | #4

    big NY Times report:

    <a href=”http://www.nytimes.com/2009/04/27/business/27geithner.html?_r=2&partner=rss&emc=rss”Tim Geithner = Wall Street Tool

  5. gerard
    April 27th, 2009 at 17:05 | #5
  6. Socrates
    April 28th, 2009 at 09:57 | #6

    Gerard

    Thanks for the link. I think a large chunk of the US problems can be explained with a single phrase: “perceived conflict of interest”. Geithern has several; so do his peers. The revolving door nature of US government ensures it.

    Some of the individuals mentioned in the Geithern article were at the same time holding private roles (eg Director of Citi Bank) and quasi-public roles (on Fed Reserve Board). The potential for conflict is obvious. Whatever the weaknesses of our system nobody would call Dr Henry or Glen Stevens stooges of our banks.

  7. Socrates
    April 28th, 2009 at 10:00 | #7

    Sorry for the double post but I put this on weekend reflections and was interested if anyone knowlegeable in US economic stats had a view. (In my work I have encountered problems with a few ABS stats in recent years. This is not a criticism of ABS; their budget is inadequate to do the job properly.)

    I found an interesting discussion on official statistics vs reality for US infaltion at this site:
    http://www.nowandfutures.com/cpi_lie.html

    The obvious question is – are we in the same boat? I remmeber all sorts of maneuvers to put in/take out mortgage repayments nad rental costs in the CPI basket over the years.

    Does anyone know? Was real inflation here much higher than CPI in the past few years?

  8. Alice
    April 28th, 2009 at 13:20 | #8

    For those interested in people power you may want to check out this website formed by volunteers checking on the activities and tracing the careers of Goldman execs amongst other things – who are they? Where did they go? What do they do now?

    Interesting.

    http://www.goldmansachs666.com/

  9. Alice
    April 28th, 2009 at 16:57 | #9

    If this is true it really questions the whole NYSE as a huge gambing casino. Goldman Sachs – investing in the market or making the market to suit themselves? I also read above the only reason they want to pay back the bailout money is so their salaries are not capped.

    Great. Just great. A gold bar stashed in a personal safe or the money in a jar under the floorboards is getting closer every day.

    http://zerohedge.blogspot.com/2009/04/goldman-sachs-principal-transactions_23.html?www.GoldmanSachs666.com

  10. April 29th, 2009 at 09:14 | #10

    Did anyone else watch “Keating the Musical” on ABC TV on Sunday night or, perhaps (shudder!) pay money to see it live?

    I can’t remember when I last saw such a lame theatrical production.

    The jokes, such as they were, were few and far between, astonishingly unimaginative and each laboured to death over and over again:

    I’m da Man, I’m da Man
    I’m da rluer of da Land
    He’s da Man, He’s da Man
    He’s da ruler of da land

    (etc. etc. and infinitum)

    … or Hawke’s philandering or Alexander Downer dancing around in a corset and fishnet stockings.

    It focused on personalities in the most superficial possible way and on relatively symbolic aspects of the Hawke/Keating era – our alleged breaking of our ties with England, Keating’s allegedly profound revelation that ‘Australia is part of Asia’, the Mabo decision, but glossed over the substance, that is, Keating’s role in spreading the sociopathic ideology of economic neo-liberalism to this country.

    The only way that it is possible to view that dismal era in a positive light is in comparison to the Howard Years since then.

  11. Jim Birch
    April 29th, 2009 at 15:04 | #11

    I just saw this report that could explain the crash in Derec Bownds Mindblog (from a report in Science, based on a paper of the German Physics Society. My trail stopped at the first paywall…)

    The basic result is that actor-based market models depart from classical economics and go into boom-bust modes when high levels of leverage are introduced.

    Not being an economic modeller – or an economist either – I wonder if anyone more knowledgeable can comment on it. It looks to me to validate some commonly held but loose ideas about operation of markets with some firm theoretical results. It’s been claimed that market traders, who seem do nothing productive, actually have an overall beneficial effect, but maybe the conditions under which they’re beneficial has some clear limits.

    If the result holds, shouldn’t it be converted into public policy, like five years ago?

    (I suppose if you’re a libertarian you might want to defend the right of a bunch of wealthy traders to throw millions of poor into a lower level of poverty. Maybe someone could comment on that too.)

  12. Tim Macknay (aka Tim M)
    April 29th, 2009 at 18:05 | #12

    “It focused on personalities in the most superficial possible way and on relatively symbolic aspects of the Hawke/Keating era…”

    It. was. a. musical.

    FFS, Daggett. What did you expect? A Treatise on Human Nature?

  13. SeanG
    April 30th, 2009 at 07:09 | #13

    Considering that financial products are usually designed with risk management in mind – ie. higher returns for less risk (lower correlation of the underlying portfolio). What will happen in the coming years when additional regulation will make such products no longer viable? How will individuals and institutions seek a strong positive return on capital without the correspondingly high risk?

  14. Alice
    April 30th, 2009 at 10:07 | #14

    Cant be done Sean – old rule of finance – the higher the risk the higher the return. However some firms have managed to reduce the risk by being big enough to drive the markets all by themselves. Insider trading reduces the risk. Ordinary individuals should stay out of the market until the insider power trading firms fail through lack of business, if we really want to reduce the risk in the stock markets. These firms cant manipulate the markets if ordinary people no longer want to play. Welcome to the new norm of normal returns.

  15. April 30th, 2009 at 11:07 | #15

    Tim Macknay asked “What did you expect?”

    In fact, because of the title I expected very little.

    Nevertheless, I had held out hope that a capable writer might have been able to use the historical record to create something which was clever, entertaining and objective.

    Instead, what we got was even worse than what I had expected. It was a tedious, lame and unfunny eulogy to a man who should be reviled for what he did to this country.

    Anyone is welcome to cite the content of “Keating the Musical” to try to prove me wrong.

  16. SeanG
    April 30th, 2009 at 15:39 | #16

    Alice,

    I understand your point, but if you are a pension fund trying to get a guaranteed return, in this market, or in the future, it will be very hard to do so.

    Indeed, the influx of capital into the system helped push it in the direction of exotic derivatives because people were demanding higher and higher rates of return but for comparatively less risk.

  17. May 1st, 2009 at 01:35 | #17

    Brisbane ABC suppresses alternative candidates in state elections despite listener dismay with major parties

    Brisbane’s local ABC radio station 612 disregarded its own listeners’ expressed dissatisfaction with both the major parties when, during the 2009 Queensland state elections, it refused any air time to local independent candidates. Instead, virtually all the available time was given over to candidates from the governing Labor Party or the Opposition Liberal National Party, who according to the ABC’s own listeners, provided little useful information.

  18. Alice
    May 1st, 2009 at 06:49 | #18

    16 – Sean – a case of too much (super) money chasing too few financial instruments?

  19. SeanG
    May 1st, 2009 at 07:05 | #19

    It is worse than that.

    Superannuation in Australia, pension funds across the developed world, Asian, Middle Eastern and Russia savings…

    All of this really impacts on the premiums of fixed income securities helping to push forward financial innovation.

    That is one reason why CDOs were so popular. If you can create a CDO or a CDO squared you can go to your client and say here is x% but the risk is lower than corresponding products because of correlation.

    Otherwise the standardised products will not give enough return for your client for the risk they are willing to take on and they will go somewhere else.

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