Expenses > income = bankruptcy

John Quiggin6 Comments

Andrew Leigh points me to a recent study of US bankruptcy (paywalled, but the abstract is over the page). which concludes that the increased variability of income, and exposure to expense shocks such as medical expenses are not important factors in explaining the dramatic increase in bankruptcy rates since 1970. (I’ve seen a blog link to this also, but can’t find it now).

Count me as unconvinced. The main reason for rejecting income shocks is an explanation of bankruptcy is that, in the model of the paper, households should respond to increasing variance of permanent shocks by increasing precautionary savings. This appears to impute to households a much higher level of ex ante information about future income shocks than they actually possess, and also to rely critically on strong assumptions about rational planning. The whole credit card business is centred on the fact that lots of people (about half the population) don’t pay their monthly balances down to zero and therefore carry semi-permanent debt at very high interest rates. It seems pretty clear that it is people in this group who are most exposed to bankruptcy, and it’s hard to imagine that they are the type to hold precautionary savings.

That’s not to discount the importance of the ‘supply side’, in terms of easier access to credit, which has assisted people in managing increasingly risk in income and expenses, at the cost of steadily increasing debt-income ratios. But you have to look at both sides of the story, and this paper rules out one side by assumption.
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Glacial

John Quiggin2 Comments

In a piece on the canon wars which quotes CT member Michael Berube, the NYT asserts that college English curricula have seen “a decided shift toward works of the present and the recent past. In 1965, the authors most frequently assigned in English classes were Shakespeare, Milton, Chaucer, Dryden, Pope and T. S. Eliot, according to a survey by the National Association of Scholars, an organization committed to preserving “the Western intellectual heritage.â€? In 1998, they were Shakespeare, Chaucer, Jane Austen, Milton, Virginia Woolf and Toni Morrison.”

TS Eliot died in 1965, but given the lags in assigning textbooks, I think it would be reasonable to regard him has having been a living author when his work was set. So, the number of living authors in the top six has moved from one to … one. The only other evidence of the recent past is the inclusion of Virginia Woolf, whose major works were written only 70 years before they made it into the curriculum. Indeed, we are in the throes of radical change here, it seems.

Since the NYT doesn’t mention the obvious difference between the two lists, I won’t either, but I will say that I think the 1998 list is an improvement.

War credits

John Quiggin5 Comments

Now that everyone has finally agreed that Iraq is another Vietnam, we can move on to the next point which is that, having lost the war, the war party in the US is going to blame their domestic opponents, just like they did after Vietnam.[1] The only difference is that the war-peace divide now matches the partisan division between Republicans and Democrats.

In this setting, the idea of looking for a compromise is just silly. The Republicans have made it clear that they don’t want one. Even the dwindling group of alleged moderates aren’t going to vote for anything that would seriously constrain Bush. So, the Democrats can choose between acting to stop the war now, or inheriting it in 2009 [2] . There’s no possibility of pushing anything serious past the Senate filibuster, let alone override a veto.

The only real option, apart from continued acquiescence, is for Congress to fulfil its constitutional role and refuse to pay more for this endless war, starting with the $50 billion in supplementary funding Bush is asking for. There’s no need for any Republican votes, just for the Democrats to stick together and stand firm. That hasn’t been the Democratic way for a long time, but maybe its time now. Certainly, the majority of Americans want to get out of Iraq, just as, in the end, they wanted out of Vietnam.

1. In this context, it’s notable that despite the revisionism of the war party, there’s no evidence that Americans have changed their minds about Vietnam. The great majority still see it as a mistake, just as they did when the war ended

2, I suppose the counterargument is that, by doing what they were elected to do in 2006, the Democrats will wreck their presidential and congressional chances in 2008. If so, perhaps they should give up now.

Running out of water

John Quiggin63 Comments

A couple of months ago, there seemed to be some hope that the record-breaking drought in south-eastern Australia was breaking. There was good rain, and the switch from El Nino to La Nina seemed to be established. Now, it seems, those hopes are gone. The really good rain was confined to coastal areas, most notably Sydney. Temporary water entitlements are now going for $1000 a megalitre, and irrigators are likely to receive something like 5 per cent of their normal allocations.

The water market should do some good in ensuring that water flows where it is most needed, most obviously in keeping tree crops alive. But water is also needed for cities and towns in the Murray-Darling Basin and for Adelaide, so the market will have to be combined with administrative allocation, and there may be a need for emergency measures.

In these circumstances, the last thing we need is the continuing squabbling between Federal and State governments, and within the Federal government between Nationals and Liberals, which has led to only marginal progress under the National Water Initiative. It’s likely that nothing much will happen until after the Federal election and, to be fair, there’s not much that can be done until we see how bad the summer is going to be. But it seems clear that the incoming government will have an emergency on its hands.

Nanni at RSMG has more on the limitations of demand management. This is not going to be an easy problem to solve.

Meanwhile, and relatedly, several species of coral and many seaweeds have been listed as vulnerable or critically endangered as a result of climate change, specifically the increasing frequency and severity of El Niño events.

New PM this AM?

John Quiggin19 Comments

As the Liberal party meeting begins it looks unlikely that Howard will go, but not beyond the realms of possibility. If Costello stands up and demands the job, he will probably get it. And Howard might just decide to pack in the whole sorry crew. However, neither of these scenarios looks likely.

I have a trivial and selfish reason for hoping Howard stays at least until tomorrow. My Fin column, due out tomorrow, gives Howard some unsolicited advice and will have to be rewritten if there is a new PM.

The first and final draft of history?

John Quiggin12 Comments

A while back, I observed in a footnote

Bush isn’t stupid. He’s shown himself to be quite sharp in the pursuit of his own short term interests and those of his backers. But he’s ignorant, narrow-minded, intellectually lazy and unwilling to learn from experience, a combination that produces reliably stupid policy decisions.

Google finds quite a few similar judgements, suggesting that the BlogGeist is in tune. Now Salon’s write-off for an interview with Bush’s biographer says “Bush has a surprising intellect but is incapable of curiosity and owning up to mistakes.”

I’m guessing this initial judgement will be confirmed by a historical verdict that will rank Bush among the worst of US Presidents, if not the absolute worst (Among other candidates for this dubious honour, Nixon had many positive achievements, Harding did no real harm, Andrew Johnson was at least trying for reconciliation and Buchanan’s big failure came after his successor had been elected). Harding’s case in particular shows that amiable stupidity is less dangerous than other intellectual flaws.

Costello – the numbers but not the bottle ?

John Quiggin10 Comments

Looking at today’s news, it’s pretty clear that the Prime Ministership is Peter Costello’s for the asking. We have two senior ministers, Downer and Turnbull giving non-denial denials to claims that they want Howard out. That means there have to be enough numbers for a serious challenge. That in turn means that Howard’s position is untenable, if such a challenge is made. Howard might win a party-room vote, but he would be doomed at the election even if he did. By contrast, Costello would have a chance. The remorseless logic of game theory now implies that anyone who cares about keeping their seat should support the challenger, and try to force Howard to bow out gracefully.

But Howard has made it clear he won’t do this in the absence of an overt challenge from Costello. He judges, on the basis of past experience that Costello won’t have the bottle*, and that facing the challenge down gives him a chance to present himself as a strong leader in the contest with Rudd.

* I had various thoughts about the origin of this term for nerve/guts. A quick search of the Internet found support for all my ideas and quite a few I hadn’t thought of. It looks as if it will remain a mystery.

$50 on the footpath?

John Quiggin2 Comments

Quite a few people have pointed out that, while the betting markets have now caught up with the opinion polls in making Labor hot favorites to win the election, seat by seat markets while shortening suggest a very tight outcome. The question that doesn’t seem to have been asked (not aloud at any rate) is whether there is (or was) an arbitrage opportunity here. That is, if you backed the Liberals to win the election, while backing Labor in all the marginal seats needed to win, could you make a “Dutch book” against the bookies and guarantee a net gain no matter what happened (within reason – you would still lose if Labor got in by winning lots of supposedly ultra-safe seats while losing in the marginals).

Looking at the movements in seat prices, I suspect this was a real possibility not long ago, and that alert punters have exploited it, closing the gap. But this is definitely a case for Andrew Leigh.

Update As you might expect, I’m not the first to have asked this question. Here’s John Barrdear asking and Simon Jackman answering (a bit obscurely – I think he’s assuming a uniform swing, but I’m not sure). I’m still keen to discover Andrew’s thoughts on all this.

Immediate further update No need to worry. They’ve stopped taking bets