End Game

A couple articles predicting impending economic shock:



Yesterday I was watching a clip of “This Week With George Stephanopoeus” which had Paul Krugman as a guest and I read Larry Summers’ new article in the FT and when you look at what their economic prescriptions are it’s clear they only see two options: borrowing or depression. For these guys there are no other options and I realize that they have no concept of the “end game”. When your options are borrow and be happy or don’t borrow and suffer, the choice is a no brainer. But, there are more than two choices. A sovereign can’t borrow forever. There comes a point when they can’t and then the end game sets in which is far more horrific than any pain caused by “austerity.” Let’s not pretend that there are only two plausible scenarios out there.


Crony Capitalism

Here’s an article in the WSJ about crony capitalism.

Crony capitalism has long been the case in Italy and Greece. 20 years ago in Greece, if you joined the Church you lost your job and your family disowned you. Not much concern for religious merit.

I think the author misses the root of the problem. Tax code? Loop holes? There is something bigger going on here. Doesn’t everyone want to give jobs to their friends and family? Doesn’t everyone want to transfer their losses to someone else and have their failed business models propped up by someone else’s money? What was it that stopped us from doing what is rampant in Italy and Greece? Was it the fact that your property was more protected here so cronyism was much less lucrative? Now that we’ve put the whole economy up for auction does it surprise anyone that we behave like the Greeks and Italians?

Besides, I think the argument in favor of merit is not “self evident”. If you want to hire your friends and family…fine. As long as I’m protected from your losses, I don’t care what business model you adopt, or what your attitude is toward merit. Of course, merit will win the day, but that’s because the meritorious and the crony will be equally protected.

On Spain ECB COI

From the WSJ, and article about the Spain bailout:

“Brimming with cheap three-year loans provided by the European Central Bank, Spanish lenders this year have been among the few buyers of Spanish sovereign bonds. Their heavy buying had helped keep a leash on bond yields, slowing their steady rise.

But Spanish banks largely have exhausted their stockpiles of ECB funds, analysts say. Now the question is whether, after getting recapitalized by the government, they will keep buying sovereign bonds.”

So banks get money from ECB, then they buy sovereign debt, then the Spanish government gets money and decides who to give it to? Well luckily I’m sure officials base their decisions on who to give funds to SOLELY based on need and NEVER consider helping the banks that buy the most sovereign debt. I’m glad we can construct all of these immensely valuable conflicts of interest and trust in human integrity that it will all work out in an honest and fair fashion. I think economists understand why that is…

Daily Irrelevent Wisconsin Spin

From U.S. News and World Reports, an article about different flavors of retirement funding. Here’s my favorite sentence:

Wisconsin voters may not have wildly cheered Republic Governor Scott Walker’s curbs on union rights. But they understand the financial times we live in, and clearly felt (aided by enormous recall campaign contributions from conservative groups) his actions did not justify his recall.

Yeah, I guess that’s one way to look at it…or you could just say “Wisconsin voters voted to limit union rights” which would have emphasized the point rather than draw questions about the author’s point of view.

Strict Constructionism

I’ve talked about my view that judges should interpret the law as written and not based on their own judgement or opinion. I found a teachable example in a WSJ report on the Supreme Court’s ruling on an unusual murder retrial:

“When the jury was unable to return a verdict, the trial court properly declared a mistrial and discharged the jury,” Chief Justice Roberts wrote in a 10-page opinion. “As a consequence, the Double Jeopardy Clause does not stand in the way of a second trial on the same offenses.”

Non-controversial. And then:

“Justice Sonia Sotomayor, writing for the dissenters, said the decision unfairly gave prosecutors a “second bite at the apple” because the jury “unmistakably announced acquittal” on the capital and first-degree murder charges. “That ought to be the end of the matter,” she wrote.”

After having sat on a Jury, the rules are really clear up front. You deliberate, and then you reach a verdict. Deliberations are not verdicts, and verdicts are not deliberations. A verdict is not reached unless a verdict is reached. The fact that Sotomayor is getting this mixed up, or is willing to disregard basic logic, is radical to me. I can’t believe 3 Supreme Court Justices of the USA dissented on this.

Jury’s get hung every day and they all result in mistrials. It’s one thing if she wants to change the rules so that Jury’s can reach multiple verdicts, but that’s not how it works currently. Her willingness to willfully disregard the rules is a good example of the type of jurisprudence that I oppose.

Your Property Is Not Being Protected

…or your kid’s property.From an article in the USA Today about the “real” federal deficit:

  • Social Security had the biggest financial slide. The government would need $22.2 trillion today, set aside and earning interest, to cover benefits promised to current workers and retirees beyond what taxes will cover. That’s $9.5 trillion more than was needed in 2004.
  • Deficits from 2004 to 2011 would be six times the official total of $5.6 trillion reported.
  • Federal debt and retiree commitments equal $561,254 per household. By contrast, an average household owes a combined $116,057 for mortgages, car loans and other debts.

Take special note of that last bullet point. Here’s an analogy for what’s going on: you didn’t trust yourself to be responsible enough to defer some of your income for retirement so you decided to offload the responsibility to government. Basically, your human foibles prevented you from saving for your retirement so you thought if you gave the responsibility to save to another human (or group of humans, in this case) he/she would somehow be better at it than you. Well, guess what? He wasn’t able to overcome his human foibles either. In fact, it turns out he was worse. Your inability to delay gratification has put you $116k in the hole. His inability to delay gratification in your name has put you $561k in the hole.

Have a nice day.

Controlled or Uncontrolled Austerity

Here’s news from Romania:

Governments have been collapsing across Europe amid calls by Germany and others for tough austerity to help restore confidence in the euro zone, even as some critics complain that aggressive cuts are undermining economic growth and spurring Europeans to protest. The sovereign debt crisis, accompanied by visceral frustration with the extent of painful spending cuts, has helped unseat leaders in countries including Greece, Ireland, Italy, Portugal and Spain.

The problems in Europe are a looking glass into the future for us here in America. We can either begin reforming our entitlement programs now (in a planned, controlled way that people can adjust their consumption habits to accommodate) or continue “kicking the can down the road” until a sovereign debt crisis forces reform (in an abrupt, unplanned way that will be more difficult to adjust to and will likely be accompanied by rioting and violence). I agree with those who have declared our current policy trajectory “unsustainable”.

Highly Qualified Unpaid Interns

To all the current students out there hoping to be able to learn on the job about your chosen career – the current interns are looking to pull the rug out from under you.


This unpaid internship phenomenon is, in my opinion, just another symptom of the student loan fiasco we have right now. We are way over-subsidizing kids to get college education so we are creating excess supply where no demand exists. So these kids come out with degree in Art or Art History and when they find that their dreams of being offered a job as a curator at a museum are not realized they accept a job as an unpaid intern because it seems more respectable than just serving coffee at Starbucks. But the problem is there is literally no market demand for marginal museum curators out there and the only demand out there for people with Art History degrees is for coffee servers. So, these people go into denial or become ashamed. Instead of facing up to the fact that nobody wants to pay them for what they want to do, they offer to do unskilled labor for free in exchange for being able to project the image that they are “connected to the industry.” But, there is seriously no demand for labor in their industry. That is why they are doing unskilled labor. I mean, look at the jobs the girl in the article was doing:

“It was disgusting,” says Wang, referring to her unpaid daily responsibilities like shipping hats between New York and London for $350 each way

She is doing the job of a high-school dropout and this was her seventh internship! She clearly was too embarrassed to come to grips that no “respectable” career demanded her skills. I really think that this phenomenon is happening more and more. As Alex Tabarrok has pointed out:

Over the past 25 years the total number of students in college has increased by about 50 percent. But the number of students graduating with degrees in science, technology, engineering and math (the so-called STEM fields) has remained more or less constant.

So, obviously, we are generating a lot of intelligent, hard-working young people with expectations of fulfilling, lucrative careers that are in for a rude awakening.

I think these unpaid internships are the stepping stone from graduation to Starbucks. It allows everyone involved to save face.

Dinner party conversation:

“So, I hear your daughter Melanie graduated from NYU a couple of years ago. What’s she up to these days?”

“That’s right, she is working at InStyle Magazine in the Downtown area.”

“Wow! That’s so great! What was her major again?”

“Journalism with a minor in fashion design.”

“Well, it sure looks like she is on her way. I’m so happy for her.”

“Thank you so much. We certainly are proud of her.”

Meanwhile, Melanie has an unpaid “internship” with InStyle sending FedEx packages and carrying coffee cups doing nothing to gain real experience in her preferred career. But, Melanie can tell her friends that she works “downtown” and her parents can tell their friends that she is “working in the industry.” Meanwhile, the student loans still aren’t getting paid and everyone is scared to death that all of those loans didn’t buy them anything. What’s worse, is with their intellect and record of achievement, everyone expects them to be “making something of themselves.” There is a whole troop of kids out there in the predicament right now. HBO just started a series about them. Tyler Cowen says that this is what happens when “your IQ is high but the shadow value of your labor is low.” I really feel for these kids. The system (the government, their parents, their high school teachers, everyone) has been telling them that a college education is valuable and worth going into debt for (the government is even encouraging them to) and by the time they find out that it isn’t, they are stuck with a crushing debt that they can’t discharge. I am sympathetic to their plight, however I am less enthused with their attempts to charge it off on me via debt forgiveness or lawsuits over unpaid internships.

Russian Saber Rattling

From http://www.washingtontimes.com/news/2012/may/3/russia-threatens-strike-nato-missile-defense-sites/:

Russia’s most senior military officer said Thursday that Moscow would pre-emptively strike and destroy U.S.-led NATO missile defense sites in Eastern Europe if talks with Washington about the developing system continue to stall.

I can only assume they will be attacking with something other than missiles? :-0