EclectEcon

Econoland: A New Theme Park in London (UK)

If I didn't know better, I might have thought this was from The Onion. Econoland, a Theme Park promoted by The Economist.

AS PART of a strategy designed to broaden the revenue base, leverage content over new platforms and promote The Economist brand to a young and dynamic audience, The Economist Group is delighted to announce the development of a public-entertainment facility that combines the magic of a theme park with the excitement of macroeconomics. After six months of negotiations with the British government, The Economist Group can confirm that Econoland will be built on a former industrial estate in East London, close to the beating heart of the City and thus to a large potential market of financial-sector employees. Thanks to issues relating to its previous use, the site has been acquired at an advantageous price. Most of the toxic wastes have been cleared and levels of carcinogens appear to have returned to normal. High unemployment in the area will only increase the facility's attractions, as former City workers seek to recapture some of the excitement they enjoyed in their professional life. Heavy investment in security and a landscaped moat and electric fence will neutralise any potential threat from the growing anarchist presence.

Among the thrilling experiences Econoland will offer are:

The currency high-roller: Float like a butterfly with the euro and drop like a stone with the pound! Chamber of horrors: Tremble at the wailing of distressed debt! Fiscal fantasyland: Watch the economy shrivel before your very eyes as you struggle to stop growth falling! Bankrupt Britain: Pit your wits against the government as you try to sink sterling and bring the country to its knees! The Severe Contest: Try your strength against a bear market!

“Econoland will appeal to the kid in everyone”, said a spokesman for The Economist Group, “although children themselves will not be admitted”. The park will open on April 1st.

There's much more at the above link. Please note the date the park will open.

Is E-mail Dying?

I love e-mail. In fact for most purposes I prefer it to using the telephone. My correspondent and I can exchange information, and if one of us is unavailable, the information is still exchanged efficiently.

I was stunned, then, to read that John Dvorak is predicting the death of e-mail [h/t to RA]:

E-mail, once the most effective way to communicate with your tech-savvy associates, has become useless for too many people. Has anyone else noticed this phenomenon? It's essentially dead. So now what are we supposed to do? Phone?

Most of you reading this column will understand what I'm saying— those who don't understand have either already given up on e-mail or never found it very functional in the first place.

Here are the issues that have made e-mail useless for me [note from EE: these are my summaries of his somewhat cryptic subtitles].

1. Too many people keep changing their addresses.
2. Spam
3. Some people never check their e-mail
4. Dead e-mail boxes that aren't canceled
5. People who try out e-mail but don't follow up
6. Ineffective spam filters
7. the drift toward using instant messaging or social networks
8. lack of reliable receipt assurances, and
9. black holes: people who claim they read all the e-mail they receive, but you have no way of knowing this for sure.

I really do not think I should call Dvorak an idiot; he is a celebrity among computer writers. But I really doubt if he's right on this. I do not consider IM or social networks or the telephone to be good substitutes for e-mail, so despite the problems associated with e-mail, I don't see anything better out there right now. But of course that is not to say something better won't come along. Maybe in the future we'll make more use of voice-to-text SMS text messaging. That might replace e-mail. But I'm not sure about even that.

Twitter-isms from EclectEcon

• 11:26 I am VERY concerned about the hubris and arrogance of politicians and bureaucrats who think they can manage the economy. Scary times ahead! #

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Gasoline Prices are NOT Proportional to Oil Prices

Several weeks ago, a friend asked me why, when oil prices had fallen to a third of what they were a year ago, gasoline prices had fallen by less than half of what they were then. And the other day, I heard some talking-head mediot* ask,

"So tell me this: if oil has fallen from $140/barrel to $50, why have gasoline prices only fallen from $1.29/litre to $.79/litre? Huh?"

Here is a graph of a few of the observed data points to which they were referring:

[Update: several people were confused by the original graph, so here is a better-labeled one. It is a scatter plot of the price of gasoline versus the price of oil at three different points in time:]

Applying the famous "Palmer Eyeball Algorithm" to these data and completely ignoring the lack of degrees of freedom, it appears that gasoline in Ontario is roughly priced at about $.55  x [1+  (price of oil)/100]. In other words, about 55 cents of the price of a litre of gasoline is due to other costs that do not vary with the price of oil. These costs include, of course, taxes, but they also include the bulk of labour and capital costs as well. These costs cannot be altered much as the price of oil changes, and hence their influence on the price gasoline cannot change much when oil prices change.

It is nearly a linear relationship, but because of the comparatively fixed costs, the relationship is not proportional.

Finally, did you ever notice that the people who complain when gasoline prices don't fall in proportion to a fall in oil prices do not express gratitude when prices rise less than proportionally with oil prices?

*mediot: a contraction of the words "media" and "idiot".

Twitter-isms from EclectEcon

• 11:17 Welcome to UWO. Now Go Home. tinyurl.com/cunph3 #

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"We Wouldn't Let [Our Child] Attend Western"

A few days ago I was speaking with someone who said their child is probably going to attend Wilfrid Laurier University (in Waterloo, Ontario) in the fall. When I replied that I thought Wilfrid Laurier was probably a pretty good choice among Ontario universities for an undergraduate education, they responded that both parents had been adamant: if the student wanted to attend The University of Western Ontario, they would provide absolutely no financial assistance for the student whatsover.

I understand their position.

Back in September of 1991, I wrote a piece for the student newspaper. My title for the article was,  Welcome to Western. Now Go Home. Here is an excerpt:

What is surprising is that 4000 of you still wanted to come to Western.

Increasingly students are being shoved into larger classes where professors cannot interact with them or get to know them. Increasingly students must deal with bureaucracies because professors have such heavy demands on their time that they no longer have time for students. Increasingly students are being treated as anonymous numbers and not as thinking, feeling individuals who would like human contact in their educational environment.

So why are you here? Do you really like big classes with professors who never get to know you? Do you really like being treated like non-feeling robots?

Your response may be that you feel as if you don't have much choice in the matter. But you do have a choice.

One possibility would be to attend some other institution, where the quality of undergraduate education has not deteriorated so badly. The difficulty with this option is that given provincial funding decisions and tuition caps, only a few such options are available in Ontario. [EE: Wilfrid Laurier and McMaster might be better options at the undergraduate level].

A second possibility would be to attend university in some other jurisdiction. There are other places that value high-quality education and are willing to offer it to students who are willing to work [and pay] for it.

There is more at the original link. And for a followup, see this, written nearly a year later, in which I wrote, inter alia,

Things have not improved: the province has clawed back some funding; the last provincial budget did not contain the pre-election-promised support for the university; and while Ontario universities will be allowed to increase their tuitions, the allowable increase is small compared with the budget shortfalls the universities are anticipating.

There is simply no way, given the foreseeable revenues, that universities can even come close to balancing their budgets without some serious cost-cutting. And no matter how hard people try to eliminate waste and inefficiencies, cost-cutting means that on average program quality will decline.

Faculties and departments are reducing support services; classes are becoming even larger; and even more mega-sections are being scheduled for the future. At the same time, increasing workloads coupled with morale problems among both faculty members and graduate students will contribute to a growing number of complaints from undergrads about inaccessibility to help with their courses.

Things are bad and getting worse. So it is especially worth the effort this year to ask yourself whether you want to return to Western in the fall.

Twitter-isms from EclectEcon

• 04:30 No medal for Canada at 2009 Women's World Curling Championships: tinyurl.com/cnxydt #
• 10:37 "See one, do one, teach one." Medskool sex scandal? www.eclectecon.net/ #

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"The important lesson here is that we can't leave medical education to chance alone."

Holy Cow! Is that how our physicians have been trained up 'til now? From the Nat'l Post [h/t to Jack],

When physicians at an Alberta hospital asked why so many medical students and residents were using a faulty technique for inserting life-saving breathing tubes in patients, they received an unexpected answer: It's television's fault.

Many of the doctors in training said they had learned the procedure from watching medical dramas. ...

The findings, just published in the journal Resuscitation, revive an intriguing debate over whether entertainment TV has an obligation to portray medicine accurately, and underline what some see as chronic flaws in the system of training Canada's physicians.

"We were a bit shocked," said Dr. Peter Brindley, the critical-care specialist at the University of Alberta Hospital who discovered the students' extra-curricular secret. "The important lesson here is that we can't leave medical education to chance alone."

And in the same article, another condemnation of medical training:

Dr. Brindley said his findings are more evidence that the traditional approach to teaching doctors needs improving. Medical students typically learn about procedures such as intubation in a lecture hall, then find themselves practising on a real, perhaps critically ill patient, often with minimal supervision. Later, the same doctors sometimes train others.

Known as "see one, do one, teach one," the concept does not work so well in an era when the population is ageing, hospitals see more patients with complex health problems and doctors are chronically overworked, Dr. Brindley said.

Jack says the solution is to produce better television shows.

Note: the phrase "see one, do one, teach one" does lead me to wonder about what goes on in medskools.

Twitter-isms from EclectEcon

• 01:16 How long before some EEC countries run up such debts that the Euro falls apart? With no enforcement, it seems like a prisoners dilemma game. #
• 10:24 Why I'm pro-Israel: tinyurl.com/dxc8cy #

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Tesla, starting at $50K back orders only

Tesla eclectric automobile.
300 miles per charge?
Must be improved battery technology....
Family sedan seats seven?
h/t Jack.

One Reason I Am a Strong Supporter of Israel

Many years ago I wondered out loud to a friend about how Palestinians must feel to have been driven out of their land and homes as Israel was created. He pointed out that

• Jews bought their land and homes as they moved to Israel, pre-1947. They didn't take anything from anyone.
• Most Palestinians who left Israel did so voluntarily at the behest of Arab leaders who promised they could return within a few weeks after the Jews were "driven into the sea."
• The Palestinians who were driven from their homes and land were comparatively small in number, and that happened only because the Transjordanians, Syrians, and Egyptians attacked and tried to annihilate the Jews of Israel.

With these three points in mind, it is difficult not to support Israel. Add to them the fact that these same Arab countries refused to encourage the Palestinians to assimilate into their countries, and we see that the major source of the problems in the middle east is anything but Israel.

For more on the refugees in the middle east, see The Great Refugee Scam.

The story of the Arabs who left the coastal areas of Palestine in the spring of 1948 encapsulates one of the great international frauds of the 20th century. The Arabs are the only declared "refugees" who became refugees by the initiative of their own leaders. The concoction of the monstrous charge that it was the Jews who had driven out the Arabs of Palestine was a strategic decision made by the leaders of the Arab League months after the Arabs' flight.

... It was in the immediate aftermath of the war that the refugee scam was developed into an international operation. As soon as the UN Disaster Relief Organization started providing food, shelter, clothing and medical attention to the Arabs who had fled Palestine, a mass of needy Arabs descended on the camps from all over the Arab states. The organization had no machinery for identification; so the arrivals simply signed the register as refugees and received the free aid.

And there is much more at that site.

Freedom and from the Human Rights Commission?

On April 13th, Ezra Levant, Kathy Shaidle, and my colleague Salim Mansur will be speaking at the London City Music Theatre on

The Human Rights Commission:
Useful or Obsolete?

7pm, Admission only $5. For people who live anywhere near London, Ontario, this will be an amazing opportunity.

Were the AIG Bonuses "Retention" Bonuses?

Alan Adamson has been writing for the past few weeks about his distress over the political attacks on the AIG senior managers for having received bonuses this month. One of his points has been that many senior managers, who had nothing to do with the credit default swaps (i.e. fraudulent insurance) sold by AIG, were ready to leave the company as the handwriting appeared on the walls. But they were offered "retention" bonuses, promising to pay them substantial sums if they would stay on with the firm to help unwind some of its dicier ventures and to help with profitable divestiture where possible. [For several of Alan's postings, see this, this, and this, or better yet, just read the past few weeks of his blog.] At one point, Alan wrote,

Apologies for my obsession with these bonuses, but I cannot recall in my reasonably long lifetime any episode of mass hysteria so stupid, nor any political behavior so totally outrageous and stupid, to boot. I dearly hope Obama can learn to lead, because the picture right now is not remotely pretty. Rome burns while Obama, having helped light the fire, disses the disabled on Leno.

Alan has both academic and "real world" experience. His insight and his outrage are very compelling.

After having read all his postings (after all, we blog together here in addition to our own blogs), I then saw this op-ed in the NYTimes yesterday. It is a letter of resignation from a top AIG executive who, after agreeing to work for a salary of $1 and a retention bonus of nearly $750K, felt cheated and abandoned by both the politicians and the CEO of AIG. Here is a portion of his letter:

I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

... I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

...  I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

...

[M]ost of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. ...

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. ...None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

Twitter-isms from EclectEcon

• 19:53 Spider Bites, Cures, & Bad Jlsm tinyurl.com/de6fu8 #

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How Small Investors Can Participate in Geithner's Plan

In a recent Slate column, Daniel Gross asks,

Why can't individual investors get the sweetheart deal Geithner's plan is offering to hedge funds?

The answer is, "We can." All we have to do is buy shares in the companies that are allowed/able to participate in the deal. I realize that if I have $5000 to speculate with, I might not be able to place it with as major hedge fund. But I can place it with a fund that invests with a fund that invests in some major hedge funds. Gross further laments,

But it wouldn't be hard to arrange for small-fry investors to participate in the bailout. The government could partner with investment-management firms—especially well-regarded investment-management firms such as Vanguard and TIAA-CREF—to create mutual-fundlike vehicles in which individuals could invest as little as a few hundred dollars in the effort to stabilize the banking system. The feds could even offer such an investment as a check-off on tax returns. Or we could present it as an allocation choice for federal employees' retirement accounts. Legacy loans and legacy assets could be offered as an option for state-sponsored 529 college savings programs, in which investors typically commit to lengthy holding periods. Or they could be made part of the universal savings accounts that Obama supports.

Of course it doesn't require PR savvy for firms to do this. If the transaction costs of making these arrangements are low, firms will put together and market these packages for small investors. If there is any problem with relying on private investors to put these packages together, it is time. The gubmnt seems hell-bent on making near-instant infusions and bail-outs. And it is pretty difficult to understand what they are doing, much less put together and market a new investment package for small investors all in a week or two.

Gross's lament sounds very much like the complaint people make about oil company "windfall" profits any time the price of oil spikes upward. I've heard people say such things as,

 "Yeah, the big oil companies get all the money. There's no way the little guy can get a piece of that action, so we have every right to tax some of it for the rest of us."

Which is sheer nonsense. If people want to share in the returns (and risks) earned by oil companies, all they have to do is buy shares in them. Similarly, if people want to share in the returns (and risks) of firms who can easily buy subsidized toxic assets, they can look for ways to buy into those firms. And if there aren't any funds like this available, and if entrepreneurs think there's a market for them, they will emerge. There is no reason for the gubmnt to try to create these funds, especially when bureaucrats have different incentives and seem so busy these days trying to intervene so much in so many aspects of the economy.

Economics: the Dismal Science

Economics has long been referred to as "the dismal science". From Wikipaedia,

It is often stated that Carlyle gave economics the nickname "dismal science" as a response to the late 18th century writings of The Reverend Thomas Robert Malthus, who grimly predicted that starvation would result as projected population growth exceeded the rate of increase in the food supply. Carlyle did indeed use the word 'dismal' in relation to Malthus' theory in his essay Chartism (1839):

"The controversies on Malthus and the 'Population Principle', 'Preventative Check' and so forth, with which the public ear has been deafened for a long while, are indeed sufficiently mournful. Dreary, stolid, dismal, without hope for this world or the next, is all that of the preventative check and the denial of the preventative check."

My friend, BenS, takes great delight in introducing me to others as "a dismal scientist" with his typical impishness.

And yesterday, Ironman of Political Calculations, wrote,

Economics. The only field of study where dismal is cool....

.

Marginal Tax Rates, Welfare, and Work Effort

 A few days ago, I was speaking with a young woman who has recently gone on student welfare in Ontario. She is an older teen, trying to finish high school, no longer living with her parents, and struggling to make ends meet. She has a part-time job, but it doesn't pay enough for her to cover her rent and living expenses, and so she went on welfare to help her out while she finishes school.

She told me that for the next four months, the welfare plan she is on  will deduct 100% of what she earns during one month from her welfare cheque the following month. That's right, for the next four months, she faces a 100% marginal tax rate. It is no surprise that this scheme has affected her willingness to work; she doesn't care if she doesn't get many hours on her part-time job.

And that is the essence of economists' arguments in favour of the negative income tax, whereby the amount of welfare would decline by only a percentage of the recipient's earnings. But in the case of student welfare, the incentive effects might be to induce her to do more studying and less for-pay work.

After four months, she will be on a negative income tax plan: Her welfare payments will decline by only a portion of her previous month's earnings. And she will have a much stronger incentive to work extra shifts each week.

Update: After I wrote the above material, I learned that she plans to quit her part-time job so long as student welfare deducts all she earns from her welfare cheque. Her response is certainly understandable.

Twitter-isms from EclectEcon

• 21:58 What a day! Sunny and cool; a glorious hike, geocaching. Over a cold? and foot seems okay. #

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Risk, Reward, and Status in the Financial District

I have a good friend who works in the financial district. He tells me that senior executives no longer vie for offices on the top floors of tall buildings. Often, he says, you'll find them on the 3rd, 4th, or 5th floors of 60-story buildings.

Why? A re-assessment of risks after 9-11.

Yes, it was always a minor consideration that fire truck ladders cannot reach much more than the 7th or 8th floor of most buildings. And yes, it was always a minor consideration that during major blackouts, it is much easier to walk down a few flights of stairs rather than a bunch of them. For the most part, until 9-11, assessing these risks and balancing them against the view and the prestige of being up high in a tall building meant that the prestige and view won out.

But now the prestige comes from being lower in a building. Having an office on the fourth floor of a 60-story building sends the message, "I'm so important that my company wants me down low in this building so that I can get out in a hurry or be rescued if necessary."

I don't know if that is the case for other firms, but he cited several in the financial district for which it seems to be true, adding that the trading floor for one of the firms has now been moved up near the top of their building: "You know how little they value their traders if they put 'em way up there," he said.

Twitter-isms from EclectEcon

• 08:17 What is with the Canadian and Russian Skips in Korea at the Women's World Championships? 46%? 56%? #

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Historical Photos from the Life Magazine Archives

Not all the captioned dates or locations are absolutely precise (see the comments) but the photos are spectacular and riveting. Link here [h/t to Anita].

Twitter-isms from EclectEcon

• 08:41 Growing fears of inflation? Don't laugh:www.vancouversun.com/Business/Food+housing+costs+drive+inflation/1405332/story.html #

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More Reasons to be Skeptical about Global Warming

Another message from Patrick Carroll, in which he provides links to other studies that criticize the group-think of those who are convinced global warming is a serious, human-caused problem. This message is in response to my having mentioned that Chris Essex is a current colleague and that Ross McKitrick and I were colleagues last year.

I am familiar with Ross McKitrick’s work. His brilliant collaboration with Steven McIntyre to expose the statistical errors behind the now discredited “hockey stick” graph of Michael Mann et al was a masterpiece of mathematical sleuthing, which led to the IPCC’s abandonment of the graph in its 2007 report.

 

Mr. McIntyre has his own web site, Climate Audit, where more examples of the faulty use of statistics by the IPCC and others are discussed. See http://www.climateaudit.org/

 

A recent paper by Christopher Monckton further illustrates how the IPCC and its supporters have been using statistical manipulation to fool the unwary into believing that relatively short-term changes in climate and such things as ice melt are “alarming” and can be extrapolated far into the future. Such tactics are nothing more than scientific propaganda.

 

See http://scienceandpublicpolicy.org/images/stories/papers/monckton/temperature_co2_change_scientific_briefing.pdf

...

Twitter-isms from EclectEcon

• 13:56 How much more is an NCAA player worth in the NBA draft if his team makes the final four instead of being eliminated in early rounds. How much do good teammates increase MPP? 

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Talk about Monetizing the Debt!

This sort of thing had to happen. The US gubmnt goes on a deficit-spending binge and has to raise the funds somehow. And as I have been saying here, they are unlikely to be able to raise much of the funds through taxation or through borrowing. So in steps the Fed to buy the debt. This is another example of "monetizing the debt". The new jargon might well be "quantitative easing", but it all amounts to the same thing. From the NYTimes,

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

This is just one example of the build-up of liquidity in the economy that we are seeing. I am not so sure this should not be happening, given the current state of affairs, but at the same time we need to recognize the potential inflationary pressure these policies will be creating for the future. And keep in mind that if the economy pulls out of this recession quicker than expected, politicians will take credit for the fiscal policy aspects of the stimulus package, but it will more likely be this increase in the monetary base that did the trick.

In a comment on my previous posting on this topic, Kevin asked why I thought the Fed could not soak up the excess liquidity in the future just as quickly as they have been creating it now. It is a good question. Here are some answers that have been offered by Alan Meltzer and Steve Hanke in recent podcasts on Econtalk and Bloomberg, respectively. Also see, "Rally first, then hyperinflation".

1. First, the central bank will suffer (and always suffers) from what I term recognition lag. It takes them awhile to figure out what the current situation is and where we are heading. Even now, it is difficult (impossible?) to know how deep the recession will be and how we can recognize the turning point at the bottom.
2. Second, because of the slippage in the money multiplier, even if the central bank times its moves perfectly, it cannot soak up all the liquidity right away.
3. As the Fed tries to sell off lots of its assets, who is going to buy them? Will they be able to sell more to SE Asian economies? Dumping $1 trillion of gubmnt bonds (and mortgages!) onto the open market in one fell swoop will surely lead to major disruptions and distortions in the money markets.
4. And despite its alleged independence, the Fed will tend to bow to political pressure to keep interest rates low and "make housing affordable during these troubling times."

More Evidence that Protectionism Is Gaining in Popularityand not just in the U.S.

This is so disappointing. Despite all the evidence and all the arguments put forward by economists, we have not done our job of educating the public and the policy makers. From WaPo,

At least 17 of the 20 major nations that vowed at a November summit to avoid protectionist steps that could spark a global trade war have violated that promise, with countries from Russia to the United States to China enacting measures aimed at limiting the flow of imported goods, according to a World Bank report unveiled yesterday.

The report underscores a "worrying" trend toward protectionism as countries rush to shield their ailing domestic industries during the global economic crisis. It comes one day after Mexico vowed to slap new restrictions on 90 U.S. products. That action is being taken in retaliation against Washington for canceling a program that allowed Mexican truck drivers the right to transport goods across the United States, illustrating the tit-for-tat responses that experts fear could grow in coming months.

... The Bank said that, since last November, a host of nations has imposed a total of 47 measures that restrict trade at the expense of other countries. The most obvious trade restrictions -- raising tariffs, or taxes on imports -- represent only about a third of all measures taken. Some countries are taking a direct approach. Ecuador, for instance, has raised tariffs on more than 600 items. But most are taking more creative steps that fall into the gray area of what is considered legal under international trade law.

It would be nice to think that a little tit-for-tat (isn't that supposed to be the best or one of the best strategies to induce co-operation in the prisoners' dilemma game?) would smarten up the protectionist politicians. But I fear it won't. They don't really care about whether protectionism makes people worse off in general if they can go to the voters in their local constituencies and say, "See? I voted for this protectionist measure to help save jobs in our local economy." And the only way these protectionist positions can be overcome is by helping to educate voters about comparative advantage and gains from trade. That and getting Lou Dobbs off the air, maybe.

Best States? Worst States?

Chief Executive magazine does a poll of around 500 CEOs each year to rank the quality of each US state, assessing them as desireable places for doing business. For the past 4 years, Texas has been ranked #1 and California #51:

 

Top 5 States	Rank 2009	Rank 2008	Rank 2007	Rank 2006
Texas	1st	1st	1st	1st
North Carolina	2nd	3rd	4th	3rd
Florida	3rd	10th	3rd	4th
Georgia	4th	7th	6th	5th
Tennessee	5th	6th	7th	11th

 

 

Worst 5 States	Rank 2009	Rank 2008	Rank 2007	Rank 2006
California	51st	51st	51st	51st
New York	50th	50th	50th	50th
Michigan	49th	49th	47th	48th
New Jersey	48th	47th	46th	46th
Massachusetts	47th	48th	49th	49th

 

Biggest Gainers	Positions Gained
Mississippi	15
Pennsylvania	10

 

Biggest Losers	Positions Lost
Ohio	11
Washington	10
Minnesota	10

 

I don't buy into the assessments in the article, which seems to blame unionization for the low ratings of most of the bottom-ranked states. Instead I would take a look at the tax structure and the outstanding debt of each state to explain most of the rankings. 

Query: if California has been such a bad place to do business for the past four or more years, why haven't house prices fallen even more in that state? Why weren't businesses rewarding their employees by moving, say to Texas, and encouraging them all to cash in on the real estate boom in 2006?

Reserves, High-Powered Money, and Slippage in the Money Multiplier

Several weeks ago I reiterated a concern of mine that eventually this financial crisis, along with the massive stimulus package in the US, will lead to much higher rates of inflation than many people are expecting in two, three or four years down the road. Link here. My general concern was that the reserves of rhe US banking system have sky-rocketed (see graph in the original piece) and that eventually these higher reserves will lead to a large rate of growth in the money supply and in aggregate demand.

After I wrote that piece, colleague David Laidler wrote to me,

I think you'll find that the US monetary base grew steadily from 1929-33. What matters on this front is the growth of money relative to the demand for it, and base growth has never been the principle driver of money growth at business cycle frequencies. Prices have been falling since late summer, and as the real economy continues to fold, chances are that will continue. So I'll start worrying about inflation in around 2011 - that is if the currently in place measures do manage to stop the US contraction by the end of this year, which I doubt.

I generally am happy to defer to David on monetary issues. Further, if we put his caution together with the persistent argument by Scott Sumner (and which I also raised last December) that paying interest on reserves is counter productive to increasing banks' reserves to try to stimulate the economy, then we have a short-term problem that is quite different from the problem that concerned me in that posting.

It looks as if that good old money multiplier that we teach our intro economics students has a LOT of slippage in it. Bank reserves and high-powered money do not automatically lead to a definite, easily calculated quantity of money in the economy, especially not in the short-term.

So here is the way I see what has happened and what will happen.

• Credit crunch caused by a bunch of bad loans and bad financial insurance (and whatever caused those things to occur)
• Fed tries to pump up aggregate demand, get credit flowing again, by boosting banks' reserves.
• But the banks are scared and would prefer sitting on the reserves rather than using those reserves as a basis for new loans.
• Fed offers to pay interest on reserves, exacerbating previous point. Banks say "Why make risky loans when we can now earn interest on our reserves (deposits at the Fed)?"
• So as reserves increase, the actual money supply continues to decrease, raising continuing fears of deflation.
• But all those reserves still exist, and the Fed will not find it easy to reduce them as necessary in a quick and timely fashion in the future.
• So as the US comes out of the recession/depression, there will be a tonne of cash available to fuel inflation.
• AND, how on earth is the US gubmnt going to finance its huge and growing debt? Tax the rich, but that can't do the whole job. It will have to monetize much more of the debt.

Despite the recession the US is in now, and despite the deflationary pressures they are experiencing now, I still don't see how all these reserves and the skyrocketing debt cannot eventually lead to rapid price inflation in the future.

Note: I think paying interest on bank deposits with the central bank is probably a good idea. My concern stated above is that they chose just about the worst time in the past 25 years to implement the policy.

Twitter-isms from EclectEcon

• 16:19 Obama should make Hank Paulson pay the AIG bonuses. Paulson's the one who goofed up the bailout package. #

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Bias and the Lack of Scientific Approach at The Weather Network

A few months ago, I wrote that over the past few years The Weather Network has presented many items about global warming, but has never presented any of the facts or arguments provided by the global warming skeptics. To my knowledge, not even once.

Last week I received an e-mail message from Patrick Carroll, a meteorologist who is also concerned about the biases of The Weather Network. Here is his message, reproduced with his permission:

I came across your blog site while searching for evidence that other people were aware of the bias the Weather Network exhibited towards anything contrary to the prevailing “wisdom” of the IPCC theory of man-made or anthropogenic global warming (AGW).

I was a meteorologist for Environment Canada for 32 years before retiring. As such, the issue of AGW caught my attention a few years ago when Al Gore’s Academy Award winning (and now thoroughly discredited) film, An Inconvenient Truth, appeared. I began to suspect that something was terribly wrong with the underlying premise behind the film when “The Great Global Warming Swindle” appeared on the Internet. Since then, I have armed myself with considerable additional knowledge about what drives the global climate and found abundant evidence that the IPCC is indeed, in the words of former IPCC reviewer Dr. Vincent Gray, “fundamentally corrupt”.

In January of 2007 I sent an e-mail to Deanna Langton of the Weather Network enquiring as to why they were not presenting more balanced discussions on the topic of AGW. I had expected that an organization supposedly comprised mainly of people of scientific training and background would be less likely to favour one side or the other on this contentious topic than the mainstream media. Was I ever mistaken!

I mentioned the frequent appearances of media icon Dr. David Suzuki to the exclusion of anyone from the other side of the issue. She assured me that the Weather Network would give equal consideration to having so-called global warming “skeptics” have their say. I’m still waiting.

I sent another e-mail to the president of the Weather Network in December of 2008 pointing out that they had still not done anything to present a more balanced view on the topic of AGW and listed numerous examples of where the IPCC theory had fallen into disrepute including evidence that global warming had stopped in 1998 and that a cooling trend had begun since 2002 despite rising atmospheric CO2 levels. I never received a reply.

It is indeed unfortunate that Canadians have been grievously misled by a compliant mainstream media and political leaders, who have failed to perform due diligence on anything the IPCC and its supporters have said. The entire issue of AGW has become politicized to the point where those scientists trying to bring attention to the flaws in the IPCC argument have been unfairly vilified and threatened by the Gestapo-like propaganda and tactics of the radical environmental green-shirts. This is not the way that issues of a scientific nature should be discussed and should not be the basis for the formation of government policy on environmental matters.

The IPCC was never interested in determining the true nature of what drives the Earth’s climate, which is why the panel ignored long observed historical relationships between such things as solar cycles and our global climate. The IPCC was only interested in proving that man-made emissions of CO2 were responsible for the global warming of the latter half of the past century. To that extent, the panel used doctored climate statistics and the output of unproven and unreliable computer models to fabricate its alarmist prediction of runaway global warming.

It is only in the past few years that the flawed nature of the panel’s methods has been uncovered to the point where there are now tens of thousands of scientists world-wide who condemn the panel’s theory as seriously flawed. That global temperatures have been cooling since 1998 despite rising atmospheric CO2 levels should be raising questions in the minds of politicians about the validity of the IPCC theory and that attempts to control man-made CO2 would be an exorbitantly costly exercise in climate moderation futility.

The President of Verity Management Services sent the following letter to President Obama warning him that the administration’s plan to tax carbon emissions was a bad idea because there is growing evidence that our sun is entering what he calls a period of “solar hibernation” that would result in major global cooling instead of warming.

http://www.spaceandscience.net/sitebuildercontent/sitebuilderfiles/obamapresidentfinalappeal03-2-09.doc

 The effect of the 206-year solar cycle mentioned would take us back to a time of the Dalton Minimum, which was also suggested by geologist David Archibald in his paper on solar cycle 24. Mr. Archibald’s prediction for solar cycle 24 seems to working out far better than that of NASA’s Dr. Hathaway, who failed to predict the sun’s drawn out period of sunspot minimum at the end of cycle 23.

 http://www.warwickhughes.com/agri/pastandfuture2.pdf .

 Another interesting study of the 206-year cycle concerns the disappearance of the Mayan civilization:

 http://ess.geology.ufl.edu/hodell/Reprints/pg16-22MAYA1.pdf

 Obviously, global cooling of this magnitude would have a marked effect on agriculture across the temperate zones. Developing grain variants that can resist colder weather and shorter growing seasons takes time, and that time has been wasted working instead on variants that can withstand greater heat and drought, all because non climate scientists were deceived by the IPCC predictions. But that’s what you get when you allow science to be politicized, as Dr. Tim Ball suggests:

 http://canadafreepress.com/index.php/article/9177

 It is sad that Canadians have been conned by the IPCC, the mainstream media and organizations such as the Weather Network into buying the hoax of AGW. Much money and time has been squandered on attempts to curb, sequester and demonize a harmless atmospheric trace gas that is essential to all life on earth. The public will soon be looking for scapegoats if global cooling continues to manifest itself at a faster rate. They won’t have to look any farther than their television sets to find one of the primary agents complicit in this global fraud.