Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world’s two great banking centers. Other European governments agree — and they’re right.
Lecture by Prof. Paul Krugman, Department of Economics and the Woodrow Wilson School of Public and International Affairs, Princeton University, 2008 Nobel Laureate in Economics (October 2009).
http://www.tonic.com/article/2009-ig-nobel-awards/
So I watched the near-entirety of the live webcast of the geeked-out
For others who missed Paul Krugman column from last Thursday's New York Times, it's worth a look. Krugman nails the Fox fantasist Glenn Beck for quoting reports that he can't produce. Krugman says:
"Thus, last week Glenn Beck — who seems to be challenging Rush Limbaugh for the role of de facto leader of the G.O.P. — informed his audience of a “buried” Obama administration study showing that Waxman-Markey would actually cost the average family $1,787 per year. Needless to say, no such study exists."
You really have to wonder who's inspiring Beck to make this stuff up.
Beck should be a bloody mess by now, what with all the bashing he's received as of late.
If I were a betting man, I'd bet that Stossel is having a grand laugh at this Waxman-Markey nonsense and all the flak Beck is catching for his views.
Global warming is a catch-phrase -- it's bait to lure us into doing something to clean up the mess we've made of our habitat. However, our footprint in this phenomenon is minuscule: as long as there is ice covering a portion of our planet, we are effectively in an Ice Age, which will eventually end due to 'global warming'.
It is inevitable.
Related Reading:
Myths, Lies and Downright Stupidity: Get Out the Shovel - Why Everything You Know is Wrong
Honest though Guv', I didn't know I's was working for them dirty Martians! Honest!
The Bolter takes up my defence:
Again, I ask: if the evidence for catastrophic man-made global warming is so clear, why the exaggerations, lies and absurd abuse?
That abuse grows even wilder as the alarmists’ case crumbles. Take Nobel [economics] laureate Paul Krugman:
We now owe allegiance to the planet? And can commit treason against Mother Earth? Wow.
So what’s Krugman’s evidence for catastrophic temperature rises?
But as Thomas Fuller points out:
Then there’s the alarming reports from a conference in Copenhagen of alarmist scientists (who want us to use less of the gases they just blew out the back of their jets to get to yet another warming jamboree):
In fact, says distinguished climatologist Professor Roger Pielke Sr, none of that seems true.
 Niche modeller David Stockwell and Lucia both note tricks with graphs that fed the Copenhagen claim that the world was heating as fast as ever.
UPDATE
David Evans describes the meeting in which Climate Change Minister Penny Wong tried to answer Steve Fielding’s three questions. It’s scary to think the Rudd Government believes so much in a theory it’s had so much trouble defending, or even understanding.
UPDATE 2
One of the world’s biggest emitters won’t be following Kevin Rudd’s lead and killing jobs to “save” the planet:
The world’s biggest emitter, China, will not cut its own gases, either. So exactly who will our useless sacrifice inspire? And to what puny effect?
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As many of you know, I have a particular interest in economics - historical and contemporary - as it relates to business.
If you share my interest then I recommend listening to Niall Ferguson, Paul Krugman, George Soros and others debate our current fiscal crisis. Just brilliant back and forth amongst leading economists. Visit: http://bit.ly/GIsXU
Sorry, audio only - no video!
Visit: http://bit.ly/GIsXU
Barnet Frank on the Financial Road Ahead by Avi Salzman, Barrons.com
Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee, has been one of the busiest men in Washington in recent months. So busy, in fact, that when a Barrons.com reporter started a telephone interview with him recently, he dispensed quickly with the formalities.
"Let's go," he said, in an accent that betrays his northern New Jersey roots, before embarking on a wide-ranging interview on whether to nationalize banks, how to rate debt, and how long mark-to-market accounting rules will remain relaxed.
You have talked a lot about the federal government having a systemic risk agency, with the Federal Reserve overseeing it. How would it work?
The Fed took a bit of a roughing up over the AIG bonuses, so it is now unlikely that it would be the Fed alone, though the Fed will have to play a major role. At this point there is more agreement on what than who. It has to have a systemic risk capacity to keep in particular nonbanks from getting overly leveraged.
Are you interested in limiting the size of banks?
No. There are always the antitrust laws, but if you look at a typical antitrust law, that doesn't work because no bank is big enough to be that kind of monopoly. By the way the problem seems to be less banks than nonbanks.
I think the problems were with Lehman and AIG and Bear Stearns. What I want to do is to have a systemic risk regulator that keeps any entity from getting so heavily indebted beyond its capacity to pay that it becomes too interconnected to fail.
And who will determine what overleverage is? How much leverage is too much?
A systemic risk regulator [will determine it]. It's in two ways; it's an individual situation and it could also be if too many people get in the same side of the boat it starts to tip over.
Paul Krugman, the liberal economist who just won the Nobel Prize, has talked about banks having to be nationalized to save the system. Is that something that you feel the Obama administration should do?
The president addressed that pretty well. As far as banks being nationalized, which banks? How many? All banks? Ten banks? Three banks? One bank? I mean, of course, I would not rule out a bank being nationalized. It is a tool that might be necessary, but it ought to be a much later resort than now. I don't see any need to do it now.
Some concern has been raised about pension funds investing in hedge funds. Should the government regulate pension investments in hedge funds?
I have limited jurisdiction over that because the pension funds are under Erisa [Employee Retirement Income Security Act], which is in the Education and Labor Committee. They are talking about some kind of safeguards.
I do believe that the hedge funds should be among those entities that are not allowed to get too leveraged, and I believe that they should be required to register with the Securities and Exchange Commission.
And give data on how much leverage they are using?
Well the SEC wouldn't be primarily [overseeing] the leverage thing -- they would be an investor and consumer protection entity. The systemic risk regulator would be looking at leverage with them as with any other entity.
So a systemic risk regulator would have access to the amount of leverage that hedge funds are using.
Any financial entity, yes.
How is the government going to make investors comfortable investing in financial markets? Some investors say that the rules have changed a lot. What's the timetable [on the rule changes]?
By the end of the year. I hope by the time Congress adjourns for the year, which may be very late this year. Yes, there is uncertainty now. I do think it's important to provide that kind of stability, and this is a case where regulation is very pro-market because it should give people that assurance.
What reforms do you mean specifically?
The systemic risk regulator, a way to resolve nonbank institutions, a buffing-up of the investor-consumer protection functions at the regular regulators. A change in compensation rules so that people cannot give one-way bonuses and then incentivize excessive risk, and rules that say you can't securitize 100% [of a loan].
You have to retain say 5%, but it still has to be worked out. A fundamental part of the problem was that 100% securitization led to a significant drop in people's focusing on the quality of the loans they made.
Are the credit-rating agencies fundamentally flawed? Does the government need to step in and in what capacity?
First of all, the thing to do about rating agencies is to make them less important. If there are enough flaws [with the debt] in the beginning, there is nothing they can do about it. The payment model clearly ought to be changed.
There were biases that grew from the fact that the [corporations] being rated were paying them. I have not myself [figured out] what the best way to do it is -- whether you have investor-paid models or whether there is a government model. Clearly the current system needs to be replaced.
Do you feel that Goldman Sach's (ticker: GS) move [to try to pay back TARP money] is problematic because it could expose other banks in the eyes of investors and the public?
No, I am all for it. It is a very good idea. In the first place the notion that 'Oh, if Goldman pays the money back people will know that some institutions are stronger than others' is ridiculous. People already know that. There are all kinds of metrics for deciding which financial institution is strong and which one is weak.
Now do you think that TARP and the PPIP [the government's Public-Private Investment Program to buy up bad assets] will be enough money to get us out of this or are you going to need to have more money?
They are going to have to do the best they can right now. Of course with the PPIP they have gotten the FDIC [Federal Deposit Insurance Corp.] involved as a way to get that going. I do not think there is any prospect of Congress voting more money until and unless people start to see some results.
That is why I am in favor of the TARP money being paid back -- to the extent that you get some substantial repayments of TARP money if you do need more money for some other purpose later on.
As far as mark-to-market accounting reforms, do you think the rules should continue to be relaxed?
Yes. It's indefinite. What is temporary is the discretion that the regulator should show. There are two aspects to mark-to-market. One is the actual valuation, and two is how the regulators react. I do think that at a time like this there is a reason for some administrative and regulatory discretion and that would be temporary.
If things get better then you don't have that same kind of forbearance. As to the mark-to-market rules themselves, they were a little bit too rigid. They didn't differentiate sufficiently it seemed to me between assets held for trading and assets (that were paying assets) that were to be held to maturity. And [the reforms to that are] not going to change.
Are we papering over some of the larger systemic problems in the system by changing or relaxing mark-to-market right now?
I think that's nonsense. It's a straw man. It's not what we are doing in mark-to-market. If you are holding an asset and you plan to hold it until maturity and it is paying as it was supposed to, I don't think you should have to mark it down substantially. The federal home loan banks in a couple of areas were forced to do excessive markdowns. It's not either or -- it's how well you do it.
Do you think that Obama has the right people in charge right now of economic and financial matters?
Yes.
Some of the concern is that maybe these guys are too close to some of the people they are regulating. I'm talking about Tim Geithner and Lawrence Summers for instance?
I don't think that's true. Who did you think I meant? Frick and Frack?
Paul Krugman: So it’s eat, drink and be merry, for tomorrow you may be regulated. http://www.nytimes.com/2009/04/27/opinion/27krugman.html?ref=global
Paul Krugman is in his element. The Nobel Prize-winning economist in December put out an updated edition of The Return of Depression Economics, his prescient study from 1999 in which he laid out the risks to nations when recessions spiral into long-term malaise.
Timely reading, indeed, and worth picking up. Krugman was kind enough to expand upon his thoughts regarding President Obama's stimulus package and what changes may be in store for the U.S. and world economies in coming years in an e-mail exchange with Barrons.com.
Barrons.com: What's the stupidest thing you've heard said about the current economic crisis and how to solve it? What's the smartest?
Paul Krugman: The stupidest is a very tough competition; I tend to think of whichever mind-numbingly stupid thing I've just heard, like [U.S. House of Representatives] Minority Leader [John] Boehner's statement that we shouldn't "reward" Fannie and Freddie by increasing their resources (he apparently doesn't understand the meaning of "government owned.") But I guess the statements from many players that the Obama plan is a spending bill, not a stimulus bill -- when spending is the whole point -- top the list.
The smartest thing probably comes from Richard Koo, [chief economist for Japan's Nomura Research Institute, part of Nomura Securities] who was one of the first to point out that this isn't just a housing crisis, or even a banking crisis -- it's a balance sheet crisis.
Barrons.com: You've written that the gap between the economy's potential shortfall in production over the next three years -- $2.9 trillion -- and the $800 billion in economic stimulus is a big problem. Why does this gap between production and bailout matter so much?
Krugman: My big concern here is that the economy digs itself into a deflationary hole, which is what can all too easily happen if you have a large, sustained output gap. Once prices start falling, and people start to expect continuing deflation, the balance sheet problems will become much worse than they already are, and much harder to resolve. Watching that happen in Japan is what led me to write the original, 1999 version of The Return of Depression Economics, and now the same thing is all too possible here.
Barrons.com: What's a worst-case scenario if this stimulus fails to kick-start a recovery, as you've argued?
Krugman: A lost decade or more. I don't think, even now, that we're headed for 20+ percent unemployment, Depression-style. But I can see a strong possibility of an economic and political trap: low investment and high savings thanks to deflation and a depressed economy, with effective government action blocked by a combination of concerns about debt and the widespread belief that we tried stimulus and it didn't work.
Barrons.com: Will the $80 billion in aid to holders of underwater mortgages make a material difference?
Krugman: It depends on the meaning of the word "material." It will help millions of families, and somewhat reduce the financial system's losses. It won't revive the housing market, nor will it end the banks' problems.
Barrons.com: Will we ever become a nation of savers again?
Krugman: Actually, we ARE becoming a nation of savers again -- which is part of the reason GDP is plunging. I think the asset wipeout will have a long-term impact on consumer behavior; remember, we had a 9% savings rate as recently as the 80s.
Barrons.com: There's been a dramatic collapse in asset values in the stock market, as measured by the decline in the P/E of the S&P 500. Do you think asset values will bounce back with an economic recovery, or has there been some fundamental long-term shift in asset values that will linger even after recovery?
Krugman: Believe it or not, housing prices are still above-normal, as measured either by the price-rent ratio or the price-income ratio. So housing prices won't bounce back. As for stocks, when I take [Yale University economist] Bob Shiller's data, which give prices relative to a long trailing average of profits, and update, I get a P/E right now of about 13, not so far from historical norms. So it's not clear how much bounceback we can count on, if any. Maybe the bull market was the aberration.
Barrons.com: You've advocated a stimulus for the U.S. along the lines of the Public Works project during the Depression. Assuming such a thing could produce another economic boom, what are the downside risks to a massive infusion of public money?
Krugman: Well, large-scale government borrowing does pose long-term fiscal risks; the U.S. has substantial room for additional borrowing, but it's not unlimited. Aside from that, I don't see big risks.
Barrons.com: One of the themes you explore in your writing is the notion that world economic relationships can change over the course of decades (e.g., from globalism to nationalism to globalism). What are a couple of the biggest economic changes you see playing out over the next ten years, and what might be their social impact in the U.S. and abroad?
Krugman: I think we're heading for a new regime of financial regulation, which might significantly reduce financial globalization, for both good reasons and bad: the good reason is that a lot of what looked like globalization was actually regulatory arbitrage, the bad reason is that governments that are bailing out financial system will tend to insist that the benefits stay at home. I don't think this will affect most Americans' lives much; but a lot of the highest incomes have come from finance, and the Masters of the Universe will definitely end up less masterful.
We're also, I think, going to see some significant reindustrialization, because the conveyor belt moving Chinese and other funds to America will be slowed if not shut down. This will mean a greater reliance on domestic production.
Mainly, though, how society changes will depend on the political response -- whether this really ends up being a new New Deal or just a slight course correction.
Barrons.com: What great books have you read recently that you can recommend?
Krugman: I just reread a good part of John Maynard Keynes's Essays in Persuasion, especially "The Great Slump of 1930," which is awesomely relevant right now. And while it has nothing much to do with the crisis, I'd highly recommend Dan Koeppel's Banana: The Fate of the Fruit that Changed the World, which tells you a lot about the history of globalization along the way.
