Tag Archives: U.S. politics

happy financial crisis anniversary

Happy 10-year anniversary to the 2008 financial crisis! The Week has a short summary of what caused it.

The bursting of the U.S. housing bubble triggered a chain reaction that nearly brought down the global financial system. Between 1997 and 2006, a combination of low interest rates, relaxed lending regulations, and government policies designed to encourage home buying fueled a housing boom that saw the average price for a U.S. home increase by 124 percent. Amid the speculative frenzy, financial institutions issued hundreds of billions of dollars in questionable loans to so-called subprime borrowers with poor credit histories. Borrowers’ ability to repay didn’t matter to lenders, because they were able to get subprime mortgages off their books by repackaging them into wildly complex derivative financial instruments like mortgage-backed securities and collateralized debt obligations. Corporate and institutional investors gobbled up these offerings, which not only offered attractive returns but also received high safety ratings from the major credit-rating agencies. In 2007 and 2008, the inevitable wave of foreclosures finally arrived — exposing the entire financial system to catastrophic losses…

The worst financial panic since the Great Depression. Already dangerously over-leveraged from years of risky bets, banks were unable to absorb the huge losses. The first big domino to fall was the investment bank Bear Stearns, which collapsed in March 2008. Later, Lehman Brothers filed for the largest bankruptcy in U.S. history, and the government bailed out insurance giant AIG, which had sold enormous amounts of credit default swaps insuring the bad investments. As panic spread, lending and investment screeched to a halt, and the country was plunged into the worst financial crisis since the stock market collapse of 1929…

The U.S. government took extraordinary measures to prevent a full-scale economic collapse. Under President George W. Bush, Congress approved a $700 billion bailout purchasing toxic assets to restore confidence in the market; under President Barack Obama, it authorized a $787 billion stimulus package to stimulate spending in the private sector. But massive damage had already been done. The economy slipped into a deep recession. The Dow Jones industrial average and the S&P 500 lost more than half their value. Unemployment peaked at roughly 10 percent by October 2009.

They say the system is safer now because of Dodd-Frank. Well, Dodd-Frank is under savage attack by our current administration, so I would not be too confident the system is safe. The article also explains that even though the economy has come back on average, Americans of average income and below are still feeling the effects and may never fully recover to where they would have been without the crisis.

March 2018 in Review

Most frightening stories:

Most hopeful stories:

  • One large sprawling city could be roughly the economic equivalent of several small high-density cities. This could potentially be good news for the planet if you choose in favor of the latter, and preserve the spaces in between as some combination of natural land and farm land.
  • The problems with free parking, and solutions to the problems, are well known. This could potentially be good news if anything were to be actually done about it. Self-parking cars could be really fantastic for cities.
  • The coal industry continues to collapse, and even the other fossil fuels are saying they are a bunch of whining losers. And yes, I consider this positive. I hope there aren’t too many old ladies whose pensions depend on coal at this point.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

beating the war drum

This article from The Intercept explains how the U.S. government and media often fail to examine the motives of foreign leaders, and this is one reason we keep making mistakes that lead to war.

That power is called cognitive empathy, and it’s not what you might think. It doesn’t involve feeling people’s pain or even caring about their welfare. Emotional empathy is the kind of empathy that accomplishes those things. Cognitive empathy — sometimes called perspective taking — is a matter of seeing someone’s point of view: understanding how they’re processing information, how the world looks to them. Sounds unexceptional, I know — like the kind of thing you do every day. But there are at least two reasons cognitive empathy deserves more attention than it gets.

First, because the failure to exercise it lies behind two of the most dangerous kinds of misperceptions in international affairs: misreading a nation’s military moves as offensive when the nation itself considers them defensive, and viewing some national leaders as crazy or fanatical when in fact they’ll respond predictably to incentives if you understand their goals.

The second reason cognitive empathy deserves more attention is that, however simple it sounds, it can be hard to exercise. Somewhat like emotional empathy, cognitive empathy can shut down or open up depending on your relationship to the person in question — friend, rival, enemy, kin — and how you’re feeling about them at the moment.

It is important to understand that the leaders of these countries are often terrified of the United States. Iran, North Korea, and to some extent China are almost certainly afraid of the United States. The Soviet leadership was terrified of the U.S. in the 1980s, a fact we didn’t appreciate fully until after the fact.

Understanding this doesn’t mean the United States can’t compete and defend itself against threats. It could help us finds ways to reduce tensions that ultimately lead to a safer world for everyone.

“all criminal roads led to Trump Tower”

  • Here is the New Yorker article on the Steele dossier. Basically, it exposes the largely successful Republican attempts to discredit Steele as pure propaganda. The truth is that Steele is an ex-British civil servant with no ties to U.S. politics, who runs a private investigation agency specializing in the Russian government. Apparently, it is common for politicians to hire private investigators through law firms in a sort of double blind arrangement, where neither the politician nor the investigator knows who has been hired or who is paying the bills. That is what happened in this case. First an anti-Trump Republican hired a law firm which hired a U.S. private investigator who hired Steele, and later the DNC and Hillary Clinton campaign took over paying the bills. The Clinton campaign never knew they were paying Steele, and Steele never knew who was paying him. The information he dug up was shocking, basically that Trump and his associates have extensive ties to Russian government and organized crime figures, and they are at least in a position to be blackmailed if they are not actual Russian intelligence assets. Steele took this information to the FBI, who started and supposedly are continuing a serious counterintelligence investigation. So the information in the dossier appears to be credible, and both the FBI and Robert Mueller special counsel investigation have it and are following up. So if Trump is a Russian spy, he is going to get nailed.

The article is long, but keep plugging through it and you come to the fascinating story of multiple investigations Steele has been instrumental in, including the one that brought down FIFA. And those investigations, which are completely disparate, keep leading back to Trump Tower.

Steele might have been expected to move on once his investigation of the bidding was concluded. But he had discovered that the corruption at fifa was global, and he felt that it should be addressed. The only organization that could handle an investigation of such scope, he felt, was the F.B.I. In 2011, Steele contacted an American agent he’d met who headed the Bureau’s division for serious crimes in Eurasia. Steele introduced him to his sources, who proved essential to the ensuing investigation. In 2015, the Justice Department indicted fourteen people in connection with a hundred and fifty million dollars in bribes and kickbacks. One of them was Chuck Blazer, a top fifa official who had embezzled a fortune from the organization and became an informant for the F.B.I. Blazer had an eighteen-thousand-dollar-per-month apartment in Trump Tower, a few floors down from Trump’s residence.

Nobody had alleged that Trump knew of any fifa crimes, but Steele soon came across Trump Tower again. Several years ago, the F.B.I. hired Steele to help crack an international gambling and money-laundering ring purportedly run by a suspected Russian organized-crime figure named Alimzhan Tokhtakhounov. The syndicate was based in an apartment in Trump Tower. Eventually, federal officials indicted more than thirty co-conspirators for financial crimes. Tokhtakhounov, though, eluded arrest, becoming a fugitive. Interpol issued a “red notice” calling for his arrest. But, in the fall of 2013, he showed up at the Miss Universe contest in Moscow—and sat near the pageant’s owner, Donald Trump.

“It was as if all criminal roads led to Trump Tower,” Steele told friends.

So there you have it. It appears Trump is an international criminal mastermind, a Professor Moriarty, except that Professor Moriarty never got himself elected Queen.

2017 in Review

Most frightening stories of 2017:

  • January: The U.S. government may be “planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks”.
  • February: The Doomsday Clock was moved to 2.5 minutes to midnight. The worst it has ever been was 2 minutes to midnight in the early 1980s. In related news, the idea of a U.S.-China war is looking a bit more plausible. The U.S. military may be considering sending ground troops to Syria.
  • March: La Paz, Bolivia, is in a serious crisis caused by loss of its glacier-fed water supply. At the same time we are losing glaciers and snowpack in important food-growing regions, the global groundwater situation is also looking bleak. And for those of us trying to do our little part for water conservation, investing in a residential graywater system can take around 15 years to break even at current costs and water rates.
  • April: The U.S. health care market is screwed up seemingly beyond repair. Why can’t we have nice things? Oh right, because our politicians represent big business, not voters. Also, we have forgotten the difference between a dialog and an argument.
  • May: We hit 410 ppm at Mauna Loa.
  • June: The Onion shared this uncharacteristically unfunny observation: “MYTH: There is nothing mankind can do to prevent climate change. FACT: There is nothing mankind will do to prevent climate change”. It’s not funny because it’s probably true.
  • July: Long term food security in Asia could be a problem.
  • August: The U.S. construction industry has had negligible productivity gains in the past 40 years.
  • September: During the Vietnam War the United States dropped approximately twice as many tons of bombs in Southeast Asia as the Allied forces combined used against both Germany and Japan in World War II. After the Cold War finally ended, Mikhail Gorbachev made some good suggestions for how to achieve a lasting peace. They were ignored. We may be witnessing the decline of the American Empire as a result.
  • October: It is possible that a catastrophic loss of insects is occurring and that it may lead to ecological collapse. Also, there is new evidence that pollution is harming human health and even the global economy more than previously thought.
  • November: I thought about war and peace in November. Well, mostly war. War is frightening. The United States of America appears to be flailing about militarily all over the world guided by no foreign policy. Big wars of the past have sometimes been started by overconfident leaders thinking they could get a quick military victory, only to find themselves bogged down in something much larger and more intractable than they imagined. But enemies are good to have – the Nazis understood that a scared population will believe what you tell them.
  • December: A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.

Most hopeful stories of 2017:

Most interesting stories that weren’t particularly frightening or hopeful, or perhaps were a mixture of both:

  • January: Apple, Google, and Facebook may destroy the telecom industry.
  • February: The idea of growing human organs inside a pig, or even a viable human-pig hybrid, is getting very close. Tiny brains can also be grown on a microchip. Bringing back extinct animals is also getting very close.
  • March: Bill Gates has proposed a “robot tax”. The basic idea is that if and when automation starts to increase productivity, you could tax the increase in profits and use the money to help any workers displaced by the automation. In related somewhat boring economic news, there are a variety of theories as to why a raise in the minimum wage does not appear to cause unemployment as classical economic theory would predict.
  • April: I finished reading Rainbow’s End, a fantastic Vernor Vinge novel about augmented reality in the near future, among other things.
  • May: The sex robots are here.
  • June: “Fleur de lawn” is a mix of perennial rye, hard fescue, micro clover, yarrow, Achillea millefolium, sweet alyssum, Lobularia maritima, baby blue eyes, Nemophila menziesi, English daisy, Bellis perennis, and O’Connor’s strawberry clover, Trifolium fragiferum.
  • July: Ecologists have some new ideas for measuring resilience of ecosystems. Technologists have some wild ideas to have robots directly counteract the effects of humans on ecosystems. I like ideas – how do I get a (well-compensated) job where I can just sit around and think up ideas?
  • August: Elon Musk has thrown his energy into deep tunneling technology.
  • September: I learned that the OECD Science, Technology and Innovation Outlook named “ten key emerging technology trends”: The Internet of Things, Big data analytics, Artificial intelligence, Neurotechnologies, Nano/microsatellites, Nanomaterials, Additive manufacturing / 3D printing, Advanced energy storage technologies, Synthetic biology, Blockchain
  • October: Even if autonomous trucks are not ready for tricky urban situations, they could be autonomous on the highway with a small number of remote-control drivers guiding a large number of tricks through tricky urban maneuvers, not unlike the way ports or trainyards are run now. There is also new thinking on how to transition highways gradually through a mix of human and computer-controlled vehicles, and eventually to full computer control. New research shows that even a small number of autonomous vehicles mixed in with human drivers will be safer for everyone. While some reports predict autonomous taxis will be available in the 2020s, Google says that number is more like 2017.
  • November: It’s possible that the kind of ideal planned economy envisioned by early Soviet economists (which never came to pass) could be realized with the computing power and algorithms just beginning to be available now.
  • December: Microsoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.

I’ll keep this on the short side. Here are a few trends I see:

Risk of War. I think I said about a year ago that if we could through the next four years without a world war or nuclear detonation, we will be doing well. Well, one year down and three to go. That’s the bright side. The dark side is that it is time to acknowledge there is a regional war going on in the Middle East. It could escalate, it could go nuclear, and it could result in military confrontation between the United States and Russia. Likewise, the situation in North Korea could turn into a regional conflict, could go nuclear, and could lead to military confrontation between the United States and China.

Decline…and Fall? A question on my mind is whether the United States is a nation in decline, and I think the surprisingly obvious answer is yes. The more important question is whether it is a temporary dip, or the beginning of a decline and fall.

Risk of Financial Crisis. The risk of another serious financial crisis is even scarier that war in some ways, at least a limited, non-nuclear war. Surprisingly, the economic effects can be more severe, more widespread and longer lasting. We are seeing the continued weakening of regulations attempting to limit systemic risk-taking for short-term gain. Without a pickup in long-term productivity growth and with the demographic and ecological headwinds that we face, another crisis equal to or worse than the 2007 one could be the one that we don’t recover from.

Ecological Collapse? The story about vanishing insects was eye-opening to me. Could global ecosystems go into a freefall? Could populous regions of the world face a catastrophic food shortage? It is hard to imagine these things coming to a head in the near term, but the world needs to take these risks seriously since the consequences would be so great.

Technology. With everything else going on, technology just marches forward, of course. One technology I find particularly interesting is new approaches to research that mine and attempt to synthesize large bodies of scientific research.

Can the human species implement good ideas? Solutions exist. I would love to end on a positive note, but at the moment I find myself questioning whether our particular species of hairless ape can implement them.

But – how’s this for ending on a positive note – like I said at the beginning, the one thing about 2017 that definitely didn’t suck was that we didn’t get blown up!

December 2017 in Review

Most frightening stories:

  • The U.S. has lost ground relative to its peers on road deaths, and is now well below average. I noted that something similar has happened with respect to health care costs, life expectancy, infant mortality, education, drug addiction and infrastructure. Maybe a realistic goal would be to make America average again.
  • A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.
  • Daniel Ellsberg says we are very, very lucky to have avoided nuclear war so far. There are some tepid ideas for trimming the U.S. nuclear arsenal, and yet it is being upgraded and expanded as we speak. The North Korea situation is not getting better. Trump may be playing to religious fundamentalists who actually are looking forward to the Apocalypse.

Most hopeful stories:

  • Exercise may be even better for your brain than it is for your body, and exercising your body may be even better for your brain than exercising your brain itself.
  • Macroeconomic modeling is improving. So, just to pick a random example, it might be possible to predict the effects on a change in tax policy on the economy. Now all we need is politicians who are responsive to logic and evidence, and we could accomplish something. At least a few economists think the imperfect tax plan the U.S. Congress just passed might actually stimulate business capital investment enough to move the dial on productivity. The deliberate defunding of health care included in the bill is going to hurt people, but maybe not all that dramatically.
  • Moody’s introduced a new methodology for assessing climate risk in municipal bonds.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • There are life forms surviving in space right now, most likely of Earth origin. I wondered if maybe we should purposely contaminate other planets with them.
  • Microsoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.
  • Futuristic technologies keep coming along. Something vaguely like the “liquid metal” from Terminator 2 is being used for experimental aircraft parts. Vital signs might be monitored soon using a simple RFID device. A tiny electric shock of just the right size to just the right part of your brain might cure you of bad habits. And Magic Leap may finally release…something or other…in 2018.

the tax plan and the mandate

I assumed that the end of the “individual mandate” would seriously undermine funding for Obamacare, and in fact that is exactly what Trump is claiming. But Politifact says we all have that wrong. In fact, those penalties cover only about 3% of the cost of the Affordable Care Act. The main point of the penalty was always a psychological incentive for people to go to the exchanges and find out if they qualified for free or subsidized insurance. People wanted to avoid that penalty even if avoiding it meant they pay more for insurance than they would have paid for the penalty. Not only that, but people who qualify for Medicaid, which is free, have been more likely to find out they qualify for Medicaid because they go to the exchanges after wrongly thinking they are subject to the penalty. So it was somewhat of a psychological trick all along rather than a serious funding mechanism. This doesn’t mean that removing it will have only a 3% affect on premiums for the subsidized private plans – the effect may work in reverse, with more people never going to the exchanges and some not realizing they qualify for free Medicaid benefits. The CBO guesstimate is a 10% increase in premiums as a result of this effect. It’s still going to hurt the working class who need health insurance the most and it’s still immoral. The really immoral part is that as U.S. health care costs continue to spiral out of control in both the public and private sectors, our immoral dishonest politicians are going to point to Obamacare as the cause, and our uninformed citizens are going to believe them.

Michael Boskin and the golden rule

A few serious economists, like Michael Boskin at Stanford, are defending the Republican tax plan. Basically, the argument is that the economic growth benefits of stimulating corporate investment in “equipment” outweighs the outright bribery of wealthy campaign donors.

Summers’s own research results dramatically drive home that point. Using data from a variety of countries and time periods, some as short as five years, he and Brad DeLong of the University of California, Berkeley, (who also opposes the current tax bill) have made the strongest case I know that equipment investment can have a large impact on GDP growth. Moreover, the effect they estimate is much larger than in the conventional models used in most studies, including those relied on by government revenue scorers.

“The analysis suggests a strong and causal relationship between equipment investment and economic growth,” according to Summers and DeLong. They concluded that, “an increase of three or four percentage points in the share of GDP devoted to equipment investment is associated with an increase in GDP per worker of one percent per year.” So, to achieve the 0.3% increase in annual GDP growth that is now being debated, equipment investment would need to rise by 1% of GDP per year, sizeable to be sure, but well within the range of historical experience.

Summers and DeLong also calculate that the social returns from equipment investment are far larger than private returns. Thus, they concluded that “a strong case seems to exist for making sure economic policy does not penalize, and in fact, rewards, investors in equipment”; and that “measures that reduce the tax burden on new equipment investment are likely to be especially potent in maximizing the equipment investment engendered per dollar of government revenue forgone.” Finally, they noted that, “policies with an anti-equipment bias include tax rules that subsidize assets that can easily be levered … [and] pieces of equipment are frequently more difficult to use as collateral for debt than are investments in structures.”

This fits with the “golden rule level of capital” you learn about in economics 101, where “capital” is the “plants and equipment” mentioned above. If as a society you are investing too little in capital (and you have to invest just to hold it steady as it wears out, let alone increase it) your rate of growth is lower than it could be. Deficit spending to increase capital is a sort of free lunch in this case, because growth will offset the expenditures. It is not too hard to imagine this sort of logic extending to investments in research and development, education, and public infrastructure. (By the way, if you really care about economic growth, WHERE IS OUR TRILLION DOLLAR INFRASTRUCTURE BILL YOU LYING SONS OF BITCHES!)

Maybe reducing the corporate tax rate in the U.S. really is a good, efficient policy that will boost growth. My questions are first, how do we know the corporate tax cut will be invested in capital rather than just pocketed? Second, are the lost tax revenues hurting investments in education and infrastructure which could be equally or more beneficial? Third, how can the Republicans torpedo the health care system that was finally starting to help the working class and small business owners, and still sleep at night? It’s hypocritical and immoral. And finally, how can we just accept the rot of institutionalized corruption where politicians are elected by dollars rather than votes, when other advanced countries (a club we may not belong too much longer) don’t do that?