tag:blogger.com,1999:blog-44491163096250602782024-03-05T02:47:37.465-05:00Washington OutsideNorman Carleton's observations, mainly on financial policy issues.Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.comBlogger306125tag:blogger.com,1999:blog-4449116309625060278.post-36370378943956631232024-01-15T15:48:00.008-05:002024-01-15T17:12:32.605-05:00Book Review: “Material World: The Six Raw Materials that Shape Modern Civilization”by Ed Conway<p>Ed Conway is a British economics journalist who works for Sky News and writes a column for <i>The Times </i>(London). His book, <i>Material World</i>, focuses on six raw materials: sand, salt, iron, copper, oil, and lithium. The point the book relentlessly drives home is that, for all our attention to the virtual world, we are all dependent on real, material things. It also points out environmental tradeoffs. For example, making solar panels is an international endeavor requiring mining and a good deal of energy. Another example is electric cars, which require considerably more copper wiring than car with internal combustion engines, and the mining of copper is not without its problems. Moreover, the use of these materials, which involves mining, transportation, processing, and manufacturing of useful products, is not the province of a single country and requires considerable international trade.</p><p>While the author tries to be optimistic in his conclusion, the message of the book is the complexity of dealing with the environmental challenges. While the chants on the right of “drill, baby, drill” are nonsense as a solution to our real problems, environmental groups are also often simplistic in their approach in opposing many projects. Environmentalists might want to set up input output models or other analytical techniques to evaluate tradeoffs.</p><p>Also, while Conway praises the use of fertilizers to grow the necessary crops to feed the world’s population, he does not discuss that continuing population growth may be part of the problem. Also, deforestation in order to make more land available for farming with the miracle fertilizers has its environmental problems, as does animal agriculture. The benefits from these materials in making possible more food, in other words, create other problems. There are tradeoffs everywhere.</p><p>This book also provides some interesting history. For example, during World War I, Britain had a shortage of binoculars and Germany had a shortage of rubber. According to this book, there is evidence that Britain and Germany effectively traded binoculars and rubber in neutral Switzerland during the war. One can also learn why Bolivia is a landlocked country because of a 19th century war during which Chile obtained Bolivia’s coastal regions, which also happen to be mineral-rich.</p><p>In addition, one can learn a bit of chemistry in reading about the processing of various materials and their conversions into useful products, such as batteries. Perhaps there is more detail than some readers may want, and it is difficult to recall it all, but it is interesting.</p><p>Conway did a great deal of research to judge by his endnotes and bibliography as well as the international travels he recounts to various mining and production sites around the world. While competently written, the book is not exactly a page-turner. Amusingly, he relies, perhaps a bit much, on his inner Kurt Vonnegut in the repeated use of the phrase – “So it goes in the Material World.” Reading the book all at once, as I did, may not be the best approach. There is a lot of information to absorb. </p><p>I recommend the book as a useful contribution to understanding the environmental challenges ahead from a different perspective than is usually offered. It is not the whole story, but an important part of the story.</p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-9629450421047739072023-11-14T12:12:00.002-05:002023-11-14T12:20:28.348-05:00Book Review: “The Times: How the Newspaper of Record Survived Scandal, Scorn, and the Transformation of Journalism” by Adam Nagourney<p> I have read that many journalists were
inspired in part to join the profession after reading Gay Talese’s, <i>The
Kingdom and the Power, </i>a book published in 1969 about the <i>New York
Times, </i>and the Watergate book, <i>All the President’s Men </i>by Carl
Bernstein and Bob Woodward. No young person, though, will read Adam Nagourney’s
book, <i>The Times, </i>and come away convinced that <i>The</i> <i>New York
Times </i>has been a great place to work, whatever they may think about
journalism as a career. </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">The book dwells on the challenges and
the missteps of <i>The</i> <i>New York Times </i>from 1977 to 2016. During this
period, there was the challenge to newspapers’ business model relying on
advertising by the rise of the internet, and <i>The</i> <i>New York Times </i>committed
serious journalistic errors, such as publishing Judith Miller’s articles on
Iraq and Jayson Blair’s made-up stories, among others, which damaged the
paper’s reputation.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">The story Nagourney tells, though, has
a happy ending. While the paper was slow to embrace the internet, it finally
bowed to the inevitable and has regained its financial footing. It did not have
to do this the way <i>The</i> <i>Washington Post</i> found its financial
salvation by selling itself to a billionaire savior, Jeff Bezos. <i>The</i> <i>New
York Times </i>has in recent years become more a digital news outlet, with more
of its revenue coming from digital rather than print subscriptions. However,
missing in Nagourney’s telling is the role of Carlos Slim, a Mexican
billionaire, who is barely mentioned. Mr. Slim provided loans and investments
which enabled the <i>New York Times </i>to survive difficult financial times.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">The book’s focus is on how the two
publishers and seven executive editors during the period covered coped with the
challenges. Other employees of the paper appear when they become important to
the top people. There is much detail concerning personal rivalries, maneuvers
to get promoted, management style, and so on. It makes for an interesting and
long story.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">Nagourney, himself, a longtime
political journalist who eventually gave up his mostly national politics
focused beat when he moved to Los Angeles, nowhere appears in the book. For a
while, he was the Los Angeles bureau chief and then a cultural correspondent
and now is back to covering national politics, though still based in Los
Angeles. For some of us, it had been a bit of a mystery of what he had been up
to, but now we know. He was writing this heavily researched and detailed book.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">As a longtime reader of <i>The New York
Times</i>, I wish there had been more discussion of its editorial and op-ed
pages. For example, while William Safire’s controversial hiring in 1973 took
place before this book begins, there might have been some mention of his
success at being a mostly conservative columnist who also wrote a brilliant
column on language for the paper’s Sunday magazine supplement. (Safire had been
a speech writer for Vice President Spiro Agnew and was famous for phrases heavy
in alliteration, such as “nattering nabobs of negativism.”) <i>The New York
Times </i>has not been as successful in hiring other interesting conservatives
as columnists. The book’s discussion of columnists is mostly about their being
consulted by others.</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">In addition, missing is much discussion
of how the reporters were impacted by this tumultuous period, except in broad
generalities. Also, there is no discussion of the work life at foreign bureaus
or U.S. regional bureaus, with the exception of Washington, DC. The tensions
between the home office in New York and the Washington, DC bureau does play a
significant role in the narrative. </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">Nevertheless, this book, while both
long and limited in focus, is interesting, especially for devoted readers
of <i>The</i> <i>New York Times</i>.<span style="mso-spacerun: yes;"> </span>For
all its troubles and missteps, the <i>Times</i> is undoubtedly the most
important English language newspaper in the world, and its influence is broader
than its readership, because it plays a significant role in setting the news
agenda for other news outlets in the United States, including for television
and cable news.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">It is reassuring that the story
Nagourney tells has a mostly happy ending. That was not inevitable; the paper
could have disappeared in a bankruptcy proceeding. It is also reassuring that
the <i>Washington Post</i>, with a significant assist from Jeff Bezos, is
providing serious competition. This makes both papers better. In addition, <i>The</i>
<i>Wall Street Journal</i> does provide some competition in its news pages. I
wish that other papers, such as the <i>Los Angeles Times</i>, would provide
more competition at the national level.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">To an extent, the British newspaper, <i>The
Guardian, </i>provides web competition for U.S. papers, especially because it
provides significant coverage of U.S. news. During the buildup to the U.S.
invasion of Iraq, I thought <i>The Guardian’s </i>coverage was more reliable
than that of U.S. papers, including the <i>Times.</i> It turns out I was right.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">Nagourney ends his book on an
optimistic note concerning how <i>The</i> <i>New York Times </i>has reinvented
itself and continues to provide much needed journalism. I agree with that and
can recommend his book to those interested in journalism in general or <i>The
New York Times </i>in particular. The book is well-written and, for all its
length, never boring.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;"><br /></span></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-1830902939688656022023-08-12T17:13:00.003-04:002023-08-12T17:13:23.239-04:00Additional Comments on Cryptocurrencies<p>As I indicated in my review of Ben McKenzie’s book on
cryptocurrency, my interest and knowledge of this subject is limited. Given this,
here are some additional comments.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">One place to get an analytical, though dated, view of
cryptocurrencies is <a href="https://ocw.mit.edu/courses/15-s12-blockchain-and-money-fall-2018/video_galleries/video-lectures/">Gary
Gensler’s 2018 MIT course</a> on the subject. It is free, but you do have to
spend the time to watch it and do the readings. (I have not done this.) The
crypto enthusiasts were initially pleased by Gary Gensler being appointed to
head the SEC, but the crypto press is now harshly critical of him because of SEC
enforcement actions. <o:p></o:p></p>
<p class="MsoNormal">From what I gather, Gensler now thinks most cryptocurrencies
are securities except for bitcoin. He does seem though impressed with
blockchain technology, which could be used for other purposes than transferring
crypto. However, that is uncertain.<o:p></o:p></p>
<p class="MsoNormal">The regulatory dilemma with crypto is that setting up a
formal regulatory regime provides legitimacy for crypto. To me, trading in bitcoin
and similar “coins” looks like gambling with no benefit for society. In effect
you are betting that someone in the future will be willing to pay you more than
you paid for your cryptocurrency. In the meantime, it is up to the courts to
decide what role the SEC and the CFTC can play in this space. Congress can of
course decide to pass legislation on the subject, but that will probably take some
time.<o:p></o:p></p>
<p class="MsoNormal">Some people putting actual money into crypto may be betting
that crypto will become like dollars and euros and become embedded in our
financial system, but it is hard to see that happening. It does not inspire
trust; it does not have a central bank and a banking system to create it; and
it is not embedded in the economy and the legal system as money. Perhaps, bitcoin
can be a little like gold as a place to park money and, if there continues to
be enough people who believe in it, maintain some fluctuating value, but that
is uncertain. That could happen, though, with a few cryptocurrencies playing a
small role in financial markets.<o:p></o:p></p>
<p class="MsoNormal">Finally, some major players are getting into the crypto
game. For example, Fidelity Investments offers a trading platform for bitcoin
and ethereum. I think this is a mistake, but, to its credit, Fidelity says that
accounts in its crypto affiliate do not have the regulatory protections that
its normal brokerage accounts benefit from. Other firms, such as Blackrock,
want to offer ETFs in crypto. The SEC has not yet approved this, but it may.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com1tag:blogger.com,1999:blog-4449116309625060278.post-52130620971225607782023-08-12T16:40:00.004-04:002023-08-12T16:42:02.042-04:00Book Review: Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by Ben McKenzie with Jacob Silverman<p>I usually do not pay much attention to cryptocurrencies
except when they make a good deal of news. Call me a crypto skeptic: I have
never understood the attraction. To begin with, what purpose do they serve?</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">One of the touted purposes is to eliminate the need for
financial intermediaries and all the concomitant regulation. However, holding
cryptocurrency without the assistance of some kind of intermediary is more than
most people have the time or technical savvy to do. Moreover, the lack of
regulation for trading platforms that are unregulated has given rise to
investors and traders (probably a better term is “gamblers”) losing money due
to scams.<o:p></o:p></p>
<p class="MsoNormal">It is hard to determine what crypto really is. Is bitcoin an
asset, even if there is nothing underlying it but clever computer code and a
network of computers? Stablecoins, by contrast, sometimes do have some
underlying assets other than other cryptocurrencies and some sponsoring group
or entity, but it is difficult to determine how trustworthy the backing is. We
can say, though, that one thing crypto is not, and that is money. As taught in
introductory economic classes, money serves three functions: a store of value,
a medium of exchange, and a unit of account. Crypto does none of these things.
While El Salvador has made bitcoin legal tender in that country; this
experiment does not seem to have gone well.<o:p></o:p></p>
<p class="MsoNormal">Ben McKenzie, a TV actor in shows I have not watched,
decided during the shutdown of television production during the pandemic to
research and write a book on cryptocurrency. He had the same skepticism I do
about crypto. However, while my inclination is generally not to think about it
too much unless someone asks what I think, McKenzie was much more curious and
decided to research and write a book about it. For assistance he recruited a
journalist from his Brooklyn neighborhood, Jacob Silverman. The book, though,
is written in the first person, with the narrator being McKenzie.<o:p></o:p></p>
<p class="MsoNormal">I decided to purchase and read this book after I heard McKenzie
speak about his book on the public radio program <i>Marketplace</i>. I thought
what he had to say was interesting.<o:p></o:p></p>
<p class="MsoNormal">The most interesting and readable portions of the book are
the descriptions of the various encounters the authors had with various
denizens of the crypto world. The interviews with Sam Bankman-Friedman, with
whom they talked before and after his financial empire collapsed and indicted for
fraud. It amounts to a fascinating portrayal of a very strange man.<o:p></o:p></p>
<p class="MsoNormal">Another episode is an encounter at the 2022 South by
Southwest conference in Austin, Texas. This story seems a bit off. Two men,
claiming they are CIA agents, take McKenzie and Silverman to dinner and,
according to the book, attempt to recruit them as informants on crypto. The
description of this makes the recruitment seem extremely amateurish. It also
leaves questions. What is the CIA doing operating domestically? Doesn’t the CIA
have better ways of learning about crypto than talking to a TV actor and
journalist who are just beginning their research on the topic and are not
players in this market? What was really going on here? If these guys are not
with the CIA, who are they and what do they want? These and similar questions
are not answered, probably because the authors do not know what to think about
what happened. In any case, they got a nice dinner, and the two supposed CIA
agents do not reappear in the book.<o:p></o:p></p>
<p class="MsoNormal">The weakest parts of the book are the description of both
the 2008 financial crisis and the 2022 debacles in crypto. They seem to have
been written quickly, there are some typos, and in one place there appear to be
some missing words. This book does not provide a clear account of market
developments or exactly how people were taken advantage of. There are probably
better accounts of the skullduggery that took place elsewhere.<o:p></o:p></p>
<p class="MsoNormal">In other words, read this book for a description of the
crypto world and an argument for why one should resist any feeling of “FOMO”
(fear of missing out). If you are more interested in the technicalities of crypto
than I am, you will probably want to go elsewhere.</p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-79005138609519080652023-07-02T15:00:00.001-04:002023-07-02T15:00:26.809-04:00Book Review: The Postcard by Anne Berest, translated from the French by Tina Kover<p> About a month ago when I was in San Francisco, I found out
about a book talk by Anne Berest at Green Apple Books on the Park. The woman
who told me about this raved about the book, and given the subject matter, Jews
in Europe during the Nazi period in Germany, I decided to attend and was
impressed enough by the author that I ended up buying the book.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><i>The Postcard</i> is a novel based on the true story of
Anne Berest’s search for the sender of a postcard to her mother’s house on
which was written the name of four relatives who had been murdered at
Auschwitz. She does eventually discover the origins of the postcard, which is a
bit, but only a bit, of a surprise. In truth, the postcard in question is what
Alfred Hitchcock called a MacGuffin, a device to keep the plot moving but not
in itself terribly important. The real subject matter is a case study of the
history of Berest’s family during the Nazi era, in France and other countries
in Europe and Palestine, and what it means to be Jewish, even if one has not
been brought up in the religion. <o:p></o:p></p>
<p class="MsoNormal">Once the story gets going it is fascinating. Much of it is
based on the research Anne Berest’s mother had done until the book gets into
the subsequent search for information about the postcard. Amusingly enough, at
the book talk I attended, Berest said her mother had insisted that the “bad”
words in the quotations attributed to her be removed because that is not how
she speaks. The author said this was a “lie,” because her mother uses a lot of
bad words; nevertheless, in deference to her mother, she cleaned up the
language for the novel.<o:p></o:p></p>
<p class="MsoNormal">The book has been a bestseller in France, and it has
recently been translated into English. It will likely not do as well here,
partly because World War II and its accompanying horrors are not felt to be as
much a part of U.S. history as it is for France. One of the issues Berest
addresses in this novel is current and past antisemitism in France. In her talk
in San Francisco, Berest said that France is a complicated country, and this
novel shows that some of the French used the German occupation to go after the
Jews, while others did what they could to protect them.<o:p></o:p></p>
<p class="MsoNormal">Writing the book was a way for Berest to consider her own
Jewish background. Berest, who was not brought up religiously, recounts a Seder
she went to with her boyfriend where her knowledge of this ceremony is revealed
to be paltry compared with her knowledge of the works of leftist intellectuals.
This event and the subsequent research into her family’s history forced her to
reflect on what it means to her to be Jewish and to reject the criticism of
another person at the Seder who questioned her Jewishness.<o:p></o:p></p>
<p class="MsoNormal">In her book talk, Berest reflected on the current world situation
briefly. She remarked that “the signals” are not good. (Her English is fine but
not completely fluent.) I think she had in mind growing antisemitic incidents
and the growth of right-wing authoritarian tendencies both in the U.S. and
Europe. In her book, some take the threat posed by the Nazis more seriously
than others. Not only does she want to remember her relatives who had perished
but also to be alert to the warnings of history.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-19525184586078073922023-05-08T18:12:00.000-04:002023-05-08T18:12:03.285-04:00A Few Debt Limit Observations<p><span style="line-height: 107%;">Treasury Secretary
Janet Yellen was very careful in how she responded </span><a href="https://abcnews.go.com/Politics/14th-amendment-solve-debt-ceiling-crisis-good-option/story"><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">to questions from George Stephanopoulos </span></a><span class="MsoHyperlink"><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">on Sunday</span></span><span style="line-height: 107%;"> about any contingency plans the Administration might
have if Congress does not increase the debt limit before the Treasury runs out
of cash. She said that there were no good options and that she did “not want to
consider emergency options.”</span></p>
<p class="MsoNormal"><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">The news media,
though, has been highlighting the use of the 14<sup>th</sup> Amendment to the Constitution
to allow the Treasury to continue issuing Treasury securities. In that
Amendment which was put into the Constitution in the aftermath of the Civil
War, there is the following sentence: “The validity of the public debt of the
United States, authorized by law, including debts incurred for payment of
pensions and bounties for services in suppressing insurrection or rebellion,
shall not be questioned.” There is some ambiguity here, and the phrase
“authorized by law” might be cited by those who do not believe that the 14<sup>th</sup>
Amendment provides a way to avert an economic disaster. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">Laurence Tribe, a
noted Constitutional expert, used to believe that the 14<sup>th</sup> Amendment
was not a way for the Treasury to ignore the debt limit, but in </span><a href="https://www.nytimes.com/2023/05/07/opinion/debt-limit.html"><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">a recent article in the New York Times</span></a><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-font-kerning: 0pt;">, he explains why he has changed his mind. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: .5in; margin-top: 0in;">“The question isn’t whether the president can tear up the
debt limit statute to ensure that the Treasury Department can continue paying
bills submitted by veterans’ hospitals or military contractors or even pension
funds that purchased government bonds.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: .5in; margin-top: 0in;">“The question isn’t whether the president can in effect
become a one-person Supreme Court, striking down laws passed by Congress.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: .5in; margin-top: 0in;">“The right question is whether Congress — after passing
the <a href="https://www.nytimes.com/2022/12/22/us/politics/senate-spending-bill.html">spending
bills</a> that created these debts in the first place — can invoke an
arbitrary dollar limit to force the president and his administration to do its
bidding.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: .5in; margin-top: 0in;">“There is only one right answer to that question, and it is
no.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: .5in; margin-top: 0in;">“And there is only one person with the power to give Congress
that answer: the president of the United States. As a practical matter, what
that means is this: Mr. Biden must tell Congress in no uncertain terms — and as
soon as possible, before it’s too late to avert a financial crisis — that the
United States will pay all its bills as they come due, even if the Treasury
Department must borrow more than Congress has said it can.”<o:p></o:p></p>
<p class="MsoNormal">There has been speculation about the litigation that might
follow if the Administration were to invoke the 14<sup>th</sup> Amendment. I
wonder about that. First, I am not sure who would have standing to sue. I am
not sure if the Supreme Court would say that Speaker McCarthy by himself has
standing, and I am not sure if he got a vote on the House floor to litigate what
the courts would do. In any case, given the financial market turmoil that would
likely occur, I doubt that politicians would think that it would be in their
benefit to try to call into question debt the Treasury issued above the debt
limit.<o:p></o:p></p>
<p class="MsoNormal">Also, there are practical difficulties in considering that some
of the public debt is invalid. For example, Treasury issues 3-month and 6-month
bills every week. The 3-month bills, once issued, are indistinguishable from
the 6-month bills already issued which mature on the same date (technically,
the bills maturing on the same date have the same CUSIP number). There would be
no way to determine which of these bills when issued breached the debt limit if
Treasury issued an amount more than what it needed to pay off the maturing
bills.<o:p></o:p></p>
<p class="MsoNormal">I think the House would try to get at President Biden some
other way, perhaps even including commencing impeachment hearings. There is of
course no way that there would be enough votes in the Senate to remove him from
office even if there were enough votes to impeach him in the House.<o:p></o:p></p>
<p class="MsoNormal">There are of course other alternatives to using the 14<sup>th</sup>
Amendment which have been publicly discussed. We can all of course keep
speculating what the Administration would do if the Treasury runs out of cash;
all the options, including default, look bad. We don’t know, though, and we can
all hope that we don’t find out.<o:p></o:p></p>
<p class="MsoNormal">What makes the possibility of the debt limit not being
increased in time more worrisome than in past episodes is the weakness of the
Speaker. In order to pass a debt limit with whatever other language is
acceptable to 60 Senators and which the Administration can grudgingly accept,
Speaker McCarthy will likely need some votes from House Democrats to offset the
loss of votes from some House Republicans. Given that it only takes one member
to call for a vote “to vacate the chair,” McCarthy could well lose his position
if he chooses to put the debt limit legislation for a vote on the floor. <o:p></o:p></p>
<p class="MsoNormal">Of course, in October there could be a government shutdown
due to a failure to pass appropriation bills. We’ll get to see how that works
out after the debt limit issue is resolved one way or another.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-73784039038946667462023-02-22T09:55:00.004-05:002023-02-26T17:09:42.698-05:00Book Review: “Empire of Pain: the Secret History of the Sackler Dynasty” by Patrick Radden Keefe<p> I came to read <i>Empire of Pain </i>not because of any strong
interest in learning about the family and the pharmaceutical company which profited
greatly and met their downfall from marketing a version of oxycodone, OxyContin,
but because of my appreciation of the author. I had read another book by
Patrick Radden Keefe, <i>Say Nothing: A True Story of Murder and Memory in Northern
Ireland</i>, which I greatly liked and came to the conclusion that any book Mr.
Keefe writes is probably worth reading. Both <i>Empire of Pain </i>and <i>Say
Nothing</i> are nonfiction but read like novels. Keefe does a prodigious amount
of research and then tells a captivating story. In addition to be entertained
by the narratives, both books impart a great deal of information in a painless
way. In reading<i> Say Nothing</i>, the reader will learn a great deal about sectarian
conflict in Northern Ireland, and in reading <i>Empire of Pain</i>, the reader
may come away somewhat horrified by pharmaceutical industry marketing practices
and political influence. </p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><i>Empire of Pain</i> recounts a multi-generational history
of the Sacklers. The first part of the book devotes considerable attention to
Arthur Sackler, who personally had nothing to do with OxyContin, having died
before Purdue Pharma started selling the drug. In fact, his direct descendants did
not profit from OxyContin either, since they did not have an ownership interest
in the company when it was selling OxyContin. It was Arthur’s two younger
brothers and their children and descendants who reaped the benefit.<o:p></o:p></p>
<p class="MsoNormal">Keefe’s rationale for focusing on Arthur until his death is
that he pioneered the marketing techniques that later were used to sell OxyContin.<span style="mso-spacerun: yes;"> </span>Roche had developed two minor tranquilizers
to compete with Miltown (derisively referred to as “mother’s little helper”), Librium
and Valium. These tranquilizers, especially Valium, became widely prescribed starting
in the 1960s, but they can be abused and can lead to dependency or addiction. Of
course, they are not as dangerous as opioids.<o:p></o:p></p>
<p class="MsoNormal">Arthur Sackler became rich from his company helping Roche to
market Valium and then used some of his wealth for philanthropic purposes,
especially for art museums. The tale of his business practices, including convincing
doctors to prescribe Valium, interactions with the U.S. Food and Drug Administration,
and secretly having part ownership of his principal competitor are fascinating
to read. <o:p></o:p></p>
<p class="MsoNormal">The rest of the book is mainly about OxyContin, which when
used as directed, provides time-released oxycondone to relieve pain. It was the
main drug that Purdue sold, and the company did nothing to monitor its use,
such as certain pharmacies and doctors dispensing and prescribing enormous
amounts of the drug. Purdue continued to send their marketing teams to doctors’
offices to convince them of the safety and usefulness of the drug even though
they knew it was being abused in dangerous ways. The company blamed those who
became addicted on the addicts. </p>
<p class="MsoNormal">All of this was a major factor in the opioid addiction crisis.
For many years, the Sacklers and Purdue were able to fend off legal challenges
from prosecutors concerned about what was happening in their communities. The
problems eventually became too much for Purdue and it declared bankruptcy in
2019. None of the Sacklers were prosecuted for crimes. While they left the
company, they were able to keep most of their wealth. However, to the extent it
matters, the Sackler name was erased at many of the museums and other
institutions which had benefitted from Sackler donations.<o:p></o:p></p>
<p class="MsoNormal">Keefe’s book is partly an indictment of the Sackler family. For example, he
is quite harsh towards the granddaughter of one of the Sackler brothers, who is
a documentary film maker. Madeleine Sackler has never had anything to do with
Pharma, but of course some of her wealth is likely derived from what she inherited.
At a minimum, she should probably be more upfront about that, but does that
mean her films are forever tarnished?<o:p></o:p></p>
<p class="MsoNormal">The book does forcefully document the ways the legal system
can sometimes let the rich get away with crimes. This is indicated in the
prologue, which describes Mary Jo White, a former prosecutor who was appointed chair of
the SEC by President Obama, assisting one of the Sacklers in a 2019 deposition.<o:p></o:p></p>
<p class="MsoNormal">When I read the prologue, I thought this deposition, just as
Chekhov’s gun, would resurface at the end of the book. It does not. But Keefe
does quote a lawyer as saying, “Everyone is entitled to a lawyer, but it
doesn’t have to be you.” That will have to do.<o:p></o:p></p>
<p class="MsoNormal">Finally, the book reminds me of the mangled rendition of
what Honoré de Balzac once wrote: “Behind every great fortune lies a great
crime.” What Balzac actually wrote in <i>Le Père Goriot</i> was: “<i>Le secret
des grandes fortunes sans cause apparente est un crime oublié, parce qu'il a
été proprement fait.</i>” While this has been translated in various ways, a
literal translation is: “<span lang="EN" style="mso-ansi-language: EN;">The secret
of great fortunes without apparent cause is a forgotten crime, because it was
properly done.” In this book, Keefe is trying to make sure that the Sackler’s
crimes are not forgotten.</span><o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-91340188187441169762023-02-15T11:58:00.001-05:002023-02-26T17:14:56.074-05:00The Lexington Column on the U.S. Budget and Debt and Deficits<p>This will be a brief note on the <a href="https://www.economist.com/united-states/2023/02/02/republicans-are-right-that-federal-budgeting-is-a-joke">“Lexington”
column in <i>The Economist </i>of February 4, 2023</a>. The article mainly hammers away at the
political dysfunction of the U.S. government budget process: “Both parties have
learned that, by luxuriating in polarisation, they can ignore that governing
requires trust and compromise. Republicans can have their tax cuts, Democrats
can have their spending, and they can blame each other for the debt.”</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">This is simplistic political analysis. For example, the Trump
Administration was not adverse to spending, and deficit reduction has been more
of note during Democratic rather than Republican Administrations. Tax cuts have
been more characteristic of Republican administrations, but, after a tax cut
that went too deep at the beginning of the Reagan Administration, it endeavored
to increase revenues. And, parenthetically, I would note that the one of the
best tax bills to pass Congress in the last 40 years (or more) was the Tax
Reform Act of 1986, which required a bipartisan effort and was set in motion by
Republican Treasury Secretaries Donald Regan and James Baker. (Some of its more
notable features have since been jettisoned.) <o:p></o:p></p>
<p class="MsoNormal">In addition, there is the implied assertion that the current
level of the debt is bad or dangerous and that the coming additions to the debt
through future deficits is also bad or dangerous. Perhaps this assertion is correct, but the nearest
the article comes to making this case is to point out that the debt to GDP ratio is
high, that the debt held by the public is $24 trillion, and that the cost of
servicing this debt represents 7% of federal outlays and that this will
increase as interest rates go up. Numbers meant to be scary are not by themselves
a convincing analysis.<o:p></o:p></p>
<p class="MsoNormal">Nevertheless, I am happy to note that Lexington did not
refer to the headline figure of the debt limit ($31.8 trillion) but rather to
debt held by “the public.” In the peculiar way the English language is used by
the Treasury, the “public’ excludes government trust funds, such as Social
Security, but does include the Federal Reserve Banks, which are technically “private”
corporations. If you subtract out from the publicly held public debt the
holdings of the Federal Reserve, the resulting number is sometimes referred to
as the “privately held” public debt. It’s all very confusing.<o:p></o:p></p>
<p class="MsoNormal">For reference, here is my <a href="https://washingtonoutside.blogspot.com/2023/01/debt-limit-and-treasury-securities-held.html">recent
post about public debt numbers</a>. A good, objective explanation of the statutory
debt limit is in this Pew Research Center article, <a href="https://www.pewresearch.org/fact-tank/2023/02/14/facts-about-the-us-national-debt/">“5
facts about the U.S. national debt.”</a><o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-91535400430067869512023-01-25T16:58:00.002-05:002023-01-25T17:46:44.353-05:00The Debt Limit: A Note on the G Fund and the Exchange Stabilization Fund<p>The G Fund is one of the funds offered to federal employees
as part of the Thrift Savings Plan, the federal employee equivalent to a 401(k)
plan. This fund is invested in one-day non-marketable
Treasury securities with an interest rate determined monthly. There is a
special provision in the law creating the Thrift Savings Plan that makes the G Fund
whole if the Secretary of the Treasury decides to disinvest it entirely or
partially due to a debt limit problem once the debt limit issue is resolved. The
nonmarketable Treasury securities in the G Fund count against the debt limit,
thus, disinvesting the G Fund makes room under the debt limit for the Treasury
to issue marketable Treasury securities in order to raise needed cash.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The G Fund is included in intragovernmental accounts. As of
the end of December 2022, its assets were <a href="https://www.tsp.gov/funds-individual/g-fund/?tab=summary">$210.9 billion</a>.<o:p></o:p></p>
<p class="MsoNormal">The Exchange Stabilization Fund (ESF) is a fund managed by
the Secretary of the Treasury. It is primarily used for foreign exchange
operations. <a href="https://home.treasury.gov/policy-issues/international/exchange-stabilization-fund/finances-and-operations">Here
is the Treasury’s brief description of the ESF.</a><o:p></o:p></p>
<p class="MsoNormal"><a href="https://home.treasury.gov/system/files/206/ESF-November-FS-Trunc-Notes_1.pdf">As
of November 30, 2022,</a> the ESF had $210.3 billion in assets, of which $17.6
billion were in non-marketable Treasury securities. When the ESF is disinvested
because of a debt limit problem, the Treasury does not have the authority to
make it whole once the debt limit impasse is resolved.<o:p></o:p></p>
<p class="MsoNormal">The Bipartisan Policy Center (BPC) has a description <a href="https://bipartisanpolicy.org/report/extraordinary-measures-simplified-explainer/">here</a>
of what it calls “the big three” extraordinary measures. These are the G Fund,
the ESF, and federal employee retirement funds.<o:p></o:p></p>
<p class="MsoNormal">Interestingly, Jerome Powell, before he was nominated by
President Obama and confirmed to be a governor of the Federal Reserve, worked
at BPC. He took a particular interest in debt limit issues, which he knew first
hand as an Under Secretary of Treasury for Domestic Finance in the George H. W.
Bush Administration. (He was for a time my boss at Treasury.) Probably his
efforts at lobbying Republicans in Congress on the debt limit while at BPC
during the Obama Administration was a factor in his nomination to the Fed
Board.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-55690755966659877042023-01-24T13:25:00.000-05:002023-01-24T13:25:18.414-05:00Debt Limit and Treasury Securities Held by the “Public”<p>The debt limit reporting in the media is fairly good on the
political aspects of the issue, but less good on other relevant aspects.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">One issue has to do with the size of the debt. The <a href="https://fsapps.fiscal.treasury.gov/dts/files/23012000.pdf">debt limit is
$31.4 trillion and the debt subject to that limit</a> is bumping up against
that number. However, reporting I have seen fails to mention that of that $31.4
trillion, about $6.9 trillion is held by intragovernmental accounts, including the
Social Security trust funds. The Treasury consequently reports that about $24.
6 trillion is held by “the public.”<o:p></o:p></p>
<p class="MsoNormal">However, included in “the public” is the Federal Reserve
System. <a href="https://www.federalreserve.gov/releases/h41/current/h41.pdf">Federal
Reserve outright holdings of Treasury securities</a> currently stand at about $5.5
trillion. (The system also reports owning $2.6 trillion of mortgage-backed securities,
which they state are “fully collateralized” by Treasury securities.)<o:p></o:p></p>
<p class="MsoNormal">Subtracting the $5.5 trillion from $24.6 trillion leaves
about $19.1 trillion of “privately-held” debt of the type subject to the limit.
This includes foreign holdings, including foreign governments and central
banks.<o:p></o:p></p>
<p class="MsoNormal">While the Federal Reserve Banks are technically private
corporations owned by the member banks, for most analytical purposes they
should be considered part of the government. The Fed remits “excess earnings”
to the Treasury. Its major expenses are for its operations, interest paid on
bank reserves, and interest paid in connection with its open market operations.
A major source of income is interest received on Treasury and other securities.
(For more on this, see <a href="https://www.federalreserve.gov/newsevents/pressreleases/other20230113a.htm">this
Fed press release</a>.)<o:p></o:p></p>
<p class="MsoNormal">While $19.1 trillion is still a large number, the current
reporting misses that close to 40 percent of<span style="mso-spacerun: yes;">
</span>the debt subject to limit is debt that the government essentially owes
itself or to the Federal Reserve.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-16939928615365909922023-01-11T14:23:00.001-05:002023-01-11T14:24:21.950-05:00A Comment on "A Monetary and Fiscal History of the United States, 1961–2021" by Alan S. Blinder<p>Prominent economist and former vice chair of the Federal Reserve Board has written an interesting and accessible book on macroeconomic policy from 1961 to 2021. The title is deliberately similar to the tome written by Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867–1960. Blinder clearly wants to emphasize that fiscal policy matters.</p><p>Blinder’s perspective of this history is mostly persuasive, and he effectively argues against Milton Friedman’s simplistic and often quoted statement: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” One of the weaknesses of monetarism as a policy guide is its assumption that velocity is more or less constant in the famous identity, MV=PQ. Monetarism holds much less sway among economists than it did in the 70s and 80s.</p><p>While I recommend the book for those interested in the subject from historical, political, or economic perspective, I will focus here on Blinder’s comments about economic policy in the first few years of the Reagan Presidency. I did not find Blinder’s analysis here convincing.</p><p>When Reagan entered office, the Federal Reserve under Paul Volcker was pursuing a very tight monetary policy and the economy was suffering from a recession. In the summer of 1981, the Congress passed and Reagan signed The Economic Recovery Tax Act of 1981, which provided large tax cuts. Also, there was a large increase in defense spending, and the federal budget deficit increased dramatically.</p><p>In other words, monetary policy was contractionary and fiscal policy was expansionary. As we know, this policy mix eventually worked. Inflation came down and the economy recovered. However, in discussing this episode, Blinder attacks economist Robert Mundell.</p><p>Blinder states that “according to the mainstream view, contractionary monetary policy (à la Volcker) raises real interest rates, though perhaps only transitorily, and slows the growth of aggregate demand...[E]xpansionary fiscal policy (à la Reagan) raises real interest rates and speeds up the growth of aggregate demand. Put them both together at the same time, as Reagan and Volcker did, and you should expect real interest rates to rise sharply while the net effect on real output depends on how the tug-of-war just sketched works out.” (p. 143). </p><p>He contrasts this conventional view with what Mundell wrote in a 1971 paper: “Monetary acceleration is not the appropriate starting point from which to initiate the expansion [in 1971], because the risk of igniting inflationary expectations. Tax reduction is the appropriate method. It increases the demand for consumer goods, which reverberates on supply...Because of the idle capacity and unemployment, in many industries increased supply can generated without causing economy-wide increases in costs. Tax reduction is not, therefore, inflationary from the standpoint of the economy as a whole.” (p.144). </p><p>There does not seem to be a huge difference between the two views, but Blinder asserts without much discussion that there is. He views the “Reagan-Volcker policy mix” as “a bold experiment” and asks: “Which side of the policy mix debate came out looking better?” He answer that it is “the conventional side, by a country mile.” To prove that, he discusses an increase in real interest rates (defined as the Treasury ten-year rate minus CPI inflation over the past 12 months) and an increase in the dollar exchange rate. However, he has not provided any information about what Mundell may have said about the effect on real interest rates or exchange rates. </p><p>While one can criticize both the size and the details of Reagan’s enormous tax cuts, the size and details of the increase in defense spending, and the effect on the lives of many people suffering from unemployment at least partly due to monetary policy, it is nonetheless true that the economy recovered and inflation came down. Blinder does not like the argument that Mundell essentially made: the government had two policy goals (ending the recession and reducing inflation) which should be addressed with two different policy instruments (fiscal and monetary policy). Blinder may have good reasons to disagree with using fiscal and monetary policy differently when faced with stagflation, but he does not effectively argue why. </p><p>It is not clear whether Reagan or his economic advisers had developed their economic policy with any formal analysis of the combined effect of a contractionary monetary policy and an expansionary fiscal policy. They may have stumbled into it for polical or ideological reasons. Blinder is surely right that Republicans have since then seemed to think that tax cuts are always the answer to whatever the current economic problem is and are effectively more relaxed about budget deficits after the Reagan experience (no matter their rhetoric arguing for balanced budgets). </p><p>It is disapointing though that Blinder does not have a better analysis of the policy mix in the early Reagan years and whether he thinks that there could have been better policies at the time. A better thought out and explained argument against what Mundell was advocating would have been interesting. </p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-34516392242218723952022-11-07T09:49:00.004-05:002022-11-07T10:00:40.915-05:00A Note on Liz Truss, Pension Funds, Financial Markets, and Systemic Risk<p>The common wisdom is that the financial markets punished Liz
Truss and her Chancellor of the Exchequer, Kwasi Kwarteng, for their plan to
cut taxes and increase deficit financing. However, Narayana Kocherlakota, a
former president of the Federal Reserve Bank of Minneapolis, in a <i>Bloomberg
Opinion </i>article (also appearing <a href="https://www.washingtonpost.com/business/markets-didnt-oust-truss-the-bank-of-england-did/2022/10/26/dd92c4d2-54eb-11ed-ac8b-08bbfab1c5a5_story.html">here</a>
in the <i>Washington Post</i>), and others argue that the Bank of England is
responsible for the end of the Liz Truss government. Kocherlakota writes: </p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .5in; margin-right: .5in; margin-top: 0in; margin: 0in 0.5in 8pt;">The common wisdom is that financial markets “punished”
Truss’s government for its fiscal profligacy. But the chastisement was far from
universal. Over the three days starting Sept. 23, when the Truss government
announced its mini-budget, the pound fell by 2.2% relative to the euro, and the
FTSE 100 stock index declined by 2.2% — notable movements, but hardly enough to
bring a government to its knees.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .5in; margin-right: .5in; margin-top: 0in; margin: 0in 0.5in 8pt;">The big change came in the price of 30-year UK government
bonds, also known as gilts, which experienced a shocking 23% drop. Most of this
decline had nothing to do with rational investors revising their beliefs about
the UK’s long-run prospects. Rather, it stemmed from financial regulators’
failure to limit leverage in UK pension funds. These funds had bought long-term
gilts with borrowed money and entered derivative contracts to the same effect —
positions that generated huge collateral demands when prices fell and yields
rose. To raise the necessary cash, they had to sell more gilts, creating a doom
loop in which declining prices and forced selling compounded one another.<o:p></o:p></p>
<p class="MsoNormal">Given this observation, Kocherlakota draws two conclusions
about the Bank of England. The first conclusion is that it failed in its
regulatory mission and did not do anything about too many pension funds
following similar investment strategies that go under the rubric “LDI” (“liability-driven
investing”). This failure forced the Bank of England to buy gilts even though
it was following a monetary policy of tightening credit conditions. Mr.
Kocherlakota makes a good point here.<o:p></o:p></p>
<p class="MsoNormal">The second conclusion Kocherlakota makes is more
speculative: “[The Bank of England] refused to extend its support beyond Oct.
14 — even though its purchases of long-term government bonds were fully
indemnified by the Treasury. It’s hard to see how that decision aligned with
the central bank’s financial-stability mandate, and easy to see how it
contributed to the government’s demise.” <a href="https://www.ft.com/content/cfd6a8e7-ae8d-4f45-b180-30b89f6bf308">The head
of the Bank of England, Andrew Bailey, denies that he was trying to force Liz
Truss out.</a><o:p></o:p></p>
<p class="MsoNormal">The Liz Truss government is history, but going forward this
aspect of her downfall demonstrates potential problems in financial markets as
interest rates increase. The advice that pension funds and other institutional
investors receive may not have a full discussion of the risks, and regulators
may have difficulty identifying these issues before they become major problems.<o:p></o:p></p>
<p class="MsoNormal">In the early 1980s when I was working on financial market
issues at the U.S. Treasury, pension funds investing to manage their liabilities
for defined benefit plans were generally advised “to immunize” their balance sheet.
One way of doing this was to strive to have the same “duration” for their
assets as for their liabilities. (Duration is not maturity; rather, in its
simplest form, it is an average of the time to each cash flow, including interest
payments, weighted by the present value of each payment.) When the durations
match, a given change in interest rates will produce offsetting changes equal
in magnitude to a pension fund’s assets and liabilities. For example, an increase
interest rates will decrease the current value of assets but will also decrease
the current value of liabilities by approximately the same amount if the portfolio
is immunized. <o:p></o:p></p>
<p class="MsoNormal">Apparently, some investment advisers to pension funds have
now proposed that defined benefit plans use derivatives so that only part of
their assets are used to immunize their liabilities This frees up room for them
to invest in assets they believe will achieve higher returns. The problem is
that when interest rates increase, they may be subject to margin calls on the
derivatives that are in effect long positions in some underlying asset. If the
interest rate increase is significant, then the pension funds will need to sell
assets to meet the margin calls. If a number of funds need to do this at the
same time, this can cause problems, depending on their collective relative
size. (For those interested, here is <a href="https://www.insightinvestment.com/globalassets/documents/recent-thinking/eur-an-introduction-to-ldi.pdf">some
marketing material for LDI for pension funds</a>.) <o:p></o:p></p>
<p class="MsoNormal">As for the implications in the U.S., an article in <a name="_Hlk118705432"><i>Pensions & Investments</i></a><i>, </i><a href="https://www.pionline.com/pension-funds/uks-ldi-related-turmoil-could-spread-experts-say">“U.K.'s
LDI-related turmoil puts spotlight on use of derivatives,”</a> indicates that
people in the pension industry are thinking about it. I assume that the
Financial Stability Oversight Council, chaired by the U.S. Treasury, and its member
agencies are also looking at this issue, and, one assumes, that the Labor
Department, which has responsibility for pension fund under ERISA, is also
looking at it. <o:p></o:p></p>
<p class="MsoNormal">Of course, the move by corporations to offer their employees
defined contribution plans rather than defined benefit plans means that the
share of retirement money that need some sort of immunization strategy has
declined. The <i>Pensions & Investments </i>article suggests that the risks
of something similar happening in the U.S. to what happened in the UK are not that
great, but of course the regulators have access to more complete information,
should they choose to ask for it, than do reporters.<o:p></o:p></p>
<p class="MsoNormal">While it may be true that LDI, as implemented in the U.S.,
does not pose a systemic risk in the U.S., though it may be a significant risk
to some particular defined benefit plans, there may be other systemic risk
issues in the U.S. and internationally as the Federal Reserve increases
interest rates. One aspect of the 2008 financial crisis highlights the problem.
I remember that even shortly before the crisis hits in full force, many investment
professionals were arguing and providing detailed charts in support of their
contention that the subprime mortgage market was relatively small and that
problems there would not be a big deal. Many probably even believed that.<o:p></o:p></p>
<p class="MsoNormal">I hope the U.S. regulators learned from that experience and
can put aside their turf issues and their “clientitis” inclinations and examine
what dangers may be lurking. The Federal Reserve, to its credit, has made no
secret of what it intends to do in the coming months.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-57999503699576580292022-07-27T14:04:00.005-04:002022-07-27T14:04:45.630-04:00Inflation is a Global Problem<p><a href="https://www.nytimes.com/2022/07/26/briefing/inflation-prices-ukraine-economy.html">This
<i>New York Times</i> newsletter</a> focusing on global inflation is worth
reading. One can debate whether supply chains, excessive government spending,
or monetary policy is the chief culprit for the current inflation, though they
all play a role. Here is, in part, what the newsletter written by German Lopez
says:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">“The big factors that drove up inflation in the U.S. also
affected the rest of the world: the disruption of supply chains by both the
pandemic and Russia’s invasion of Ukraine, and soaring consumer demand for
goods.<o:p></o:p></p>
<p class="MsoNormal">“But increasing inflation has played out differently in
different countries, said Jason Furman, an economist at Harvard University. The
U.S.’s earlier, bigger price spike had different causes than Europe’s more
recent increase. (Countries differ in how they calculate price changes, but
economists still find comparisons of the available data useful.)<o:p></o:p></p>
<p class="MsoNormal">“In the U.S., demand has played a bigger role in inflation
than it has elsewhere. That is likely a result of not just the American Rescue
Plan but also economic relief measures enacted by Donald Trump. Altogether, the
U.S. <a href="https://www.vox.com/22348364/united-states-stimulus-covid-coronavirus" target="_blank">spent more</a> to prevent economic catastrophe during the
pandemic than most of the world did. That led to a stronger recovery, but also
to greater inflation.<o:p></o:p></p>
<p class="MsoNormal">“In Europe, supply has played a bigger role. The
five-month-old war in Ukraine was a more direct shock to Europe than it was to
the rest of the world, because it pushed the continent to try to end its
reliance on Russian oil and gas. That prompted Europe’s recent jump in
inflation.”<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-75450265822764905702022-07-27T13:51:00.001-04:002022-07-27T13:51:33.205-04:00Trump Plans to Fire Civil Servants Involved in Policy If Reelected<p>This article in <i>Government Executive </i>caught my
attention: <a href="https://www.govexec.com/workforce/2022/07/trump-reelected-aides-plan-purge-civil-service/374842/">“If
Trump Is Reelected, His Aides Are Planning to Purge the Civil Service: Officials
are looking to revive a controversial order issued in Trump's waning days and
have already identified 50,000 federal positions to target.”</a></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Trump wants to revive “Schedule F” and transfer civil
servants into this new schedule which does not have the traditional civil
servant protections. This was originally <a href="https://www.axios.com/2022/07/22/trump-2025-radical-plan-second-term">reported
by Axios</a>.<o:p></o:p></p>
<p class="MsoNormal">From the <i>Government Executive </i>article:<o:p></o:p></p>
<p class="MsoNormal">“The plan, as <a href="https://www.axios.com/2022/07/22/trump-2025-radical-plan-second-term" target="_blank">detailed to <i>Axios</i></a><i> </i>and confirmed
by <i>Government Executive</i>, would bring back Schedule F, a workforce
initiative Trump pushed in the 11th hour of his term to politicize the federal
bureaucracy. The former officials and current confidantes are, through a
network of Trump-loyal think tanks and public policy organizations, creating
lists of names to supplant existing civil servants. They have identified 50,000
current employees that could be dismissed under the new authority they seek to
create, <i>Axios </i>reported and <i>Government Executive </i>confirmed,
though they hope to only actually fire a fraction of that total and hope the
resulting ‘chilling effect’ will cause the rest to fall in line.” <o:p></o:p></p>
<p class="MsoNormal">From the Axios article:<o:p></o:p></p>
<p class="MsoNormal">“<b>They </b>[Trump allies]<b> say Schedule F will finally
end the “farce”</b> of a nonpartisan civil service that they say has been
filled with activist liberals who have been undermining GOP presidents for
decades.<o:p></o:p></p>
<p class="MsoNormal">“Unions and Democrats would be expected to immediately fight
a Schedule F order. But Trump’s advisers like their chances in a judicial
system now dominated at its highest levels by conservatives.<o:p></o:p></p>
<p class="MsoNormal">“Rep. Gerry Connolly (D-Va.), who chairs the subcommittee
that oversees the federal civil service, is among a small group of lawmakers
who never stopped worrying about Schedule F, even after Biden rescinded the order.
Connolly has been so alarmed that he attached an <a href="https://federalnewsnetwork.com/congress/2022/07/connolly-ndaa-amendment-would-put-a-schedule-f-revival-to-rest/" target="_blank">amendment</a> to this year’s defense bill to prevent a
future president from resurrecting Schedule F. The House passed Connolly’s
amendment but Republicans hope to block it in the Senate.”<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-46632260507958379742022-07-27T13:34:00.002-04:002022-07-27T13:34:54.459-04:00Father Coughlin ‒ Right Wing Predecessor of Tucker Carlson<p>Father Charles E. Coughlin was a right-wing radio
personality in the 1920s and 30s. It is estimated that his radio audience reached
30 million at its peak. That is enormous.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Two articles on Father Coughlin: <a href="https://www.smithsonianmag.com/history/time-private-us-media-companies-stepped-silence-falsehoods-and-incitements-major-public-figure-1938-180976771/">“When
Radio Stations Stopped a Public Figure From Spreading Dangerous Lies”</a> and <a href="https://news.yahoo.com/canadian-born-irishman-paved-path-170523479.html">“How
a Canadian-born Irishman paved the path of hatred that leads to Tucker Carlson.”</a><o:p></o:p></p>
<p class="MsoNormal">From the <i>Smithsonian Magazine </i>article:<o:p></o:p></p>
<p class="MsoNormal">“In speeches filled with hatred and falsehoods, a public
figure attacks his enemies and calls for marches on Washington. Then, after one
particularly virulent address, private media companies close down his channels
of communication, prompting consternation from his supporters and calls for a
code of conduct to filter out violent rhetoric.<o:p></o:p></p>
<p class="MsoNormal">“Sound familiar? Well, this was 1938, and the individual in
question was <a href="https://encyclopedia.ushmm.org/content/en/article/charles-e-coughlin" target="_blank">Father Charles E. Coughlin</a>, a Nazi-sympathizing Catholic
priest with unfettered access to America’s vast radio audiences. The firms
silencing him were the broadcasters of the day.<o:p></o:p></p>
<p class="MsoNormal">“As <a href="https://www.radford.edu/content/chbs/home/comm/faculty/bios.html#par_text_11" target="_blank">a media historian</a>, I find more than a little similarity
between the stand those stations took back then and the way Twitter, YouTube
and Facebook <a href="https://www.npr.org/sections/insurrection-at-the-capitol/2021/01/12/956003580/facebook-removes-stop-the-steal-content-twitter-suspends-qanon-accounts" target="_blank">have silenced false claims</a> of election fraud and
incitements to violence in the aftermath of the siege on the U.S. Capitol –
noticeably by <a href="https://www.nytimes.com/2021/01/12/style/trump-twitter-ban.html" target="_blank">silencing the claims of Donald Trump</a> and his
supporters.”<o:p></o:p></p>
<p class="MsoNormal">From the Yahoo article:<o:p></o:p></p>
<p class="MsoNormal">“It was a descendant of the Irish who became one of mass
media's most famous racists and a fellow traveler of the Nazis. <a href="https://encyclopedia.ushmm.org/content/en/article/charles-e-coughlin" target="_blank">Father Charles E. Coughlin</a> was a Catholic priest and
the founder of the Shrine of the Little Flower in Detroit. Born in Canada,
Coughlin preached a particularly poisonous brand of hatred and antisemitism in
the 1930s. Through his radio show, he reached 30 million Americans a week, or
one-quarter of the U.S. population at the time. For comparison, <a href="https://theweek.com/media/1013135/tucker-carlson-knows-how-terrible-we-are-minute-by-minute" target="_blank">today's best-known racial dog whistler</a>, Tucker Carlson,
reaches about 3 million out of 340 million.”<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-593295751875142902022-07-27T13:12:00.000-04:002022-07-27T13:12:01.127-04:00Manchin's Inflation Concerns Make No Sense<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">John Cassidy of the New Yorker writes that Senator Manchin's
opposition to climate change provisions of the Democrat's proposal "made
no sense," since they would have reduced the budget deficit. It sure looks
like Manchin is just using excuses to block this. From <a href="https://www.newyorker.com/news/our-columnists/joe-manchin-plays-the-role-of-wrecker-again"><span style="color: blue;">the article</span></a>:</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">“…Manchin’s reference to inflation made no sense. In
devoting only half of the money that would have been raised from tax increases
for new spending, and keeping the rest for deficit reduction, the proposal that
Democrats were working on would have had a deflationary impact in budget terms.
The obvious answer is that Manchin, yet again, is protecting the fossil-fuel
industry, which has donated heavily to his campaigns and still plays a big role
in West Virginia’s economy. But there are unanswered questions here, as well.</span> </p>
<p class="MsoNormal"><span style="line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">“Thanks to Manchin’s earlier lobbying,
the parts of Build Back Better that would have affected the coal industry most
directly had already been eliminated. If he’d followed through on his support
for a narrower green-energy package, Manchin could probably have used his
leverage to extract concessions on expanding oil and gas drilling, something he
has been calling for recently. ‘He could have asked for anything!’ Jesse
Jenkins, a Princeton energy expert who has modelled the climate impact of the
Build Back Better proposals, commented on Twitter. ‘Instead he has nothing now,
and he’ll be a nobody after November. His constituents have nothing. We all
have nothing. So utterly SENSELESS!’ Yes. Senseless for Biden, the Democrats,
the environment, and even for Manchin, who, yet again, has forfeited the
opportunity to make a more positive contribution. What a woeful legacy he will
leave behind him.”</span><o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-41059714585591121972022-07-19T15:21:00.000-04:002022-07-19T15:21:37.434-04:00Movie Review: “Never Stop Dreaming: The Life and Legacy of Shimon Peres”<p> Netflix put the film “Never Stop Dreaming: The Life and Legacy of Shimon Peres” on its streaming service on July 13, 2022. The movie is a documentary about the Israeli politician and prime minister, who died in 2014.</p><p>I had a mixed reaction to the film. It is a good but selective review of the history of Israel through the experiences and activities of Peres. The film makes no attempt to take a balanced view of its subject; no matter the historical episode, Peres is always right. Alternative perspectives are not offered, and, Israel being Israel, you know they exist. </p><p>One episode near the beginning of the film focuses on Peres’ efforts to get French help in getting arms in the 1950s and on the subsequent Suez Crisis. The narrator (an off-screen George Clooney) explains that Peres reasoned that Egyptian President Gamal Abdel Nasser, who was anti-Israel, was also supporting the Algerians fighting for their independence from France, and that this would incline the French to be helpful. Peres was not wrong, but the film makes no mention of the atrocities the French were committing in Algeria nor does it mention the political havoc the war caused in metropolitan France (if you think Vietnam was bad domestically, you should read about France during this period). The war ultimately led to Charles de Gaulle returning to power after years in the political wilderness as the last premier of the Fourth Republic in order to liquidate it and replace it with the Fifth. </p><p>As for the 1956 Suez Crisis, this started as a conspiracy between Israel, France, and Britain. The British and the French wanted to reverse Egypt’s nationalization of the Suez Canal and Israel was motivated to undo the Egyptian blockage of the Straits of Tiran, the passageway from the Red Sea to the Gulf of Aqaba. (Israel and Jordan have the neighboring port cities of Eilat and Aqaba at the top of the Gulf of Aqaba, which Israel calls the Gulf of Eilat). Israel was also motivated by the Egyptian-supported commando raids into Israel. </p><p>The plan was that Israel would send troops into the Sinai and that the French and the British would then send troops under the pretext of keeping the peace and would, in the operation, seize the Suez Canal. The major error of the plan was that none of the parties had bothered to inform or find out what U.S. President Eisenhower thought of this. It turned out that he was opposed, and the U.S. successfully pressured the parties to pull back. As it turns out, this was a disaster for Britain and France. The documentary, though, only mentions the Israeli success in getting the Straits of Tiran reopened and deterring terrorist acts until 1967. It does not mention the British and French humiliation or how this episode affected Israeli relations with the Eisenhower Administration. </p><p>The lack of context given on these events near the beginning of the film makes one suspicious of what the documentary presents later. For those episodes I know something about, the facts are accurate, but sometime important aspects are omitted. However, one learns a lot about Peres from this documentary. Particularly interesting is the failure of the 1987 London Agreement between Peres, then foreign minister, and King Hussein of Jordan. This was an enlightened agreement to the Palestinian issue, and the documentary argues convincingly that if it had been put in place, the subsequent history in the Middle East would have been substantially different. It was undercut by Yitzhak Shamir, then the prime minister. Given the importance of this initiative, it would have been useful for the documentary to have included the reasons for Shamir’s opposition. </p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-87417701425309472022022-07-16T17:31:00.007-04:002022-07-22T11:57:22.367-04:00Inflation, Budget Deficits, Monetary Policy, Climate Change, and Senator Manchin<p>The big news regarding the Administration’s budget proposal has been Senator Manchin’s rejection of much of the Democrat’s compromise budget proposal, including measures to address climate change. Senator Manchin claims he has been right about inflation and has indicated he will not negotiate any more about increased government spending until inflation comes down.</p><p>Journalists reporting on this have generally written that Manchin has been correct about inflation. However, the story is more complicated. In fact, reading what prominent economists say indicates considerable confusion. It could be that Manchin is using inflation as an excuse to oppose climate change measures which affect fossil fuels.</p><p>One of the arguments currently being used is that government spending generates inflation by putting more money into the economy. But let’s look at what happens. When the Treasury needs to spend more money than it has on hand, it borrows the funds it needs by selling Treasury securities. In other words, if the federal government is spending more than it is receiving, it takes money out of the economy by borrowing and puts it back in by spending. In the first instance, this is more or less a wash. </p><p>That, though, is not the end of the story. There are models addressing how deficit spending affects the economy, with the impact dependent on what else is happening in the economy. Usually the assumption is that deficit spending increases aggregate demand, because it involves direct spending or results in transferring money to those with a high propensity to consume. If the economy is running at near capacity, the increased demand is postulated to increase inflationary pressures. However, some who were more relaxed about the spending measures during the pandemic thught the inflation risks were minimal because some of the recipients would save some of the money rather than spend it. </p><p>Left out of much of the discussion of Manchin's and other's inflation warnings is monetary policy. The Federal Reserve, if it decides it is appropriate, can effectively monetize the federal budget deficit by buying Treasury securities. The Fed is prohibited by buying directly from the Treasury, but if it buys roughly the same amount of securities in the market that the Treasury has issued, it has effectively monetized the budget deficit. In other words, it has replaced deficit financing with securities by creating bank reserves. (When the Fed buys securities in the open market, it credits the accounts banks have at the Federal Reserve Banks with the purchase amount. The amounts it credits the private banks are liabilities on its balance sheet and the purchased securities are assets.) The Fed was effectively monetizing much, if not all, of the budget deficit during the pandemic, and this likely has contributed to inflation. (This story can be expanded with more detail, but the details do not matter for the main point of this blog post. Suffice it to say that the effect of monetary policy has been difficult to analyze with short-term interest rates near zero and bank holdings of large excess reserves. These both are unprecdented in our modern history.)</p><p>There is a growing consensus that the Fed kept interest rates too low for too long. There may be a price to be paid for that. The Fed has now reversed course, and there is the likelihood that it will not achieve a “soft landing.” If a recession does happen, an increase in government spending would be helpful in pulling us out of it. Mancin appears to ignore this point.</p><p>In addition, the current inflation is a global problem. It is hard to make the argument that this is due to excessive U.S. government spending. There are some global factors at work -- among them, war in Ukraine, reduced global grain supplies, oil price increases, reduced production in China due to severe Covid lockdowns, and supply chain issues. What portion of U.S. inflation is due to U.S. government spending and overly loose monetary policy and what portion is due to global issues and supply shortages, rather than excessive demand, is unclear. Except for some economists who project certainty in their pronouncements, there is general uncertainty in the profession about exactly what is going on and what is likely to happen. </p><p>While Senator Manchin may believe what he is saying about inflation, focusing the blame for inflation solely on government spending is misguided. Monetary policy needs to be factored in. No one can predict with certainty how long the current inflation will last, but it should not be used as an excuse to avoid enacting urgently, needed measures to address the growing problem of climate change. </p><p><i>(This post was revised on July 22 in an attempt to make it clearer.)</i></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-38354599331953782602022-05-13T12:54:00.003-04:002022-05-13T12:54:48.560-04:00Paul Krugman and Inflation<p></p><p class="MsoNormal">Paul Krugman, who had been on “team transitory” about the
current inflation, has become more pessimistic about the outlook. In an April
12, 2022 opinion piece for <i>The New York Times </i>(“<a href="https://www.nytimes.com/2022/04/12/opinion/inflation-consumer-prices.html">Inflation
Is About to Come Down — but Don’t Get Too Excited</a>”), Krugman argues that inflation
may be coming down in the next few months because supply chain problems will be
less of a factor and oil prices may have overshot and will come down. <o:p></o:p></p>
<p class="MsoNormal">However, Krugman argues that there is still an inflation
problem because wage increases are unsustainable. To show this, he reproduces a
graph from the Federal Reserve Bank of Atlanta showing that in April 2022 wages
had shot up by 6% over a year. This, he states, is an “unsustainable pace” and “won’t
recede until the demand for workers falls back into line with the available
supply, which probably — I hate to say this — means that we need to see
unemployment tick up at least a bit.”<o:p></o:p></p>
<p class="MsoNormal">Krugman, though, fails to note that wages have not kept pace
with inflation. The CPI in April rose <a href="https://www.bls.gov/news.release/cpi.nr0.htm">8.3% over the year</a>. In
other words, the current tight labor market shows the limit of workers’
bargaining power; their real wages have gone down. One could tell a story that
the tight labor market has resulted in increased nominal wages, which led for
consumer prices to increase even faster than wages. Krugman does not make that
argument, and, while it might be correct, it would be hard to prove.<o:p></o:p></p>
<p class="MsoNormal">There are different reasons being given for the current
inflation. Some blame a too expansive fiscal policy. Another reason, sometimes
linked to fiscal largess, is that demand had been suppressed because of the
pandemic, and now with the general impression that Covid is diminishing in
seriousness, people are spending more. <span style="mso-spacerun: yes;"> </span>Others
put the blame on the Federal Reserve, which, the argument goes, kept interest
rates too low for too long. And, as mentioned, supply chains and labor market
tightness are also blamed. Of course, all these factors may be contributing to
the current inflation; their relative importance is unclear as is the how long
we will have to endure too high inflation.<o:p></o:p></p>
<p class="MsoNormal">The Federal Reserve is on course to raise interest rates
substantially. The Fed can of course stop the inflation; the question is at
what price. Paul Volcker’s judgement in the early 80s was to do whatever it
takes given the high inflation of the time. The price was high; but his
judgement was that leaving inflation unchecked was worse for the economy and, I
am not sure he explicitly said this, the future of our liberal democracy. Most
economists and others agree he made the right call, painful as it was.<o:p></o:p></p>
<p class="MsoNormal">As the Fed raises interest rates, economic activity will
slow down, and unemployment will increase. Krugman is right about that. He
seems disconcerted that workers are effectively put on the front line to fight
inflation, but the Fed has no choice. The real, long-term problem for the U.S.
and other developed economies is the increasing inequality in income
distribution. As an IMF annual meeting a few years ago demonstrated, economists
are unsure why this is happening and what to do about it. It is a pressing
issue. While I cannot prove this, the appeal of the siren call of authoritarianism
in the West may be linked to this growing inequality and the anger it causes,
though there are likely other reasons too. In the U.S., Democratic
Administrations have failed to address the income inequality issue in a
meaningful way, and, while those on the right flirt with such questionable
measures as protectionism, their policies have usually benefitted those with
high incomes.</p><p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-85004457591586242642022-04-22T14:02:00.000-04:002022-04-22T14:02:34.347-04:00Florida Governor Ron DeSantis and Math Education<p><a href="https://www.npr.org/2022/04/18/1093277449/florida-mathematics-textbooks">Florida’s
Department of Education recently rejected 54 math textbooks for classes K-12</a>.
This blog post is not about the reasons given for the rejections of these books
but a comment on a <a href="https://twitter.com/GovRonDeSantis/status/1516183546968297482">tweet about
this from Florida Governor Ron DeSantis</a>.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The governor’s tweet said: “Math is about getting the right
answer, not about feelings or ideologies. In Florida, we will be educating our
children, not indoctrinating them.”<o:p></o:p></p>
<p class="MsoNormal">The teaching of math is not only about getting the right
answer but in learning to think mathematically. In other words, to arrive at
the right answer one often first has to frame a problem in way that can be solved
by using math. Specific problems and their solutions may have an emotional
component.<o:p></o:p></p>
<p class="MsoNormal">An example of how to use math to get insight on a particular
issue, in this case not ideological nor emotional, is the question of whether a
rectangular television screen or a square television screen has the greatest viewing
area for a given diagonal length.<o:p></o:p></p>
<p class="MsoNormal">The correct answer is a square, but how does one determine
that? While it is fairly easy using calculus to determine that the largest area
of a rectangle with a given perimeter is a square, it is more difficult to
prove that a square also provides a larger area than that of any other
rectangle with the same diagonal. You have to be able to think like a mathematician
to prove this. Not all math is learning rote skills to get the correct answer,
as DeSantis implies. (Since I don’t have the proof, I am going to resort to
that statement in math textbooks which annoys math students no end: the proof
is left as an exercise for the reader.)<o:p></o:p></p>
<p class="MsoNormal">As a final comment, in the example I gave, some may see a public
policy issue. As the aspect of television screens changed to become more
rectangular, television manufacturers characterized their models by diagonal size,
not area. This may have misled some into thinking that a television set with an
equal diagonal to their old square one had the same viewing area. This is not
an issue I think is worth fretting much about, but only a way of saying that
using math to get insight into real issues can have implications. <o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-45984919568635822202022-04-11T19:05:00.001-04:002022-04-11T19:05:21.477-04:00A Brief Comment on the Economy – Krugman and Summers<p>Paul Krugman said yesterday (April 10, 2022) on his twitter
feed that <a href="https://twitter.com/paulkrugman/status/1513238054235955211">he
is worried about inflation due to wage pressures</a>, even though inflation may
decline somewhat in the near future because of the <a href="https://www.cips.org/knowledge/procurement-topics-and-skills/operations-management/bullwhip-effect-in-supply-chain/">“bullwhip
effect,”</a> which can cause some freight and wholesale prices to decrease in
the short-term. </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">Krugman is now beginning to agree with Larry Summers and has
quit what had been called “team transitory.” Both now agree that the Fed needs
to increase interest rates; Summers has called for, among other things, <a href="https://twitter.com/MeetThePress/status/1513312672565141511">an increase
in immigration</a> to alleviate wage pressures.<span style="mso-tab-count: 1;"> </span></span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">However, there may be some differences in view. Summers has
criticized the Fed for keeping monetary policy loose for too long and the
Administration and Congress for too much spending to counteract the effects of
the pandemic. Krugman has not as of now been critical of these government
actions and has praised the good job growth in the economy which he says the
media has underplayed. The data, though, compel him to recognize the inflation
risk.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">Both Krugman and Summers are old enough to remember the stagflation
of the 1970s and what Paul Volcker felt compelled to put the economy through to
end a dangerous inflation cycle. Out of control inflation can be deeply
corrosive to both the economy and the political system. Krugman and Summers do
not want to relive any part of that again. For now, they are both correct; the
Fed has to keep inflation in check even if that means some economic pain in the
next couple of years.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">What is missing, though, is an explicit long-range model of
the economy. Do they both really believe that the labor must be constantly
subdued to keep inflation in check? Both are Democrats and should have some
progressive ideas of how to deal with income inequality and not just at the
margin (taxing a few billionaires more is probably justified but does not
address the problem of growing income inequality). As far as their politics are
concerned, I mention in passing that Krugman is the more progressive of the two,
but Summers has been more active politically.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">Krugman is currently the more modest in his predictions,
given that he felt compelled to leave team transitory. Also, to those who know
him or follow him, it is no surprise that Summers is less than modest when
giving his opinions, but he is almost always worth listening too, even if one
does not fully agree.</span> </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;">No one fully understands the economy, not even these two,
and unpredictable events (there are those among us who thought Putin was
bluffing to destabilize the west and get some concessions) can have an enormous
effect. For example, Europe, too, is struggling with inflation under very different
institutional setups than the U.S., different government policies, and dependence
on Russian fossil fuels. Europe’s struggles undoubtedly will affect the U.S.
both politically and economically.</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt;"><br /></span></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-13174481668879618482022-04-04T13:14:00.001-04:002022-04-04T13:14:31.388-04:00Comment on the FDA and the CDC and Second Covid Boosters<p>Public health officials and agencies need to cultivate and
maintain credibility in order to be fully effective. Unfortunately, there have
been some missteps at the federal level. For example, remember the initial recommendation
not to wear masks, which was subsequently changed. Also, recall the advice that
the J&J vaccine was about as good as the mRNA vaccines, though anyone
paying attention knew that this was likely not the case. Now the way the federal
government has handled the approval of a second Covid vaccine booster makes one
wonder what is going on in the federal health agencies.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">On March 29, 2022, <a href="https://www.fda.gov/news-events/press-announcements/coronavirus-covid-19-update-fda-authorizes-second-booster-dose-two-covid-19-vaccines-older-and#:~:text=The%20agency%20amended%20the%20emergency,or%20approved%20COVID%2D19%20vaccine.">the
FDA authorized</a> the use of a second booster shot for individuals over 50. The
CDC on the same day issued a media release, entitled <a href="https://www.cdc.gov/media/releases/2022/s0328-covid-19-boosters.html">“CDC
Recommends Additional Boosters for Certain Individuals.”</a> <o:p></o:p></p>
<p class="MsoNormal">The FDA took this action without consulting its Advisory Committee
on Vaccines and Related Biological Products, even though the committee’s next
meeting is on April 6. Why did the FDA not wait a few days and ask the
committee for its advice on second boosters before taking regulatory action?
Regardless of what the FDA officially says, my guess is that FDA officials
thought they might get advice that was contrary to what they wanted to do. It is
not clear that would have been the outcome, though, a prominent member of the committee,
Dr. Paul Offit, has expressed skepticism of the need for second boosters for
everyone over 50.<o:p></o:p></p>
<p class="MsoNormal">With regard to the CDC’s media release, its headline is
misleading. The text of the statement does not recommend additional boosters. Rather,
it says: “Following FDA’s regulatory action today, CDC is updating its
recommendations to allow certain immunocompromised individuals and people over
the age of 50 who received an initial booster dose at least 4 months ago to be
eligible for another mRNA booster to increase their protection against severe
disease from COVID-19. Separately and in addition, based on newly published
data, adults who received a primary vaccine and booster dose of Johnson &
Johnson’s Janssen COVID-19 vaccine at least 4 months ago may now receive a
second booster dose using an mRNA COVID-19 vaccine.”<o:p></o:p></p>
<p class="MsoNormal">This wording is strange. It recommends that a broader group
be "allowed" to get a second booster, though the CDC does not have
the authority to do this. It reads as a recommendation to the FDA to do what it
had already done a few hours previously.<o:p></o:p></p>
<p class="MsoNormal">The wording looks like a hasty bureaucratic compromise among
government officials who probably are not in total agreement. There is
disagreement in the medical community about this. The government's handling of
this issue does not inspire confidence and is a further example of less than
good public relations by public health authorities. <o:p></o:p></p>
<p class="MsoNormal">I do not know whether second boosters are necessary or a
good idea for everyone over 50. I would like to see whether any consensus is
achieved among the experts. <o:p></o:p></p>
<p class="MsoNormal">I also note that the attempt to manipulate press accounts on
this subject have not been fully successful because of dissenting voices among
experts. For example, here is an excerpt from a recent <i>New York Times</i> article,
<a href="https://www.nytimes.com/explain/2022/03/29/health/second-booster-shots-covid">“Should
you get another Covid booster”</a>:<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: 1.0in; margin-top: 0in;">Many scientists are dubious about today’s decision.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: 1.0in; margin-top: 0in;">The F.D.A.’s authorization allows anyone over 50 to receive a
second booster. But experts pointed out that the limited research so far
supports a fourth shot only for those older than 65 or who have underlying
conditions that put them at high risk.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: 1.0in; margin-top: 0in;">The most compelling data comes from an Israeli study that
found that adults older than 60 who got a fourth dose were 78 percent less
likely to die of Covid than those who got only three shots. The study was <a href="https://assets.researchsquare.com/files/rs-1478439/v1/24514bba-2c9d-4add-9d8f-321f610ed199.pdf?c=1648141784" target="_blank">posted online</a> last week and has not yet been reviewed
for publication in a scientific journal.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: 1.0in; margin-top: 0in;">“The Israeli study, in terms of mortality rate, is decisive,”
said Dr. Robert Wachter, chair of the Department of Medicine at the University
of California, San Francisco.<o:p></o:p></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .4in; margin-right: 1.0in; margin-top: 0in;">But that study, while it offers the only evidence, is deeply
flawed. The participants all volunteered to get a fourth shot — and are likely
to be people who are naturally careful about their health, said Dr. Paul Offit,
director of the Vaccine Education Center at Children’s Hospital of Philadelphia
and an adviser to the F.D.A.<o:p></o:p></p>
<p class="MsoNormal">It will be interesting to see what happens at the FDA
advisory committee meeting on April 6.</p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-25892654671941623582022-02-16T18:19:00.001-05:002022-02-16T18:19:30.001-05:00Book Review: "Cadillac Desert: The American West and its Disappearing Water" by Marc Reisner (Revised and Updated version)<p><i>Cadillac Desert</i> by Marc Reisner is a long book about the history of
water construction projects in the western United States. The book is well
written and tells fascinating stories about the building of dams and aqueducts.
Unfortunately, because of its length, I think many readers will not get all the
way through it, but it is worth it. </p>
<p class="MsoNormal" style="mso-pagination: none;">The book, originally published
in 1986 with a revised version appearing in 1993, is written from an
environmental point of view. At one time, Reisner worked for the Natural
Resources Defense Council. However, Floyd Dominy, the longtime head of the
Bureau of Reclamation, granted the author extensive access, resulting in a long
chapter devoted to his career. Also, the book is nonpartisan; Democratic
politicians are skewered for their support of non-economically justifiable
water projects. The Democrats did control the House of Representatives for most
of the period the book covers, and opposing water projects, the author
demonstrates, could result in ostracization in Congress. </p>
<p class="MsoNormal" style="mso-pagination: none;">Whether one is a confirmed
environmentalist or not, the book is an eye-opener for all who read it. The
amount of research the author did is stupendous. Disasters, such as the
collapse of the Teton Dam in Idaho, are described in detail, as well as the
remaking of California by providing enormous amounts of heavily subsidized
water for agriculture in the Central Valley. Projects along the Colorado River
are also discussed in detail, including both the Hoover and Glen Canyon dams. </p>
<p class="MsoNormal" style="mso-pagination: none;">There is, though, one omission
in the book. The author obtained extensive information about the Bureau of
Reclamation, but much less about the Army Corps of Engineers, which was also
heavily involved in water projects. There is one chapter about the rivalry of
the two agencies, with each trying to get the right to build the same projects,
but there is much less about the personalities and motivations of those who
worked at the Army Corps of Engineers. </p>
<p class="MsoNormal" style="mso-pagination: none;">All the easily justifiable and
many not justifiable water projects have been built. There are few remaining
good sites for major projects; in fact, the Glen Canyon Dam, which creates Lake
Powell, is the last major dam built in the U.S. Construction on it started in
1956 and it was officially opened in 1966. It reached its targeted fill in
1980. </p>
<p class="MsoNormal" style="mso-pagination: none;">The current problem is, of
course, climate change, which has become a much more pressing issue since the
book was written. One wonders what will happen to agriculture if there is less
water for the Central Valley and farmers are forced to change the crops they
grow. There could be a wholesale change where crops are grown and animals are
raised, with attendant economic effects. The discussion in the book about
California and the Colorado River made this reader think about these issues,
which are briefly discussed in a postscript to the book written and added to
the book by Mr. Reisner’s widow, Lawrie Mott, in 2017. </p>
<p class="MsoNormal" style="mso-pagination: none;">Finally, as a native San
Franciscan, I cannot resist repeating a story in the book about Governor Pat
Brown (Jerry Brown’s father). Whatever one thinks of the Pat Brown, the major
projects he pushed through (including the California Water Project and the
California Master Plan for Higher Education), and his questionable methods and
tactics (discussed in the book), he was obviously effective. In an interview
for the University of California Bancroft Library Oral History Program, Brown
talked about the California Water Project. The book recounts: </p>
<p class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: .5in; margin-top: 0in; mso-pagination: none;">...Brown suggested
another motive that had made him, a northern Californian by birth, want so
badly to build a project which would send a lot of northern California’s water
southward: “Some of my advisers came to me and said, ‘Now governor, don’t bring
the water to the people, let the people go to the water. That’s a desert down
there. Ecologically, it can’t sustain the number of people that will come if
you bring the water project in there.’</p><p class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: .5in; margin-top: 0in; mso-pagination: none;"> </p>
<p class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: .5in; margin-top: 0in; mso-pagination: none;">“I weighed this
very, very thoughtfully before I started going all out for the water project.
Some of my advisers said to me, ‘Yes, but people are going to come to southern
California anyway.’ Somebody said, ‘Well send them up to northern California.”
I knew I wouldn’t be governor forever. I didn’t think I’d ever come down to
southern California and I said to myself, ‘I don’t want all these people to go
to northern California.’” </p>
<p class="MsoNormal" style="mso-pagination: none;">While dated, this book is
essential reading for those interested in the past and future economic and
environmental challenges of water policy or for those interested in the history
and politics of water projects in the western United States. <o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-64177020305934658962021-09-10T14:13:00.000-04:002021-09-10T14:13:14.867-04:00The Economist and “Wokeness”<p>The September 4<sup>th</sup> issue of <i>The Economist</i>
has an editorial (“leader”) and article on “the threat from the illiberal left”
in the United States. These articles are particularly irritating because they
exaggerate the influence of the far left in the U.S., buy into the right’s
hysteria about wokeness, and minimizes by implication the real threat to
liberal democracy from the far right, both in the U.S. and in Europe.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The editorial, while putting forth high-minded ideals of
“classical liberals” (with which I agree), is amazingly fact free in making its
case for its subtitle – “ Don’t underestimate the danger of left-leaning
identity politics.” The article in the “Briefing: the illiberal left” – “Out of
the Academy: How did a loose set of radical idea leap from campus to American
life? – is a mishmash of ideas and facts. It is difficult to discern a coherent
argument.<o:p></o:p></p>
<p class="MsoNormal">The article appears to be mainly a complaint about an
emphasis, misguided in its estimation, on diversity in academic faculties and
the media and implies that systemic racism is not the problem that some think
it is. It also posits that “special favors” for the systemically disadvantaged
is not good policy, but it assumes that is obvious rather than making an
argument for this point of view. It also does not seem happy with efforts of
corporations to deal with racism and gender discrimination, without ever quite
saying why this is wrong.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
<p class="MsoNormal">The article begins and ends with the San Francisco School
Board, which is an easy target. The Board’s effort to rename schools were
widely derided, and no less a liberal than Laurence Tribe joined a legal effort
to stop the Board. It so happens that Mr. Tribe, a retired Harvard Law School
professor, attended Lincoln High School in San Francisco and objected to it
being renamed. The mayor of San Francisco, an African-American woman by the
name of London Breed, also criticized the School Board for focusing on renaming
schools which were empty due to the pandemic rather than figuring out how to
get the schools reopened. At one point the City and County of San Francisco was
threatening to sue the school board because of its slowness in reopening the
schools. <o:p></o:p></p>
<p class="MsoNormal">While San Francisco is hardly the obvious pick for demonstrating
a political trend in the U.S., the example does not work. The article admits
that at the end, when it notes: “There are some signs of a backlash. Three
members of San Francisco’s board of education, including its president, are
under threat of a recall election.” Then the article concludes: “however, the
underlying engine—the questionable ideas of some academics, and the
generational change they are rendering—is not shutting off. America has not yet
reached peak woke.”<o:p></o:p></p>
<p class="MsoNormal">The article does not make a case that the ideas of the
academics are dangerous or even describe in any detail what they are. It also
does not make the case that left-wing academics are having an increased role in
making public policy. Why the writer or writers think that the U.S. “has not
yet reached peak woke,” whatever that is, remains, as math textbooks annoyingly
often say, an exercise left to the reader. <o:p></o:p></p>
<p class="MsoNormal">While the author(s) of this article seem unhappy at what
they perceive to be a left-wing turn in public discourse, they might usefully
look at the <i>New York Times</i> nonfiction bestseller list, on which
right-wing books are well represented. They might also consider the popularity
of Fox News and its current brightest star, Tucker Carlson. <o:p></o:p></p>
<p class="MsoNormal">Yes, the American left sometimes has crazy ideas and
demonstrates political stupidity. That does not mean that it poses any real
danger to liberal democracy at the current juncture, though, it admittedly may
make certain people in certain milieus uncomfortable. One suspects that is the
case with those responsible for this article. The real danger to liberal
democracy in the U.S., as it has been in the past (remember the Palmer Raids or
the McCarthy era?), is from the right not the left, as anyone who has been
paying attention should know, though I continue to be optimistic that the
current influence of the right will fade in time. <o:p></o:p></p>
<p class="MsoNormal">The problem for <i>The Economist</i> in publishing silly
articles such as these is that it hurts its credibility. The U.S. is its
biggest market; its American circulation is larger than that of the U.K. While
many subscribers probably may be more interested in its foreign coverage, which
is not easily found elsewhere, simplistic, biased, and poorly argued articles
about the U.S. may create some skepticism about the fairness of articles about
less familiar parts of the world.<o:p></o:p></p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0tag:blogger.com,1999:blog-4449116309625060278.post-50726714572086267382021-07-18T12:09:00.004-04:002021-10-03T10:55:46.657-04:00Book Review: “The Dreamt Land: Chasing Water and Dust Across California” by Mark Arax<p> Mark Arax in his book, <i>The Dreamt Land</i>, forcefully makes the point that there have been massive engineering projects moving water from some parts of the state to others. While Los Angeles and San Francisco benefit from this (the movie Chinatown is based on this and San Francisco benefits from Hetch Hetchy), most of the water goes to, and the focus of this book is on, the agricultural regions of the Central Valley (between the Coast Range and the Sierra Nevada mountains).</p><p>The book contains stories about the struggle for water among regions and among wealthy landowners for water, with some of the actions of questionable legality. The use of pumps to access underground aquifers, especially during periods when water has been scarce, has caused environmental damage with the ground noticeably sinking. The author points out that average rain and snowfall are meaningless; California has veered from too little water to too much.</p><p>Reading this book forces one to consider the fragility of the water system that California agriculture is based in the light of climate change. If there is less water flowing in the rivers and the canals and the California aqueduct because of a smaller snowpack in the Sierras, then this will force changes in California agriculture, which, because of its size, will affect where food comes from in the U.S. and much of the world. </p><p>The book, though, leaves this as something to consider, not a sustained argument that it is making. The problem with the book is that its organizational plan is difficult to discern and it does not make a sustained argument. It is, in fact, a set of stories, mostly set in the Central Valley, from the past and present. Sometimes the author veers from the subject of water to other issues which the author cares about, such as undocumented farmworkers. The book seems to be based on all the author’s notes compiled over the years. It could have done with some ruthless editing.</p><p>The book has a map, but it could have done with more and better maps so that those readers not deeply knowledgeable of the geography of the Central Valley could more easily follow the narrative, such as it is.</p><p>Nevertheless, to those interested in the massive water projects in California and those interested in agriculture, this long book is worth reading. A reader will also learn a considerable amount of California’s history.</p><p>The author, who grew up in the Central Valley and became a reporter, has a deep knowledge of the area and he writes very well, in fact much better than most journalists who go on to write books. One wishes, though, that publishing houses would do more editing of the books they publish. </p>Norman Carletonhttp://www.blogger.com/profile/15579375601892383189noreply@blogger.com0