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Who lives in an apartment that has "walls indented with plaster vulvas"?

Guess!
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Pigou Club economists like a carbon tax. Various politicians want cap-and-trade. Public choice economists worry that either one would be politicized and (perhaps) no policy is the best policy. Yesterday's post suggested that the Environmental Kuznets Curve is likely to kick in anyway. Speaking of the real world, today's WSJ includes "How Green Is My Sneaker?" which mentions an Eco-Index that

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languagevalueThat iconoclast Phil Mirowski has published a paper in The Hedgehog Review, "The Great Mortification: Economists' Responses to the Crisis of 2007 - (and counting),"
http://www.iasc-culture.org/publications_article_2010_Summer_mirowski.php, in which he pretty much lambastes almost the entire economics profession, including most heterodox schools of economics as well, for their miserable failures in dealing with or explaining what has been going on in the world economy in the last few years. Few are spared, including even some who have been viewed as having "called it," such as "Black Swan" Nassim Taleb and "Dr. Doom" Nouriel Roubini. About the only economist quoted favorably without a cutting caveat is James K. Galbraith. Otherwise, he sneers at all the running back to Keynes, even if in his final line he wonders "where is our Keynes?" although he is thinking in terms of Keynes as a philosopher of economics rather than as a policy maker or suggester.typetext/htmlbasehttp://feeds.feedburner.com/espeak

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So the International Court of Justice (”ICJ”)delivered its opinion on the legality of Kosovo’s unilateral declaration of independence (”UDI”)today. (I blogged about this a few months ago.)

To everyone’s surprise — mine included — the decision was clear, strong, and favored Kosovo. A clear majority of the judges held that the UDI was legal. They tried to frame the decision narrowly, but it’s still a big win for the Kosovars. Some people are saying it’s therefore a big loss for Serbia, but let’s get real — Serbia had no prospects of recovering Kosovo or ever getting the Kosovar Albanians to accept rule from Belgrade, however tenuous, again. (It is a hit for the Tadic administration, but probably not a serious one.)

Immediate knock-on effects: a few more recognitions for Kosovo. It won’t make that big a difference, though, in the short run — the few EU members who are refusing to recognize Kosovo are mostly doing so for internal domestic reasons, and that won’t change. Russia will still veto any UN resolution affecting Kosovo’s status, which sharply limits room for maneuver.

That said, it’s a win. And the longer-term effects could be interesting.

Meanwhile, watch for various other frozen conflicts, from North Cyprus to Abkhazia, to claim that this decision validates /their/ UDIs. Of course, to make that stick, they’d have to file and win similar suits before the ICJ. And to do that, they’d have to get a resolution past the UN General Assembly. Good luck with that, South Ossetia.

I’d say more, but I haven’t read the decision yet — it just came out a few hours ago, and the ICJ’s website has crashed. Give me a day or two.

Thoughts?

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[A Fistful Of Euros Transition and accession International Court of Justice Kosovo Serbia ]
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languagevalueWhat’s wrong with this picture?

Historically, self-financed candidates have tended to lose. The National Institute on Money in State Politics recently found that of those candidates who received more than half of all campaign contributions from themselves or an immediate family member, only 11 percent won from 2000 to 2009.
It’s not much of a puzzle, since I gave away the answer in the header. Just to spell it out, if we assume that candidates with a higher likelihood of winning will attract more funding, the “more than half self-funded” criterion selects against popularity. There is reverse causation, from weak political prospects to poor fund-raising to greater self-finance.

This is a nice example if you teach stats. Just don’t label it the way I did.typetext/htmlbasehttp://feeds.feedburner.com/espeak

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languagevaluePlease take a look at this fine analysis by Michael Pettis. It cuts through the nonsense about the almighty debt-to-GDP ratio that dominates current discussion. This ratio has no predictive power over sovereign default risk; much more depends on the composition of the debt, the volatility of the public revenue stream, and the forces acting upon creditors. Above all, there are moderately procyclical debt burdens (weak economy, weak burden) and monstrously countercyclical debt burdens. You want to assume the first and flee in terror from the second.

Pettis also points toward an interesting political economic aspect of the fundamental asymmetry between surplus and deficit countries. He writes:

A sovereign default is always a political decision, and it is easier to default if the creditors have little domestic political power or influence. Unless foreign investors have old-fashioned gunboats, or a monopoly of new financing, for example, it is generally safer to default on foreigners than on locals.
While credit markets may be segmented, being a deficit country increases the likelihood that sovereign debt will be held by foreigners. We often think of deficit countries as being weaker or more vulnerable, and they are, but governments often fear their domestic elites more than the global lords of finance.typetext/htmlbasehttp://feeds.feedburner.com/espeak

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Since the CFA June exams are now done, there's a lot of concern as to how CFAI determines a passing score. So, here's a breakdown for Levels 1 and 2:

In the past CFAI used a strictly numeric method of calculating the pass rate - they'd take 70% of the 95th percentile score. So, back in the day, the minimum passing score would be no greater than 70%, and would typically be even less.

Now, their scoring system has a significant subjective component to it. Here's how it works: CFA Institute brings a number of charterholders that they call "Standard Setters" to Charlotte sometime in June. These people then discuss what they think a "minimally qualified" candidate should know (for L1 and L2). CFAI is pretty opaque as to what this actually means, but my understanding is that they look at the exams and come up with "the score".

They refer to what's know as the "Angoff method". If they apply this method in its strictest sense, this would involve each standard setter examining each question and making a subjective determination as to what percentage of well-qualified candidates would answer correctly on the question. For each question, the standard-setters percentages are averaged to get a percentage for that question. The individual question-percentages are then summed to get the passing score (in terms of number of correct answers needed).

So theoretically, the minimum passing score could be above 70%. But according to the scuttlebut on analyst forum, the minimum has likely been below 70% in each year. So, my gut reaction is that a 70% would get it done, and even slightly less.

But that's just a guess on my part.
[CFA ]
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"China Power New Energy Development Company Limited, through its subsidiaries, operates bakery retail shops and trades electronic products. The company also invests in properties, provides consultancy services for hotel management, and develops technology in the environmental protection industy."

Scott Booth (Eastern Advisors): "So what could they possibly do, solar powered brioche toasters for 5-star hotels?"
[fun ]
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Brian Buckley, one-time adviser to former federal Treasurer Sir Philip Lynch, exposes my double-life as a crop-burning New Dealer:

LIKE the French royal House of Bourbon, some contemporary schools of economics have learnt nothing and forgotten everything. Paul Krugman and Stephen Kirchner (BusinessDay, 19/3) provide telling examples. Their nostrums for the world debt crisis are more government spending, or greater volumes of easy credit, or both.

Professor Krugman is a great admirer of Franklin Roosevelt’s New Deal, but he omits to mention that FDR never got unemployment below 14 per cent, and the unemployment figure in the US was 17.2 per cent at the start of World War II.

Like Krugman, Kirchner (and Ben Bernanke), FDR was worried about price deflation — so much that he had farmers’ crops burned to keep prices up. This was in the middle of the 1930s Depression when millions of families were short of food.

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[Economics ]
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languagevalueThe great Porter Wagoner sang: “Money can’t buy back your youth when your old or a friend when your lonely.”
He’s wrong now - at least about the latter. In the UK, we’ll soon be able to rent friends. This raises an interesting clash between our instincts and economics.
My first reaction to this - well, second, after “have they got a mandolin-playing Marxist who looks like Emily Procter?” - was: “Eeurgh.” Renting a friend is oxymoronic. The very definition of friendship is a relationship in which money doesn’t change hands. Friendship, surely, is (or should be) subject to what Michael Walzer called a “blocked exchange” - it's something that can’t be exchanged for cash. Indeed, my instinct is that renting a friend is much creepier than paying for sex.
Economics, however, has a different take.
First, happiness research tells us that friendships are tremendously valuable in improving our well-being. Nattavudh Powdthavee has put a price on this (pdf). He estimates that the happiness we get from meeting a friend once a week rather than less than once a month is equivalent to an additional income of £47,400 a year; this seems like a huge sum partly because income doesn’t make us very much happier.
Now of course, a rented friend (schmiend?) would give us less utility than a genuine friend. But even if we discount this sum very heavily, there are still potentially significant gains from us widening our social circle.
Secondly, in finding friends we face informational problems. I just don’t know where to find the MPMWLLEP. This lack of information means that the market in friends is thinner than it would otherwise be. And it’s trivially true that a virtue of the web is that it can increase  information and hence the thickness of markets - hence the success of eBay, rightmove and GoCompare, among many others.
Put these two facts together, and there is potential for rent a friend to be a success.
Which raises the question: which will win out: instinct or economics?
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On 15 July 2010, Goldman Sachs (NYSE: GS) entered into a settlement with the U.S. Securities and Exchange Commission, in which the company agreed to pay the largest fine ever levied against a publicly traded firm in U.S. history. Barry Ritholtz has been arguing that Goldman suffered a "massive" defeat, both to the firm's bottom line from the over half-billion dollar penalty it must pay and to its market capitalization.

Others disagree. Here's Barry's inimitable reaction:

FT's Alphaville says I am cranky. Jeff Matthews says I am wrong. Michelle Leder points out the settlement is a pittance relative to GS’ cash.

Here’s a news flash: All of that is irrelevant. We are a nation of laws, and that is what guides SEC prosecutions, negotiations, and settlements. Sure, I may be cranky (only fellow curmudgeon Alan Abelson agrees with me), but what I truly am is astonished at some of the uninformed commentary pinging about inter-tubes about this subject.

Spin isn’t fact, opinions aren’t laws, and having an opinion is not the same as being informed.

Barry then runs through the legal issues ("It's the Law, Bitches!") making very solid arguments, but where he runs into a bit of trouble is when he looks at the stock market's reaction to news of the settlement:

6) Goldman’s Stock Rallied, therefore, its a victory:  I’ve always hated that analysis, but since you brought it up: Pre-indictment, GS was north of $180. It closed Friday at $146. Its still some 20% below where it was.

On a related noted, since the indictment, Goldman Sachs has lost about $15 Billion if market capitalization. Isn’t that part a consequence of the SEC indictment? Isn’t that, in effect, part of the penalty?

It would indeed be, however determining the answer to the question isn't as clear cut as simply comparing Goldman Sachs' stock price and market capitalization on the day before the SEC's action against the company was first announced on 16 April 2010 with the day before the announcement of the settlement on 16 July 2010.

The problem with this comparison is that the stock market didn't stay level during this time frame. It fell by roughly 12%, as measured by the S&P 500.

So the question then is how much of the decline in Goldman Sachs' stock price and market cap observed over this period is tied to the overall decline in stock prices, and how much is tied to its legal troubles?

We have an imperfect way to find out. What we can do is compare the relative performance of GS stock with that for its closest competitors in the United States, JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS).

The idea here is that Goldman's U.S. based competition is subject to most of the same economic, business and regulatory conditions as is Goldman Sachs, so the relative performance of their stocks over the period of Goldman Sachs' legal cloud will allow us to isolate a large portion of the effect of those conditions on GS' stock price. What makes this method imperfect is that the stocks of these companies will also react to news that specifically affects each, adding a noisy element to an otherwise direct comparison.

First we'll need to establish a baseline for that relative performance. Our first chart compares GS (blue) with JPM (red) and MS (green) stock price over the six months preceding news of GS' SEC indictment:

What we see is that Goldman Sachs' very closely matched the stock performance of JPMorgan Chase throughout this entire period, with very little percentage difference between them. We can then use the JPMorgan Chase's stock performance as the benchmark against which to measure the effect of the indictment upon Goldman Sachs' stock price and market capitalization.

Our next chart shows the relative performance of each stock from 15 April 2010, the day before the SEC announcement of its indictment against Goldman, through 16 July 2010, which captures the stock market's initial reaction to the news of Goldman's settlement:

The period in which the news of the indictment affected Goldman Sachs' stock price is 16 April 2010, the day of the indictment, through 14 July 2010, the day before the news of GS' settlement with the SEC. During this period, we observe that Goldman Sachs' stock performed in a range from 2% to 10% below the relative performance of JPMorgan Chase' stock, underperforming with respect to the previous six month period by an average of 5-6% of the value of its closing stock price of $184.16 on 15 April 2010.

This underperformance reflects the market capitalization of Goldman Sachs' potential guilt. With 514,790,000 shares outstanding, a 5% relative underperformance in the company's share price reflects an approximate 4.7 billion dollar loss of market capitalization during the period, above and beyond what would otherwise have occurred.

So we conclude that Barry Ritholtz is right. We'll conclude by noting that the extra loss of market capitalization would have negatively affected anyone selling their shares of Goldman Sachs' stock during this period who had purchased their shares before the SEC indictment occurred.

There's likely quite a lot of civil actions that might result from Goldman's SEC troubles as a result, so we would anticipate that Goldman Sachs' legal troubles related to the SEC indictment aren't quite over yet.

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[stock market ]
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TOP STORIES
IMF announces 192 tonne gold sales - MarketWatch
China seen allowing stronger yuan in 2010 - Reuters
US bank lending falls at fastest rate in history - Telegraph
US state pension funds have $1 trillion shortfall: Pew - Reuters
Asian central banks seen as buyers for 192 tonnes of IMF gold - Mineweb
AIG to keep up to $500B in controversial assets - CNN/Money
Moody's downgrades Sacramento County ratings - Reuters
The United States: Debtor and Leader? - WSJ

Get these links delivered to your inbox every day.


MARKETS/INVESTING
Oil falls below $77 on dollar, inventories - Reuters
Gold May Fall for a Second Day on Planned IMF Sales - BusinessWeek
U.S. Stock Futures Retreat on Unexpected Rise in Jobless Claims - Bloomberg
International Monetary Fund to sell another 191 tons of gold - MarketWatch
Gold May Advance to $1,400 in 12 Months: Technical Analysis - Bloomberg
Dr Doom: China Will Drag Down US Stocks By 20% - CNBC

ECONOMY
Jobless claims rise 31,000 to 473,000 - MarketWatch
January wholesale prices jump 1.4 percent - AP
Fed: Jobless Rate Will Stay High For Next 2 Years - HuffPost
Deficit Hawks Want New (or double dip) Recession - The Big Picture
Retirees Trade Work for Rent at Cash-Poor Parks - NY Times

INTERNATIONAL
UK finances deteriorate further - BBC
China's holdings of US Treasury debt slashed - China Daily
Goldman Sachs, Greece Didn’t Disclose Swap Contract - Bloomberg
Spanish Premier Insists Economic Recovery Is Near - NY Times
Taxman targets 100,000 top earners to claw back millions - TimesOnline
Greek Debt ‘Twilight Zone’ Spurs Rise in Sovereign Credit Risk - Bloomberg
UK needs radical policies to help economy create jobs - Telegraph
Japan’s Central Bank Stands Pat on Rates - AP

REAL ESTATE
Govt. Mortgage Plan Aids 12% of Borrowers - Time
Administration pushed to expand foreclosure-prevention program - Washington Post
Hey You Pessimists (Yes you, homeowners): It’s Not Quite That Bad… - ZillowBlog
Hawaii logs biggest leap in late home payments - Star Bulletin

FED/TREASURY/BANKING
Agreement Is Near on New Overseer of Banking Risks - NY Times
Report From Elizabeth Warren: Up to 3,000 Banks in Trouble - Seeking Alpha
Fed Officials Set Goal of ‘Eventual’ Exit From Housing Finance - Bloomberg
Fed shows 'a bit more' optimism in forecast - USA Today

INTERESTING
Wis. man finds stolen iPhone through GPS - AP
How Prisoners Are Using Facebook to Harass Their Victims - Time
Nation Realizes Money Just A Symbolic, Mutually Shared Illusion - The Onion
Fear of Spiders Can Develop Before Birth - Live Science

###

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Greg Mankiw:

The surprise choice of first-year graduate student Quintus Pfuffnick for the Nobel Prize in Economics drew praise from much of the world Friday even as many pointed out the youthful economist has not yet published anything in scholarly journals.

The new PhD candidate was hailed for his willingness to tackle difficult problems, his commitment to improving the economic system, and his goal of bringing efficiency and equality into harmony.

Professor Paul Krugman of Princeton, who won the prize in 2008, said Pfuffnick's award shows great things are expected from him in the coming years.

"In a way, it's an award coming near the beginning of the first year in grad school of a relatively young economist that anticipates an even greater contribution towards making our economy a better place for all," he said. "It is an award that speaks to the promise of Mr Pfuffnick's message of hope."

He said the prize is a "wonderful recognition of Pfuffnick's essay in his grad school application."

Man do I wish I’d thought of this post on Friday. But that’s why he’s at Harvard.

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[Current Affairs Economics Laughs ]
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Boy, are we all in trouble. The Curse of Nixon and Goldwater does not just afflict the Republicans.

Silbey:

Worse « The Edge of the American West: This chart, gratuitously stolen from Steve Benen at The Washington Monthly, suggests strongly that political discourse in the United States is going to get worse rather than better. We have the perfect storm: an African-American President and an opposition party whose concerns, language, and obsessions is driven largely by the concerns, language, and obsessions of the American South. Those ideas–racial, cultural, martial–are what is going to drive the GOP until they escape their regional status. Jimmy Carter well knows this, and it is no coincidence that the current poster child for Republican obstructionism is South Carolina. We may date the finish of the Civil War to 1865, but the conflict has never really ended.

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[Politics ]
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Bloomberg: Toyota Motor Corp.’s recall of about 8 million cars has elicited divergent responses from foreign and Japanese investors, with the cost of protecting the company’s bonds against default rising while the yield spread to sovereign debt has varied little this year (see chart).

One reason for the different reactions is that foreign investors are active in Japan’s CDS market, while Toyota’s bondholders are mainly Japanese, said Hisayoshi Nogawa, a strategist at BNP Paribas Securities Japan Ltd. “Foreign investors are cautious about Toyota’s creditworthiness, whereas Japanese don’t expect the recalls to break the automaker’s back,” he said.

Toyota’s credit ratings probably won’t be lowered to the extent that a debt sell-off or default could be triggered, Nogawa said. The automaker is currently rated Aa1 by Moody’s Corp., AA by Standard & Poor’s, and AAA by Japan’s Rating and Investment Information Inc. [Source]

[Finance ]
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for having cultivated a leftist / black identity in Chicago (and again in his memoir) as a stepping stone on his path to fulfilling his long held ambition for political power.  A sense of the effort can be found even in his college years:

To avoid being mistaken for a sellout, I chose my friends carefully. The more politically active black students .. The Marxist Professors and the structural feminists .. At night .. we discussed neocolonialism, Franz Fanon, [and] Eurocentrism .. (Source:  Obama, Dreams from My Father)
When you consider the importance of Obama's use of race and blacks in forging his political identity and career -- with Obama's use and abuse of Rev. Jeremiah Wright as a prime example -- I can't help wondering if Thomas Sowell isn't thinking of Barack Obama's use of blacks in his political career in today's column on blacks being used as mascots by liberals:

Leaping to the defense of black criminals is another common practice among liberals who need black mascots. Most of the crimes committed by black criminals are committed against other blacks. But, again, the actual well-being of mascots is not the point.

Politicians who use blacks as mascots do not hesitate to throw blacks to the wolves for the benefit of the teachers' unions, the green zealots whose restrictions make housing unaffordable, or people who keep low-price stores like Wal-Mart out of their cities.

Using human beings as mascots is not idealism. It is self-aggrandizement that is ugly in both its concept and its consequences.

Obama, of course, has done all of these things, even while letting it slip here and there that he knows how deeply destructive the unions have been to the public schools in Chicago, etc.

Obama -- just another white liberal?

[Obama ]
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Several readers have drawn my attention to this passage from Greg Clark:
Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing Obama's stimulus plan. As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus -- thinking that would be a timely and lively session. But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that "all I know on this issue I got from Greg Mankiw's blog -- I really am not equipped to debate this with anyone."Various bloggers have quoted this story as evidence for the sad state of the economics profession. My interpretation is more benign: The chairman of the department asks a professor to do something, the professor is busy and doesn't really want to do it, so he blows off the chairman with a tongue-in-cheek quip.

On a related note: I know a lot of academics who don't like debate formats. They find it too confrontational and incompatible with reasoned discussion. A prominent economics professor I know, who once faced off against Larry Summers in a debate, told me he would never put himself in that position again. But that decision has not stopped him from being a productive contributor to discussions of public policy.

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languagevalue

How many pages does it take to record the U.S. federal tax code?

It's often been remarked that the growth in the complexity of the U.S. tax code can be measured by how many pages it takes to document all the things that specify how much federal taxes any single individual, household or business in the United States may have to pay. Kay Bell recently featured the chart we've presented above from the CCH Standard Federal Tax Reporter, which illustrates just how many pages of the CCH Standard Federal Tax Reporter would be required to contain all of the U.S. federal tax code.

But that wasn't good enough for us, so we created our own graphical version of the chart's data, so we can better see how the U.S. federal tax code has changed since the U.S. implemented the income tax in 1913, when the entire federal tax code could have been contained in a single 400 page textbook.

What we find is that the tax code really didn't explode in complexity until World War II, which we observe in the large jump from being just 504 pages in length in 1939 to 8,200 pages in 1945, the final year of the war. Since then, we find that the number of pages in the U.S. federal tax code have grown at a near-steady exponential rate of 3.28% per year, which as of 2010, means that the U.S. tax code has ballooned to be 71,684 pages in length!

But wait, there's more! Because the tax code has grown consistently at this steady rate since 1945, we can project how much the complexity of the federal tax code can be expected to grow in the future.

Using this information we can create a tool that can either estimate the number of pages in the U.S. federal tax code between 1945 and 2010 or project how many pages can reasonably contain the federal tax code in the future, provided that U.S. politicians and bureaucrats continue to add to its complexity at the same rate they averaged from 1945 up to 2010.

Year in Which to Estimate or Project Tax Code Complexity Input Data Values Year

Number of Pages Required To Record U.S. Federal Tax Code Calculated Results Values Estimated Number of Pages

Using the default data in the tool above, where we've projected forward to the year 2012 when the next U.S. presidential election is scheduled to occur, we find that the U.S. tax code will have grown to be approximately 74,994 pages in length, an increase of 7,388 pages, or 11%, from the 67,506 page long U.S. federal tax code of 2008.

That assumes though that today's politicians and bureaucrats aren't compelled to do something radical that might cause the complexity of the U.S. federal tax code to really explode, much like what happened back in the 1940s because of the requirements of funding World War II.

Just what radical change that might be we'll leave as an exercise to our readers....

Update 11 March 2010: One of our readers makes a good point:

The CCH reporter is not a good metric because it accumulates. It has repealed and replaced statutes, cases and rulings from all levels, so that an over-ruled case may still be noted.

You would need a non cumulative source like the United States Code, and the Code of Federal Regulations.

We're of two minds here. While our reader is correct that the functional portions of the U.S. federal tax code would occupy fewer pages, the cumulative nature of the CCH Standard Federal Tax Reporter makes it a good measure of the extent to which the various portions of the federal tax code have been modified or altered over time. As such, our thinking is that its length better communicates the degree to which the the U.S. tax code has been affected by the series of complex changes that have taken place within the code through the years.

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[tool taxes ]
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Economist and historian Robert Higgs has an excellent little piece up titled �??Recession and Recovery:  Six Fundamental Errors of the Current Orthodoxy�?�.  I highly recommend it.  From the article:

the vulgar Keynesian views the capital stock as �??given.�?� If he thinks about it at all, he considers it a sort of massive inheritance from the past and assumes that nothing that might be added to or subtracted from it in the short run will change it enough to warrant concern. But if he gives little thought to capital, he gives none at all to its structure: the fine-grained patterns of specialization and interrelation among the countless specific forms of capital in which past saving and investment have become embodied. In his framework of analysis, it matters not whether firms invest in new telephones or new hydroelectric dams: capital is capital is capital.

Because the structure of the capital stock is disregarded �?? even sophisticated economists, such as Frank Knight, have insisted that the capital stock is essentially an undifferentiated glob of monetary value, any part of which may be substituted perfectly for any other part of equal monetary value �?? no attention is given to how changes in the rate of interest bring about changes in the structure of the capital stock. After all, what possible difference can it make? This willful blindness has caused many economists, including the most recent Nobel laureate, Paul Krugman, to misinterpret the Austrian theory of the business cycle as a theory of �??overinvestment,�?� which it definitely is not.

Instead, the theory pioneered by Ludwig von Mises and F. A. Hayek in the first half of the twentieth century �?? a theory that fell into near-oblivion after the Keynesian Revolution in macroeconomics �?? is a theory of malinvestment, which is to say, a theory of how an artificially reduced rate of interest leads business firms to invest in the wrong kinds of capital �?? in particular, in the longest-lived capital goods, such as residential and industrial buildings, as opposed to inventories and equipment with a relatively short life. Thus, in the Austrian view, Fed-induced low rates of interest, like those between 2002 and 2005, lead firms to overvalue longer-term capital projects and to shift their investment spending in that direction, producing, for example, booms in building construction. This shift would make economic sense if the interest rate had fallen in a free market, thereby signaling that people wish to defer more consumption by saving more of their current income. But if people have not in fact changed their preferences in this way and continue to prefer present consumption relatively as much as before, then businesses will make mistakes by choosing these kinds of investment projects, which are, in effect, attempts to anticipate future demands that will never eventuate. When the projects ultimately begin to fail, the boom that artificially lowered interest rates set in motion will collapse into a bust, with attendant bankruptcies and unemployed labor, as unsustainable projects are liquidated and resources shifted, painfully in many cases, to more viable uses.

Because the vulgar Keynesian is blind to these micro-distortions and to the need for their correction in the wake of an artificially induced boom, he will fail to see any need for bankruptcies and unemployment. He supposes: if only the government stepped in and used its own deficit spending to make up for the reduced private investment and consumption spending, then business would be restored to profitability and workers reemployed without any economic restructuring.

It comes as no surprise, then, that people who think along such lines are currently working to continue a policy that contributed greatly to producing the unsustainable boom of 2002�??2006, namely, subsidized lending to would-be homeowners who cannot meet normal commercial qualifications for receiving such loans. It does not occur to the vulgar Keynesians that too many resources have been directed into house and condo construction and that lending to homeowners who can afford to purchase homes only if subsidized to do so signals an uneconomic use of resources at the expense of the taxpayers who, directly or indirectly, finance these subsidies.

[Boom & Bust Capital Theory Keynes ]
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Par MM Jean Gustave Sanon et Abdoulahi Mfombouot, Conseillers en gestion des dépenses publiques à AFRITAC Centre Les normes internationales et les bonnes pratiques en matière de comptabilité de l’Etat ont fait l’objet d’un séminaire, organisé du 26 au 29...
[Accounting Abdoulahi Mfombouot AFRITAC Centre Cameroun CEMAC comptabilité Jean Gustave Sanon Maroc séminiare ]
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Lots of great stuff on teh interwebs recently. HT to everyone for links to the following:

1. Will Wilkinson on "The Progressive Fallacy on Free Speech." A good passage: "Corporations are not essentially villainous agglomerations of money and power. They are a convenient form of social organization that enables large numbers of people to undertake cooperative endeavors."

2. Speaking of progressives and conservatives, Steve Horwitz talks about constitutional consistency. Why have constitutions if we're just going to chuck them out the window when they get inconvenient?

3. Speaking of consistency and the Constitution, Andrew Napolitano argues that military tribunals for suspected terrorists are unconstitutional without a formal declaration of war. Presumably, we have a constitution to prevent just this kind of thing.

4. Speaking of Steve Horwitz, here's his new NBR post. The takeaway point, which I'll add to future discussions of capital, production, and macroeconomics: capital goods are more like legos than like Play-Doh.

5. Roderick Long discusses the tea party movement. So does Gene Healy. As always, I wonder what the starting point is for narratives of decline. I'm also a little concerned that some of the tea partying isn't so much about principled objections to government power as it is about people being upset that someone else might get the first-class upgrades they were expecting on the government subsidy gravy train (cf. "keep your government hands off my Medicare").

6. Radley Balko discusses a new article in The American Conservative that takes an impressively data-driven look at the relationship between immigration and crime and finds that, contrary to a lot of hysteria, immigrants (including undocumented immigrants) aren't causing a crime wave. I agree with Radley: given the resonance of all things anti-foreign with a lot of conservatives, this was a gutsy journalistic move for AmConMag. I'm guessing that Darryl Weathers from the Construction Workers' Union is not amused.

7. Speaking of foreigners, people have complained that the Chinese are manipulating their currency. As Mark J. Perry explains, they're doing us a favor if they manipulate their currency to make their exports cheaper.

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[Misc. ]
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Lenore Skenazy's Free-Range Kids has 58 5-star reviews on Amazon - and only one 1-star review.  But Olga, the book's lone detractor, makes a striking argument: The real innumerates are not paranoid parents, but people like me and Skenazy who mock them.
According to Lenore, if the chance of your child being abducted and tortured to death by a stranger is only 1 in 610,000, then you should simply act as if the real number is zero. Using this type of logic, I should discontinue wearing my seatbelt every time I get in the car. It's uncool. Paranoid. The chance of dying in a car accident is only 1 in 100 over my lifetime, so, it might as well be nothing...

Well, 115 children in the US are abducted by strangers, sexually assualted and murdered every year. 115 yearly. That isn't an urban myth. It isn't a horror film. It isn't a Stephen King novel. It's 4 classrooms full of children.

There is a difference between "rare" and "non-existent". In the face of any kind of preventable risk, a parent has a responsibility to work to prevent the event, regardless of the odds against it ever happening.
My reply to Olga: Yes, there is a difference between "rare" and "non-existent."  Taking precautions against a non-existent danger is silly; taking precautions against a rare danger might be wise.  So far, we agree.  My objection: All parents, including you, frequently fail to try to prevent risks.  Why?  Because after you reduce a risk - for example, by buckling your child's seat-belt, a risk still remains.  Buckled children still get injured.  And that risk is also preventable!  You could make your child wear a helmet in the car to further reduce the risk of head injury.  You could make him wear thick clothing - or a face mask - to protect him from shattering glass.

Or you could just stay home, brick up your windows, and make your kid wear a bullet-proof vest.

I bet even Olga would admit that these precautions are absurd.  But what makes them so?  Simple: They only slightly increase safety at a large cost.  Which is precisely Skenazy's objection to Today's Typical Parents' effort to prevent child abduction.  She doesn't advocate zero precautions.  She explicitly tells her kids not to "go off with strangers."  But she uses probabilities to convince readers that the additional precautions parents take - like keeping nine-year-olds under continuous observation - are absurd.

Of course, parents' risk-aversion varies.  But it's still fair to ask them do comparative risk analysis.  If you're willing to drive your kids to the mall, and car travel is forty times more lethal per minute at unsupervised mall loitering, then why will you allow the former but not the latter?

Olga ends with a challenge to Skenazy: "Who are you to claim that the antidote to 'unrealistic fear' is to dishonestly give your children a false sense of security?"  But this just raises a deeper question: What is a "true sense of security"?  If it requires absolute safety, then no one could ever justifiably feel secure.  That's ridiculous.  If you can't feel secure - and teach your children to feel secure - about 1-in-610,000 nightmare scenarios - the problem isn't the world.  It's you.


[Behavioral Economics and Rationality ]
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EconLog’s Arnold Kling asks a question that would fuel befuddled, and perhaps even angry, stares at the typical Manhattan or Beverly Hills cocktail party — but it’s a great question that, in fact, is not rhetorical:

Is it really the case that people want the government to create jobs? I have seen many progressives and pundits claim that people are angry about jobs, but I have not seen any people clamoring for the government to create jobs. (Emphais added – DBx)

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[Myths and Fallacies Stimulus ]
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