Unforeseen Contingencies

I am not a football fan...American football, I mean...let's not even contemplate that other silly pretender. But I've been a Packer fan since before the great Vince Lombardi took them to the world's first Superbowl. (Yes, I was a wee lad then.)

Go Pack!

Part 2 of Professor Ivan Pongracic's essay, "The God of the Market," is up!

OK, it's a bit premature to be handing out awards just yet, but on the Steele-Wolfram blog we have a guest post from Professor Ivan Pongracic, Sr. that is worthy of your time.

I had the good fortune to hear Prof. Pongracic speak last fall, and it was one of the best lectures I've ever heard. Pongracic had been a state auditor in Tito's Yugoslavia, and told how in the course of his work he came to realize that the alleged prosperity of the state, of state firms, and ultimately of everyone around him was illusory. It was based entirely on debt...debt that could never be repaid. As he put it, "we suffered from three things: phony accounting, bad economic theories and dishonest leadership." Believing Yugoslavia would ultimately collapse, he took advantage of an opportunity to study in the United States and moved his family -- permanently -- to the U.S. It was a gripping lecture, but the punchline was the real kicker: "now, about 25 years later in the U.S., I see the same things being repeated here -- phony accounting, bad economic theories, and dishonest leadership."

In the Hillsdale-Econ.com guest post Pongracic details America's version of the phony accounting, bad economic theories, and dishonest leadership. Keep in mind that this post was first published in April 2007, before most people were even aware there was a financial crisis.

I suppose we could call Pongracic "prophetic," but I think a better way to put it is that he's an unusually perceptive observer of politics, and a darned good economist.

Read the post!

I've been taking the "New Developments in Fiscal and Monetary Policy" course with Martin Eichenbaum and Sergio Rebelo, both of Northwestern University. So far it's the single best macro course I've ever taken. E & R are doing an excellent job of sorting out the models and theories, and then connecting them to reality. I am rather pleased that this stuff is really making some real world sense; I've been in too many macro courses where this didn't hold.

Synopsis so far...Eichenbaum kicked off the lectures by developing the rationale for the models we're using (a simple New Keynesian model and a DSGE approach): plenty of technical stuff on vector autoregressions, analysis on various kinds of macro shocks, and the motivation for the models we're using. Today he developed the NK and DSGE models, going fairly carefully into how they work and demonstrating some applications, including analyses of booms, the Taylor principle, and how monetary policy might be a source of volatility.

Rebelo took over this afternoon, and began by developing a sort of empirically-based theory of sticky prices. He subsequently has used the NK and DSGE models that Eichenbaum developed to analyze the effects of monetary and fiscal policy under various conditions. Tomorrow we're going to be looking at government spending multipliers under the extreme case of the zero bound for interest rates. I'm looking forward to it.

The average non-economist reader (we have readers?) will likely get almost nothing from the two previous paragraphs. And frankly, until I've gone over this stuff a bit more, I won't be in a position to explain it in English or proffer opinions based on what I've learned. But for now, it'll do to simply report the shocking news that macro is actually making some sense!

Update from Denver!

Insightful research -- good ideas on teaching -- a variety of interesting perspectives on how to do economics...our interviews of candidates are going extremely well. We've been meeting with an extremely sharp bunch of people. It's fun. It also brings home how important human capital is -- I've never really bought the "education as signalling" idea. Knowledge really does enhance one's ability to create value -- Adam Smith was right on this. I've certainly learned some useful stuff from speaking with our interviewees.

I've been thinking a bit more about Taylor's talk. He made another point I should have noted, because it's related to something I've contended for some time. IMO, commonly accepted descriptions of the political landscape tend to be all wrong. The common practice is to take whatever is the current received model -- e.g. in the American context progressive vs. conservative -- and force anything being considered into that mold. It amounts to defining a couple of categories -- not exhaustive and probably not exclusive -- and arbitrarily sorting things between them, whether they fit or not. E.g. Eisenhower, Nixon, Ford, Reagan, Bush 41, and Bush 43 are conservatives, and Kennedy, Johnson, Carter, Clinton, and Obama are all liberals.

Bah! I've argued for quite some time that Reagan-Bush (for example) makes less sense than Carter-Reagan. Both Carter and Reagan were deregulators, both opposed the Soviet bloc (in ways Bush 41 refused to), both tended to reduce Federal power. Similarly, Bush 41-Clinton have important commonalities, and more importantly, Obama is in many important respects a continuation of Bush 43 (ugh)... all largely on their practices (as opposed to rhetoric) on economic regulation, foreign policy, and civil liberties.

Taylor made a very similar sort of argument in his address yesterday, but focused on macroeconomic policy. He divided the recent presidencies as follows. Kennedy through Carter: discretionary and activist. Reagan through Clinton: rules based, non-activist. Bush 43-Obama: discretionary activist.

There's great deal of sense in this sort of analysis. It amounts to looking at the details of something and trying to figure what the heck is really going on. Admittedly it's not as much fun as stuffing complex phenomena into preconceived pigeonholes, but it does offer the slim hope one might actually learn something.

Tomorrow -- more interviews, plus the start of a very promising continuing ed course in macro policy.

Wow! There really is a chance I'll be learning something!

Simon Johnson has a posted an unsettling warning about the Facebook-Goldman alliance. The gist: as a TBTF bank holding company, Goldman is effectively subsidized by the federal government. Its borrowing costs are lower, and hence it piles on debt, and the risk to the taxpayer.

Luckily in this case Goldman is investing in social networking, one of those things that can only go up in price, never down... just like real estate.

Today at the ASSA meetings John Taylor of Stanford spoke at a joint AEA/AFA luncheon(American Economic Assn/American Finance Assn). His topic: a short history and comparison of rules vs. discretion in both fiscal and monetary policy. He more or less argued that policy cycles between the two, and that the more discretion, the worse the effects for economic performance. He gave some simple arguments, both empirical and theoretical, for his contentions -- I found them useful. It was an interesting talk, although not as exciting as I'd expected. You can download his talk right here, and it's worth reading.

At the luncheon (some odd chicken dish, of course) I sat between two chaps from Africa, one of whom runs a think tank, the other a Ph.D. candidate in Japan, of all places. I think I learned more talking with them than I did from the luncheon address, mostly because there wasn't much new to me in Taylor's thesis, while I'd never even heard of Ghana's health insurance system before, nor several other of the things we talked about.

One thing during the luncheon really struck me. While we were discussing African development, the role of China came up. After a bit of discussion of what China has been doing (buying raw materials, for one thing), the fellow from the think tank said "if anyone wonders about whether China or the West is making more headway in Africa, the results are in: China won." He went on to explain why he thinks Africa can successfully develop, fairly quickly, without the West -- and it did make some sense.

A comment over lunch isn't exactly definitive research, but I jumped in my seat nonetheless.

Photo: economist John Taylor of Stanford University.

Greetings from Denver, host to the 2011 meetings of the American Economics Association and Allied Social Sciences Association. I'm here for the full run of meetings. Much of the time I'll be conducting job candidate interviews for my current (top secret) employer, but also will sit in on some sessions, and will take the continuing education course on New Developments in Monetary and Fiscal Policy with Martin Eichenbaum and Sergio Rebelo, both of Northwestern University. Expect reports.

Getting to Denver has been quite fun, and worthy of a report itself. I spent New Years' Eve in Bozeman MT with friends, including some top ultrarunners. New Years Day training partner Fran Zelenitz and I did a one hour run on snowpacked trails in Bozeman, which felt great. The next day we made a summit attempt on Baldy, just north of Bozeman. Fran wasn't feeling 100% and turned back after an hour or so. I kept on, accompanied by canine companion Chaos, but gave up around the halfway point when I hit ice slopes that were too much for the snowshoe crampons -- real crampons would have worked, as would have stronger legs. I decided not to risk injury and turned back, doing an off trail leg that took us to a lower trail where we slogged up slopes and through timber, getting a total of 6 and a half hours of solid snowshoeing in. Another snowy run on the third, and then down to Cheyenne Wyoming, where I stayed with my longtime friend Jeff Ross and his lovely lady Terry.

On the 5th Jeff and I did a great snowshoe trip in the Snowies under somewhat tough conditions -- cold and extremely high winds. (On the way there Jeff saw a semi trailer twice tip on one set of wheels -- the other side was lifted off the ground by the wind.) It was a great high altitude trip (over 9,000 feet) and with luck I'll have a photo or two to post at some point.

Today Jeff, Terry, and I visited the Denver Museum of Art for the Tutankhamun exhibition plus quite a number of the regular exhibitions. This was certainly a much better way to get to the AEA/ASSA meetings than my usual flight, and best of all -- no TSA idiots were involved!

Next, the meetings...more news soon!

What do Facebook, Goldman Sachs, and Russia's Digital Sky Technologies have in common? Facebook is selling shares to Goldman and DST. Simultaneously Goldman is developing a structured investment vehicle so as to circumvent SEC reporting requirements. Facebook will have possibly thousands of high-end investors, but with the SIV it will be considered just one investor -- Goldman Sachs.

I've been anti-Facebook for a long time. It's difficult to find another activity that is so vacuous and pervasive as Facebooking; television watching is the only thing I can think of. But television watching, mind-numbing as it is, at least does not require you to give up your privacy. But now users will be surrendering their privacy to secret unnamed investors. Do you really want to give all this info to... umm, Putin? The Chinese? The Saudis? Who knows who? There'll be no way to find out.

Couple Facebook with the most corrupt and conniving of financial entities (Goldman, of course), add the Russians and who knows who else, and you have quite an alarming operation, to say the least. Most "social networking" is simply empty distraction from the standpoint of the user, but increasingly the information we put out is being used for manipulating us under the guise of marketing. Social networking is really social engineering on a mass scale. We at Unforeseen Contingencies strongly urge everyone to break the habit and get rid of their Facebook and similar social networking accounts.

Yes, a match made in hell. This is not innocuous.

Happy New Year from Unforeseen Contingencies!

The year has barely begun, and we already have a strong candidate for weirdest story of the year. In December 2009 the Taliban kidnapped two French journalists working in Afghanistan, and held them for ransom. The French government has refused to pay the ransom, and the men are still held hostage.

Today the Taliban issued a press release condemning the French government because it has "not paid much attention to our conditions and the rights of their citizens." Lebanon's Naharnet has the story.

A year that begins with kidnappers expressing outrage that others are insufficiently concerned with the rights and well-being of their victims might turn out to be quite interesting.

May all of our Unforeseen Contingencies readers (we have readers?) have very interesting, successful, and happy year in 2011!