Brad Delong on Krugman

Paul Krugman Gets, I Think, too Close to His Inner Hayek
By Brad DeLong

He writes, this morning:

Cash for Trash: The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis? Well, it might.... [But] even if the vicious circle is limited, the financial system will still be crippled by inadequate capital. Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?...

This is analogous to the argument that the Hayekians always made against central bank stabilization policy carried out by open market operations. The problem, the Hayekians said, that the Keynesian central bankers saw was that the prices of safe bonds were too low to bring full employment. The solution the Keynesian central bankers pursued, the Hayekians said, was to print cash and buy safe bonds and so push safe bond prices up and interest rates down until businesses were confident enough that they could make a profit to employ all the workers who wanted jobs. But, the Hayekians said, this worked only because the Keynesian central bankers were buying the bonds for more than their real true value. Eventually the bonds would have to fall back in price to their true value. And when they did, you would find that all the extra investment undertaken during the false Keynesian boom had further increased the overhang of unproductive and useless capital, and that you were in a situation in which the gap between the market equilibrium interest rate and the interest rate consistent with full employment is better than ever.

This Hayekian argument was, of course, dead wrong. Its problem was that it mistook value for being a fact of nature rather than a social relationship among people. The value of something is what people are willing to pay for it. If there is extra liquidity--extra real money balances--in the economy then the value of commodities in terms of nominal yardsticks will be higher and the value of liquidity will be lower--which means that the value of bonds will be higher. There is no "fall back in price to their true value."

Similarly, financial institutions will be grossly undercapitalized if bond prices don't recover and will be well capitalized if bond prices do recover. The way to make bond prices recover--and housing prices as well--is to boost the economy's risk tolerance by raising demand for risky assets and reducing the burden of risk that the private sector needs to hold by reducing the supply of risky assets on the private market. You reduce the supply of risky assets by having the government buy them up. You expand the demand for risky assets by restoring confidence and by providing capital injections. You do both of these at fair prices--at current values--and you find that values have changed *without the governent having to overpay for anything.

This is, I think, what Olivier Blanchard was trying to teach me in the spring of my sophomore year with his disquisitions on the "Metzler model." But I did not understand it at the time...

It speaks volumes that Zinn can be publish by Al Jazeera but not the New York Times...

Zinn: US 'In Need of Rebellion'
by Al Jazeera
Al Jazeera speaks to Howard Zinn, the author, American historian, social critic and activist, about how the Iraq war damaged attitudes towards the US and why the US "empire" is close to collapse.
Q: Where is the United States heading in terms of world power and influence?

Howard Zinn is the author of, most notably, A People's History of the United States, a National-Book-Award-nominated text that investigates US history from the standpoint of the oppressed. Other books by Zinn include Declarations of Independence: Cross-Examining American Ideology and his 1995 autobiography, You Can't be Neutral on a Moving Train.HZ: America has been heading - for some time, and is heading right now - toward less and less world power, less and less influence.

Obviously, since the war in Iraq, the rest of the world has fallen away from the United States, and if American foreign policy continues in the way it has been - that is aggressive and violent and uncaring about the feelings and thoughts of other people - then the influence of the United States is going to decline more and more.
This is an empire which is on the one hand the most powerful empire that ever existed; on the other hand an empire that is crumbling - an empire that has no future ... because the rest of the world is alienated and simply because this empire is top-heavy with military commitments, with bases around the world, with the exhaustion of its own resources at home.

[This is] leading to more and more discontent and home, so I think the American empire will go the way of other empires and I think it is on its way now.

Q: Is there any hope the US will change its approach to the rest of the world?

HZ: If there is any hope, the hope lies in the American people.

[It] lies in American people becoming resentful enough and indignant enough over what has happened to their country, over the loss of dignity in the world, over the starving of human resources in the United States, the starving of education and health, the takeover of the political mechanism by corporate power and the result this has on the everyday lives of the American people.
[There is also] the higher and higher food prices, the more and more insecurity, the sending of the young people to war.

I think all of this may very well build up into a movement of rebellion.

We have seen movements of rebellion in the past: The labour movement, the civil rights movement, the movement against the war in Vietnam.

I think we may well see, if the United States keeps heading in the same direction, a new popular movement. That is the only hope for the United States.

Q: How did the US get to this point?

HZ: Well, we got to this point because ... I suppose the American people have allowed it to get it to this point because there were enough Americans who were satisfied with their lives, just enough.

Of course, many Americans were not, that is why half of the population doesn't vote, they're alienated.

But there are just enough Americans who have been satisfied, you might say getting some of the "goodies" of the empire, just some of them, just enough people satisfied to support the system, so we got this way because of the ability of the system to maintain itself by satisfying just enough of the population to keep its legitimacy.

And I think that era is coming to an end.

Q: What should the world know about the United States?

HZ: What I find many people in the rest of the world don't know is that there is an opposition in the United States.

Very often, people in the rest of the world think that Bush is popular, they think 'oh, he was elected twice', they don't understand the corruption of the American political system which enabled Bush to win twice.
They don't understand the basic undemocratic nature of the American political system in which all power is concentrated within two parties which are not very far from one another and people cannot easily tell the difference.

So I think we are in a situation where we are going to need some very fundamental changes in American society if the American people are going to be finally satisfied with the kind of society we have.

Q: Do you think the US can recover from its current position?

HZ: Well, I am hoping for a recovery process. I mean, so far we haven't seen it.

You asked about what the people of the rest of the world don't know about the United States, and as I said, they don't know that there is an opposition.

There always has been an opposition, but the opposition has always been either crushed or quieted, kept in the shadows, marginalised so their voices are not heard.

People in the rest of the world hear the voices of the American leaders.

They do not hear the voices of the people all over this country who do not like the American leaders who want different policies.

I think also, people in the rest of the world should know that what they see in Iraq now is really a continuation of a long, long term of American imperial expansion in the world.

I think ... a lot of people in the world think that this war in Iraq is an aberration, that before this the United States was a benign power.

It has never been a benign power, from the very first, from the American Revolution, from the taking-over of Indian land, from the Mexican war, the Spanish-American war.

It is embarrassing to say, but we have a long history in this country of violent expansion and I think not only do most people in other countries [not] know this, most Americans don't know this.

Q: Is there a way for this to improve?

HZ: Well you know, whatever hope there is lies in that large number of Americans who are decent, who don't want to go to war, who don't want to kill other people.

It is hard to see that hope because these Americans who feel that way have been shut out of the communications system, so their voices are not heard, they are not seen on the television screen, but they exist.

I have gone through, in my life, a number of social movements and I have seen how at the very beginning of these social movements or just before these social movements develop, there didn't seem to be any hope.

I lived in the [US] south for seven years, in the years of the civil rights movements, and it didn't seem that there was any hope, but there was hope under the surface.

And when people organised, and when people began to act, when people began to work together, people began to take risks, people began to oppose the establishment, people began to commit civil disobedience.

Well, then that hope became manifest ... it actually turned into change.

Q: Do you think there is a way out of this and for the future influence of the US on the world to be a positive one?

HZ: Well, you know for the United States to begin to be a positive influence in the world we are going to have to have a new political leadership that is sensitive to the needs of the American people, and those needs do not include war and aggression.

[It must also be] sensitive to the needs of people in other parts of the world, sensitive enough to know that American resources, instead of being devoted to war, should be devoted to helping people who are suffering.

You've got earthquakes and natural disasters all over the world, but the people in the United States have been in the same position as people in other countries.

The natural disasters here [also] brought little positive reaction - look at [Hurricane] Katrina.

The people in this country, the poor people especially and the people of colour especially, have been as much victims of American power as people in other countries.

Q: Can you give us an overall scope of everything we talked about - the power and influence of the United States?

HZ: The power and influence of the United States has declined rapidly since the war in Iraq because American power, as it has been exercised in the world historically, has been exposed more to the rest of the world in this situation and in other situations.

So the US influence is declining, its power is declining.

However strong a military machine it is, power does not ultimately depend on a military machine. So power is declining.

Ultimately power rests on the moral legitimacy of a system and the United States has been losing moral legitimacy.

My hope is that the American people will rouse themselves and change this situation, for the benefit of themselves and for the benefit of the rest of the world.

I love this latin phrase...

In necessariis unitas, in dubiis libertas, in omnibus caritas
From Wikipedia, the free encyclopedia

In necessariis unitas, in dubiis libertas, in omnibus caritas is a Latin phrase commonly translated as "unity in necessary things; liberty in doubtful things; charity in all things", or, more literally, "in necessary things unity; in uncertain things freedom; in everything compassion".

It is often misattributed to St. Augustine of Hippo, but seems to have been first used in the 17th century by a German Lutheran theologian, Peter Meiderlin (also known as Rupertus Meldenius), in the form "Verbo dicam: Si nos servaremus in necesariis Unitatem, in non-necessariis Libertatem, in utrisque Charitatem, optimo certe loco essent res nostrae.", meaning "In a word, let me say: if we might keep in necessary things Unity, in unnecessary things Freedom, and in both Charity, our affairs would certainly be in the best condition".

It is widely quoted in defence of theological and religious freedom.

This phrase is the motto of the Moravian Church and the Evangelical Presbyterian Church (United States), as well as the Cartellverband der katholischen deutschen Studentenverbindungen, ÖCV and CV, and the Unitas Verband der Wissenschaftlichen Katholischen Studentenvereine, UV and UVÖ the associations of Catholic student fraternities of Austria and Germany. The phrase in its current form is found in Pope John XXIII's encyclical Ad Petri Cathedram [1].

It seems to be the essence of left libertarians... and you see the intellectual decent of Rousseau...

the collective whole (i.e. economy) first, individual liberties second, humanity always...

[update]
Here is something interesting on the phrases origin... as with all internet finds one must be weary but at least it cites sources--which I would have no time to track down anyways!

Keep calling me a coward

Keep calling me a coward.
by Jim Nichols
June 21st 2008

In 2002 and 2003 I joined with men and women of all and ages and walks of life–young and old, conservative and liberal, veterans and wide eyed college kids–together we worked hard to organize and educate on the catastrophic foreign policy of the Bush/McCain ilk. We spoke out on how their approach, their faith in bombs and war rather than diplomacy and calculated toughness, instead of blind force would undermine our national security, overextend our military unnecessarily, and strengthen our adversaries.

Beyond the policy itself, the fundamental principles, the essence of our American way of life: sound economic footing, respect for human dignity and the innate value of human life; would be at best strained beyond necessity and at worst fundamentally ignored and discarded. For our efforts to participate as an active citizenry that involves itself in public policy–something our Founding Fathers expected of us–we were labeled childish, naive, un-American...cowards.

Now the question must be asked–who was wrong on the policy? Who was truly putting American security, American lives, Americas future at risk? Who upheld the standard of our Founding Fathers and the millions of nameless hero's throughout our history who stood with integrity and fearlessness to protect our nation from those who want to take, waste or relinquish the gifts we have been blessed with? Is Iran not rising? Is the middle east more secure? Was Iraq producing the oil to pay for this war that was fought on slam dunk evidence that would cost next to nothing for American taxpayers?

The economist Joseph Stiglitz recent found that nearly 40% of our solder are coming home needing long term physical and mental care for the rest of their lives–and that we are not budgeting for these obligations we owe to them. The efforts of Republican Chuck Hegal and Democrat Jim Webb to get our solders the money they need to get a college degree was opposed by a shockingly large number of elected officials. Why were the likes of John McCain and my congressman Lynn Westmoreland deciding that we need to be stingy with the budget when it comes to our troops?

Osama Bin Ladin is still on the loose, Afghanistan is neither stable and secure, and Al queda is on the rise rather than on the run. America has lost its footing and the public has lost faith in the essence of American resolve. 6 years later I hope that others have learned what I have from this period, these policy, this environment. I no longer pause and question my own patriotism when I am challenged. I want to improve our way of life and I am proud of that fact. I stand my ground and work to organize an active citizenry who believes that our Government is supposed to protect and empower its citizens rather than divide the public and enrich the few.

Even though attacks on my character continue because of my belief that every American deserves affordable health care and that our solders deserve only the best after their service–one and only one tour of duty with no obligation to ever do more, is that too much to ask?

Keep calling us un-American, keep calling us cowards. American's aren't stupid, they see who is truly fighting for them and who is simply pandering fear and hopelessness–and it only makes people like me work that much harder. To those younger than I who wonder what their elders have handed to them. Don't let the talking heads and community curmudgeons fool you. Register to vote, participate in the process, and never say our people can't achieve whatever they put there sights on. And let us learn from our history so that we never ever repeat this sad chapter.

Jim Nichols lives in Stockbridge GA and is an undergraduate at GA State University.

There is nothing funny about resource allocation

There is nothing funny about resource allocation
by Jim Nichols
Sep. 3, 2007

I wasn’t expecting parents struggling to pay health care costs across my district to be disrespected in a discussion of SCHIP. But in his piece entitled “Open up your wallet and say ‘Ah’ my Congressman Lynn Westmoreland made an analogy that did just that. In it he challenged the wisdom of spending when one is “in debt up to your ears and your credit cards are maxed out,” asserting that “a new credit card is not the answer.” First the “problems” he was citing were shortfalls in long-term budget projections. The combined budget shortfalls of Medicare and Social Security have more to do with health care cost inflation–which the rest of the industrialized world has learned to manage–rather than entitlement programs run amuck as Westmoreland infers. But more importantly it’s a question of tact; as my fiance stated to me after reading it, “if our child needed medical care we’d take out as many credit cards as we could to make sure they got treated.” Reading Westmoreland’s piece I felt the struggles of constituents being ignored.

SCHIP is a federal program designed to work in a targeted manner to capture low income children who do not fall within Medicaid qualifications, its one goal is to improve health care coverage of children–not end the health care crisis. Since 1997 the programs have reduced the number of children without insurance by about one-third. The best synopsis I can give of his position is that Westmoreland questions the wisdom of how the bill is paid for and sees it as a burden on taxpayers. I won’t waste space on the question of crowd-out rates or the claimed superiority of private health insurance, and would direct people to the nonpartisan Congressional Budget Offices analysis for context on those issues

Beyond the rhetoric I question framing the $157 billion cut to Medicare Advantage as a cut to Medicare. A change that saves taxpayer money and increases efficiency–providing people the same quality of care–is a cut? This cut has been a recommendation of groups such as the National Committee to Preserve Social Security and Medicare, and the American Medical Association; not to mention MedPac– the advisory body for the congress in charge of Medicare payment policy. According to MedPac the largest overpayments “average 19% more than it would cost to treat comparable beneficiaries under regular medicare, with half of these overpayments going to profits, marketing, and administrative cost.” This doesn’t devastate Medicare it creates a situation where more people get health coverage.

The context of the numbers, with claims of “staggering” and “upsetting” spending increases that create “Government-run health care” seem questionable as well. $130 billion over 10 years is $48.82 per-capita according to the budget calculator at Center for Economic and Policy Research website. To assert a better funded SCHIP would lead to government-run health care is a leap in logic. SCHIP and Medicaid are programs using private doctors and private health care plans where states negotiate the limits, rates, and package details. These are decisions made by people at the state level.

By cutting payments which typically go into marketing, administration, and profits; and increasing the cigarette taxes (which in-its-self is projected by the American Cancer Association to ‘prevent more than 900,000 Americans from dying prematurely because of smoking’) the SCHIP bill increases the number of children covered in this country. If one more parent is kept from needing to open an extra credit card to get the quality care their child needs, my $48.82 will be well worth it.


Mr. Westmoreland, please publicly clarify your position on SCHIP in a more precise manner. I will acknowledge that your criticisms on a point by point basis might be sound if the bill was intentioned as a long term fix to the health care crisis but the question at hand falls short of that framework. Claims that families of four with incomes above poverty are less deserving of reprieve and assistance than a family in poverty seems divisive–the nuances of government spending are not black and white questions of who works harder or which struggle is more burdensome. By using analogies about bad credit you frame it in that way. The problems with your piece–the representation, analogies, and logic—make the case that it will be the inability of those opposed to Universal plans to come up with workable solutions over the past 20 years that will give us universal health care... not Hillary Clinton.

financial analysis

Great Balance Sheet! Strong Earnings!

by lama

A pet peeve of mine is analysts. When is the last time you heard one of them speak about cash flows other than in passing? If you do not address the components of the Statement of Cash Flows, you cannot opine on the strength of the Balance Sheet or Earnings. What’s the problem? The Statement of Cash Flows is conceptually difficult to grasp as it’s traditionally taught. The statement might be called “Statement of all the other assets and activities affected cash.” It’s not that one thing is more important than the other 2, it’s that the stool needs 3 legs.

It’s even more important to know this now. Cash is always nice to have, but even more so in a down market when it’s not so easy to borrow cash. If any of you are buying individual stocks, you have to learn how The Statement of Cash Flows works. It is not possible to assess a company’s condition without understanding it. I surfed around a bit and didn’t find anything that was very good. The Wikipedia entry was as good as any.

http://en.wikipedia.org/wiki/Cash_flow_statement