Brad DeLong's Semi-Daily Journal: A Weblog

Predictions for the first financial crisis of 2005? Turkey or Argentina default on multilateral debt?

If a default from those two countries, probably Argentina. Assuming that does happen.

Going on about the subject of SF&F and colour, I have to say that as a nonwhite person I do notice what the colour is of characters. My favorite author, for instance, is CJ Cherryh, with my favorite characters. But it often feels to me that space is white in her books, as in many other books. Whiter than Star Trek, where at least Kirk had some crew members of Other Earth Races. Other Races. Think about that.

This to me is very sad. It suggests to me that a lot of cultures on Earth don't get to go to space. If it were a premise that those races on Earth were left behind and woven into the story, then I could forgive it. But it's kind of painful to think that even in stories I love, galactic race and culture is simple an extension of an aspect of North America, and not even these days a representative one.

A social security plan that makes sense

http://fafblog.blogspot.com/2004_12_12_fafblog_archive.html#110323085711835352

Does anyone have any comments on Mandelbrot's statistical analyses of markets? Any sense of whether his claims of power-law scaling, memory, and variable market time are bourne out? And is anyone building on the work--trying to understand why such distributions might emerge from market behavior and how ensembles of such markets would operate?
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Mandos, in the second half of the 20th century it was plausible that North America and Europe would be the source of human space travellers, though Cherryh does also include the Russians. But the politics of her future are irrepressibly North American, except where they are feudal. Now...I'm betting on Japanese-designed craft, manufactured in China.
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Anyone have a guess when the Asian banks will start to dump dollars? I know! Let's start a betting pool! :-)
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...and why is this blog eating my paragraph breaks?

I had started to think that the Bush Social Security non-plan would die a death similar to the Clinton Health care initiative. But after reading the comments section of Mark Cuban's excellent post, I'm now beginning to think that Bush will be able to screw it up anyway he wants.

http://www.blogmaverick.com/entry/1234000127024034/

Hint: they don't seem to agree with Mark.

I must remember to get the opinions of sports fans on economic and social issues to get a better sense of the national attitude.

I've thought perhaps Bush's plan may be intended to scare individuals into saving more for themselves. Sort of like the Clinton plan scared health care costs down for eight years, but with everyone in the nation in the crosshairs.

Another thought is that this plan is being pushed to divert attention from other things Bush hopes to achieve.

For the time being, though, it needs to be fought, and so far, I think it has provided a real opportunity for Democrats to remind the nation why an all-GOP government involves more risk than they thought.

Thanks for the open thread Brad! Now I can feel free to ask is someone could help me get past what everyone seems to accept as a fundamental macroeconomic premise: If a country has negative foreign exchange, that country is consuming more than it produces.

I imagine Geldonia, whose only industry is their massive gold mine. They produce a large amount of gold each year, most of which goes into a huge vault under the Presidential palace, which they are saving for their baby boom generation's retirement. Their only foreign exchange represents the purchase of ten back-hoes from Caterpillar each year from the United States. How is Geldonia consuming more than it produces with net negative national savings?

What does everyone in Geldonia eat?? :)

And doesn't Geldonia have positive national savings, not negative??

When you say "negative foreign exchange", do you mean a current account deficit? In the situation you describe, there does not seem to be a surplus or deficit in the current account. They buy backhoes with gold... sounds like balanced trade to me? (ie no IOUs like T-bonds).

Here's something that's been bugging me off and on since before the iraq invasion, and I've never done the hard work of getting it straight.

Saddam said iraq had tremendous oil reserves, the second-largest in the world. But while Saddam was in charge there wasn't exactly any independent confirmation. I suppose that multinationals might drill for him and they'd know when he lied about their drilling, but would they contradict him? Not if they wanted to keep doing business in iraq.

Are we still taking Saddam's word for the iraqi oil reserves? Has anybody done independent confirmation since the takeover? Have any oil companies come out and said whether he was lying or not?

I got the impression there was a fundamental shift in US government activities in iraq right after the Oil Ministry records got looked over, but there was enough else going on there that it could have been coincidence.

http://www.nytimes.com/2004/12/17/opinion/17krugman.html?pagewanted=print&position=

Buying Into Failure
By PAUL KRUGMAN

As the Bush administration tries to persuade America to convert Social Security into a giant 401(k), we can learn a lot from other countries that have already gone down that road.

Information about other countries' experience with privatization isn't hard to find. For example, the Century Foundation, at www.tcf.org, provides a wide range of links.

Yet, aside from giving the Cato Institute and other organizations promoting Social Security privatization the space to present upbeat tales from Chile, the U.S. news media have provided their readers and viewers with little information about international experience. In particular, the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers' contributions on fees to investment companies.

It leaves many retirees in poverty.

Decades of conservative marketing have convinced Americans that government programs always create bloated bureaucracies, while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems.

These fees cut sharply into the returns individuals can expect on their accounts. In Britain, which has had a privatized system since the days of Margaret Thatcher, alarm over the large fees charged by some investment companies eventually led government regulators to impose a "charge cap." Even so, fees continue to take a large bite out of British retirement savings.

A reasonable prediction for the real rate of return on personal accounts in the U.S. is 4 percent or less. If we introduce a system with British-level management fees, net returns to workers will be reduced by more than a quarter. Add in deep cuts in guaranteed benefits and a big increase in risk, and we're looking at a "reform" that hurts everyone except the investment industry.

Advocates insist that a privatized U.S. system can keep expenses much lower. It's true that costs will be low if investments are restricted to low-overhead index funds - that is, if government officials, not individuals, make the investment decisions. But if that's how the system works, the suggestions that workers will have control over their own money - two years ago, Cato renamed its Project on Social Security Privatization by replacing "privatization" with "choice" - are false advertising.

And if there are rules restricting workers to low-expense investments, investment industry lobbyists will try to get those rules overturned.

For the record, I don't think giving financial corporations a huge windfall is the main motive for privatization; it's mostly an ideological thing. But that windfall is a major reason Wall Street wants privatization, and everyone else should be very suspicious.

Then there's the issue of poverty among the elderly.

Privatizers who laud the Chilean system never mention that it has yet to deliver on its promise to reduce government spending. More than 20 years after the system was created, the government is still pouring in money. Why? Because, as a Federal Reserve study puts it, the Chilean government must "provide subsidies for workers failing to accumulate enough capital to provide a minimum pension." In other words, privatization would have condemned many retirees to dire poverty, and the government stepped back in to save them.

The same thing is happening in Britain. Its Pensions Commission warns that those who think Mrs. Thatcher's privatization solved the pension problem are living in a "fool's paradise." A lot of additional government spending will be required to avoid the return of widespread poverty among the elderly - a problem that Britain, like the U.S., thought it had solved.

Britain's experience is directly relevant to the Bush administration's plans. If current hints are an indication, the final plan will probably claim to save money in the future by reducing guaranteed Social Security benefits. These savings will be an illusion: 20 years from now, an American version of Britain's commission will warn that big additional government spending is needed to avert a looming surge in poverty among retirees.

So the Bush administration wants to scrap a retirement system that works, and can be made financially sound for generations to come with modest reforms. Instead, it wants to buy into failure, emulating systems that, when tried elsewhere, have neither saved money nor protected the elderly from poverty.

This to me is very sad. It suggests to me that a lot of cultures on Earth don't get to go to space. If it were a premise that those races on Earth were left behind and woven into the story, then I could forgive it. But it's kind of painful to think that even in stories I love, galactic race and culture is simple an extension of an aspect of North America, and not even these days a representative one.

Mandos, in the second half of the 20th century it was plausible that North America and Europe would be the source of human space travellers, though Cherryh does also include the Russians. But the politics of her future are irrepressibly North American, except where they are feudal. Now...I'm betting on Japanese-designed craft, manufactured in China.

1. To what extent should race matter in SF (as opposed to culture)? Most SF is set in future cultures or environments where, out of hope or naivete, many authors think skin pigment differences will be no more divisive than hair or eye color. I've read lots of hard SF writers where the future colonization of space may or may not have been initially undertaken by a single national or racial group, but, several decades or centuries down the line, those national or racial differences are replaced by other divisions - differing cultures between planets, or between space travelers and the planet-bound, etc.

Asimov, for example, in his later Foundation books, observes on several occasions that skin tones may vary in the Galactic Empire from planet to planet, usually based on levels of exposure to solar radiation, but that the norm is a uniform shade of light brown (I think he uses "bronze" to describe Trevize?), presumably reflecting tens of thousands of years of racial intermarriage to the point that no one is "white" or "black" anymore.

2. Given that "hard" SF writers are mostly white and male, and they generally have a hard time even writing passable female characters, trying to write a beleivable character whose race is central to their expereince would be very difficult. Those authors are also often libertarian and/or democratic (small 'd') and meritocratic in their outlook, and race would be irrelevant in their color-blind futures. Very "Star Trek." Because they don't think race should matter, it becomes that much more difficult for them to create believeable futures where race does matter.

3. Some SF does deal directly with race. Kim Stanley Robinson, David Brin, Greg Benford, Greg Bear, Jack McDevitt... most authors of large ensemble techno-thirller-style action near-future SF try to have a diverse cast of characters, in terms of gender, race, ethnicity, or national origin. To the extent that those characters may merely be tinted Anglo elites, that would support #2 above.

4. Lots of "soft SF" deals with issues that may be very analogous to race-related issues, such as group identity, class, cultural conlict, historical legacies, traditions, in-groups vs. out-groups, caste, cultural outcasts, and prejudice, but in an entirely different social context. I've always considered such 'thought experiments' to be a hallmark of SF - these ideas can be abstracted and explored independent of current political or cultural implications.

Looking at news sources and serious blogging on the web, I am astonished to see so little commentary on the coming military defeat in Iraq. A lot of mental energy is devoted to the deficits and the economics of SS reform, and these are important subjects. But am I the only person besides Tom Englehart and the person behind Today in Iraq who seems to be wondering how long the US forces can hold out in Iraq?

There's a lot of information out there, even numbers to be crunched. And if a collapse takes place, everything will change, even the politics of SS reform. So are people just avoiding this subject, or am I off base?

Every branch of government under George Bush's control is in deficit. The one branch Bush doesn't control is running a surplus. What makes Bush so interested in Social Security? Follow the money. He'd like to steal the surplus. How can he do it? By cutting benefits. Listen to his promises. "I will not cut Social Security benefits (for those currently retired or near retirement)." Read this closely and he's saying, "I'll cut everybody's benefit, immediately for most people, after a few years for the rest." Privatization is a marketing slogan to sell benefit cuts. Nobody expects it to work. Like a candy bar whose wrapper says "NEW!", but what's new is the smaller size.

wetzel,
1. Is Geldonia selling any gold now, or does it all go into the Presidential Vault?
2. If gold is sold, how, where, and for what does Geldonia sell its gold?
3. That, is, does Geldonia have its own currency ("Geldons")? Or does it use US Dollars, but have no additional foreign transactions beyond the sale of gold and the purchase of Caterpillars?
4. If the gold is not traded now, will it be traded in the future for the Geldonian baby boom? Or are the boomers just going to eat the gold?

This is VERY important.

If Geldonia sells no gold, and has its own currency, then it cannot engage in trade (you've already stipulated that they have no other trade). How would it ever purchase the Caterpillars? Caterpillar, Inc. (CAT) sells in US$. Either Geldonia needs to get the US Dollars from somewhere (and in exchange for something), or there needs to a reason why CAT would want to accept Geldons. After all, if Geldonia has no exports, what is CAT going to do with a bunch of Geldons - eat them?

Krugman says about Bush's SS intentions: "For the record, I don't think giving financial corporations a huge windfall is the main motive for privatization; it's mostly an ideological thing." but he doesn't explain just what he thinks the ideology is. Is Bush just setting out to prove to everyone's satisfaction that *everything* he touches turns to shit?

I guess Geldonia isn't the best approach. Let me be more prosaic. Here is an passage from the Setser and Roubini paper Brad linked to a few weeks ago:

"A basic identity of macroeconomics links a country’s trade balance – or more specifically its current account balance -- to the difference between national savings (the sum of private and public savings) and national investment. If savings exceed domestic investment, the country is exporting capital and necessarily will run a current account surplus. If investments exceed savings, the country must borrow from abroad (import capital) to fund the excess of domestic investment relative to domestic savings and it necessarily runs a current account deficit. There is no mystery behind this analysis. National savings are the difference between national income and national consumption (the sum of private and public consumption). If private consumption is rising faster than income, private savings necessarily are falling – and higher consumption implies higher imports, since a fraction of consumption is going towards imports. An increase in investment similarly implies an increase an aggregate demand, and therefore an increase in imports, as does an increase in government spending/ a fall in taxes (i.e. larger budget deficit and a fall in public savings)."

What I am trying to understand is the Conservation Law that makes foreign exchange the end all and be all of national savings. If a country were not engaging in any foreign exchange at all, would it not be possible to produce more than it consumes?

Wall Street Journal is bullish on blogging today:

http://www.opinionjournal.com/columnists/dhenninger/?id=110006042

"produce more than it consumes" - what do you mean by this? In a general sense, this is true of nearly economy in the world, and certainly the world as a whole: GDP rises in nearly all countries, year on year. The world as a whole is getting wealthier.

At the same time though, by definition things that are produced must be consumed. Else, what happens to that which is produced when it is not consumed in the country? Keep in mind that "consume" is VERY broad. For your hypothetical country to produce more than it consumes, the extra production must go somewhere. Is it destroyed in some manner that you do not consider it "consumption"? Is it dropped in the ocean, or pushed off a cliff? Is it burned? Is it inventoried in warehouses for the future?

In the passage you quote, "National Savings" NS = Private Savings PS + Public (government) Savings GS. If Government has a budget surplus and individuals and corporations are saving money in the aggregate, NS is positive. If government has a budget deficit and the private sector is borrwing, NS is negative. In the US today, GS is large and negative while PS is small and positive, although it decreases every year.

"National Investment" NI is consumption of all kinds. Thus, like NS: NI = Private Investment + Public Investment.

(There is understandable confusion here: most non-economists think that saving and investment are closely related. However, in the Setser & Roubini discussion, the terms are used in a technical fashion, and they are opposites of each other.)

Suppose a country had an untradeable currency FOO and engaged in no trade or foreign exchange. Then every FOO, public or private, must be spent on saving or consumption. Every individual or corporations that wanted to borrow in order to INVEST in new factories or home improvements or a pair of jogging shoes would have to go to the bank and borrow from the SAVINGS of another person. Thus, NS = NI.

Depending on the sophistication of the banking system, the money supply could expand as each FOO is lent and re-invested over and over again. Such money supply expansion, year to year, might lead to there being more FOO each year. If the economy is growing (i.e. more stuff produced each year), this would be a good thing because each FOO would keep roughly the same value; i.e. there would be no deflation. Of course, if such FOO-supply expansion were to occur in the absence of real economic growth - i.e., more FOO chasing the same amount of stuff - you'd get inflation. But I digress.

So, if the economy is growing, and the money supply is expanding sufficiently to prevent deflation, then each year there will more stuff and more FOO for each person, and we all get wealthier. So the economy will produce more and can thus consume more. But I would regard this as merely "producing only as much as you consume."

Natalie Portman is hot! :)

Thank you Silent E. If I PayPal took FOO I would pay you.

Randolf Fritz wrote,

"Does anyone have any comments on Mandelbrot's statistical analyses of markets?"

No, though M. seems to me to be a blowhard who wants to read "fractals" into everything.

OTOH, there are some very smart geophysicists who have done analyses of market behaviors that are interesting.

"Anyone have a guess when the Asian banks will start to dump dollars? I know! Let's start a betting pool! :-)"

No. It could take years. Only thing I'm willing to offer is a lower bound: probably less than 5 years, certainly less than 10.

"...and why is this blog eating my paragraph breaks?"

It doesn't. I asked the same question, and someone pointed out it's only in preview mode that it eats the breaks.

Sorry, "*upper* bound."

J. Thomas
You don't need the records to send a stealth aircraft in to drop a radio seismic probe on an area of Iraq. You use these radio seismic probes to confirm that the Iraqi guy that sold you the Iraqi data is honest.
What you do need the oil driller to do is to find out what the seismic probe detected. All 'bright spot' seismic does is tell you that there is some fluid, probably gas, about so deep. Could be methane, could be hydrogen sulfide, could be carbon dioxide, who knows?
Reminds me about the guys (Exxon?) that drilled a big structure with a HUGE seismic bright spot in the South China sea... and discovered the world's largest deposit of Perrier water.

Thank you, wkwillis.

Have you seen an honest estimate of iraqi oil reserves? I haven't seen anything but Saddam's estimates, and somehow I don't have full confidence in them.

Since we're talking about climate change lately, the BBC just told me something I wish I'd noticed earlier: major UN discussions on climate change are being held; the so-called "Tenth Session of the Conference of Parties" in Buenos Aires. I just heard in a BCC World Service report (which isn't on-line) that the USA and the various oil-producing nations have finally agreed post-Kyoto talks. The report didn't say what concessions were granted; the Saudis were holding out for something for lost revenue and the reporter said they got something. The current US government, of course, would much rather there be no further talks.

http://unfccc.int/meetings/cop_10/items/2944.php
http://news.bbc.co.uk/1/hi/sci/tech/4106537.stm

Meantime, we have an analysis from an NGO on World Bank policies on fossil fuel extraction and carbon trading. They argue it's a classic case of "regulatory capture" (ie: corruption.) Sample quote: "The Bank's Prototype Carbon Fund--and carbon trading schemes in general--are shaping up to be disasters for the world's poorest. Early projects provide low quality emissions reductions, such as methane capture from toxic waste dumps and carbon sequestration in genetically engineered tree plantations. The World Bank hopes to profit from the carbon trading market through commissions. Also, the Bank greatly inflates the value of its renewable energy portfolio by counting projects that do not meet its own renewable energy criteria. The United States has resisted developing countries' attempts to gain authority over World Bank project finance and clean energy programs."

http://www.seen.org/pages/press_releases/wrong_turn_rio.shtml

Further to the Asimov remark, in "The Currents of Space" he has an outside observer visiting a planet of exploited field workers, and musing that he and they have a natural affinity in representing the two racial extremes - he black and they white (by elimination the exploiting colonialists are in between).

At the time I read it I could see that Asimov was signalling something, but with a non-US background I couldn't make head or tail of it.