Category: Economia

Healthier, maybe; but often more energy-efficient, too.

In Chalk One Up for Organic at Front Porch Republic, Kathleen Dalton discusses a study from the Land Institute that, although aimed at a different objective, was also able to show that organic farming is in many areas more energy-efficient than conventional, chemical-based farming, even when the increased need for human labor is taken into account.

Distributist economist John Médaille comments not to forget the fuel costs of moving food across the country, either.

This follows uncomfortably (for the friends of corporate megafarms) the publicity about Roundup-Resistant weed infestations.

When will we ever learn that there is no technology fix for finitude? There are limits in this created world. We may not know where they are exactly, but the chronically recurrent giddy glee (E.g., “Oh boy! The pill! Now we can have all the sex we want, whenever we want, with whomever we want, without consequences!” Or “Oh boy! Roundup! …”) is delusional.

Is abortion the seed or the flower of Culture Wars?

The buzz about the new book Red Families, Blue Families continues with a conservative columnist I greatly respect, Maggie Gallagher.

Maggie, author of The Abolition of Marriage and a tireless advocate of traditional western marriage, thinks the culture wars start with different views about abortion and those different views ramify in earlier marriage versus later, out-of-wedlock birth rates, etc., rather than the latter ending in controversy over abortion (the quintessential Culture War issue).

It would be interesting in this regard to test how much the “red state, blue state” differences were shaping up before Roe v. Wade, and (if reliable data is available – very unlikely), how the blue states and red states stacked up on abortion rates, legal and illegal, before the Supreme Court basically gave us one, utterly permissive national abortion law.

Globalization + the Pill = Culture Wars

A very interesting post at FPR clued me in to a Jonathan Rauch article in National Journal, which in turn discusses a new book that essentially publishes a Grand Unification Theory of the origins of “Red” and “Blue” America.

I hesitate to summarize. Read either the Front Porch Republic piece or Rauch’s for a summary instead.

What this leaves me with is a couple of intuitions, none of which I’m remotely prepared to defend to the death:

  1. I have taken some solace that “Red America” is growing demographically while “Blue America” is at NPG. This new theory makes me think that teeming Red America will continue to work for Blue America and will continue to be relatively ineffectual in carrying out any red agenda.
  2. Any red agenda is already in trouble. Red America, relatively speaking, tramples on the values they profess and which, in their pulpits, they literally preach. Why? They’re spitting into a very, very strong headwind of sexuality and lower wages, and their early marriages, plus the newish necessity of both parents working, make musical beds a far more popular game in Red American than in Blue.
  3. What happens when the Trillion Dollar Ponzi Scheme collapses? Red America knows more about the practical arts like gardening, homebuilding, etc. than Blue America knows. Will Blue America be picking Red America’s asparagus in a few Springs?


NYT Opinions on Goldman Sachs (and why I won’t boycott Arizona)

David Brooks, the New York Times’ genial sorta-conservative columnist, views the financial reform debate roughly as I do, which makes me tentatively pleased that the GOP turned the lemmings back from the cliff yesterday:

The premise of the current financial regulatory reform is that the establishment missed the last bubble and, therefore, more power should be vested in the establishment to foresee and prevent the next one.

If you take this as your premise, the Democratic bill is fine and reasonable. It would force derivative trading out into the open. It would create a structure so the government could break down failing firms in an orderly manner. But the bill doesn’t solve the basic epistemic problem, which is that members of the establishment herd are always the last to know when something unexpected happens.

Kudos to Brooks for nicely stating what is obvious to me. Cries and lamentations that it is unknown to most of Congress, whose centralizing impulse continues because it so nicely fits a good guy/bad guy mythology. As Brooks says:

If this were a Hollywood movie, the prescient outsiders would be good-looking, just and true, and we could all root for them as they outfoxed the smug establishment. But this is real life, so things are more complicated …

In this drama … the establishment was pleasant, respectable and stupid, while the contrarians were smart but hard to love, and sometimes sleazy.

However, Congress is mostly ignoring the outsiders, vying for the white hat role itself.

Elsewhere on the Grey Lady’s editorial page, Linda Greenhouse, who usually functions as a Supreme Court reporter with supposed neutrality, gives free rein to her fury at Arizona for its new immigration bill:

I’m glad I’ve already seen the Grand Canyon.

Because I’m not going back to Arizona as long as it remains a police state, which is what the appalling anti-immigrant bill that Gov. Jan Brewer signed into law last week has turned it into.

…

[T]he phrase “lawful contact” makes it appear as if the police are authorized to act only if they observe an undocumented-looking person actually committing a crime, [but] another section strips the statute of even that fig leaf of reassurance. “A person is guilty of trespassing,” the law provides, by being “present on any public or private land in this state” while lacking authorization to be in the United States — a new crime of breathing while undocumented.

I don’t think the “police state” label is a good fit, even if the new law is ugly. Most Arizonans are walking around without fear of police hassles, after all, while everyone cowers in a police state.

I’ll not make it a point of principle to follow Greehouse’s lead (and in fairness, she’s not explicitly calling for a boycott), if only because I want to return to St. Anthony in the Desert Monastery. But if you want to get an eerie police state feeling, drive down to the Monastery from Phoenix to the north. You’ll pass through Florence, whose dominant industry is prisons. Several of them. Public and private prisons (e.g., Corrections Corporation of America), large and forbidding, lining both sides of the road on the drive through town. It’s like stumbling onto something that was deliberately moved out of the way because of its brutal ugliness. One almost wants to divert one’s eyes, the better to say, if challenged for straying onto a scene the public wasn’t meant to see, “I didn’t see nuthin’, and I won’t tell nobody! Please, Officer, let me go!”

It oddly makes the Monastery seem particularly apart from the (seedy) world, coming and going from a day visit or pilgrimage.

“A very efficient way of producing human happiness.”

There’s an excellent little essay by Mark Mitchell at Front Porch Republic today that distills a lot of what that site/blog/movement is about. I especially liked this paragraph:

Wilhelm Röpke recounts a conversation he had with a prominent economist in the aftermath of WWII. As they strolled along the streets of a German town, Röpke pointed, with satisfaction, to the many small vegetable gardens kept by the residents of city. The economist shook his head disapprovingly and grumbled. “A very inefficient way of producing foodstuffs.” Whereupon Röpke responded, “But perhaps a very efficient way of producing human happiness.” This rejoinder takes us to the heart of the matter. Happiness is the proper end of life. By happiness I do not mean the glib and transitory pleasure that so often is confused with happiness today. Happiness, as described by classical and Christian thinkers, is a life of excellence in accordance with goods and standards (both natural and supernatural) that are suited to human beings. This sort of happiness is not achievable in isolation, for humans are creatures fit for community.

Efficiency and specialization are tools, to be set aside when they fail to promote human happiness. Too often, they are among the things that “are in the saddle and ride mankind.”

Goldman Sachs – “the other side” told persuasively

“Goldman Sachs” is not a term of endearment at my favorite websites, such as Front Porch Republic. And I have reflected my own ill-ease with such too big to fail concerns in recent weeks, as well as passing along some counter-arguments.

Wall Street Journal columnist Gordon Crovitz today defends Goldman Sachs in his own way: short selling a derivative signals the market that a sector may be ready to collapse. I certainly agree with that – just as short selling a stock signals that a particular stock may be ready to tank.

The most telling point for me in Crovitz’s column – apropos of why the SEC may lose its case against Goldman Sachs rather than why derivatives are good – is simply that once you accept the premises that (1) shorting a derivative is beneficial because it signals the market of a possible sector collapse, and (2) long buyers in these specially created securities knew someone else was selling short, it seems to follow that “it would be hard to prove that it mattered who [the short seller] was.” That John Paulson was selling short and that Goldman Sachs bundled the derivative for him seems to be what SEC thinks GS should have disclosed.

All this, of course, ignores John Médaille’s, invocation of Aristotle and Aquina to distinguish natural from unnatural market exchanges, but Distributist economics are, for the time being at least, so far out of the mainstream as to be easily ignored. Considering the repeated failures of mainstream economics, that may be ripe for change.

The Democrats have a bright if peurile idea: “Hey, guys! I’ve got a great idea! Regulation utterly failed to prevent the economic collapse, and voters are mad at Wall Street, so lets grab this chance to make Washington bigger with even more regulation! Whaddya think, guys?!” (I’m not sure the Republicans have a counter-plan. They’re just in denial that a market could fail.)

Pretending to regulate something as complex as derivatives is destined again to fail, so I would be remiss were I to pass up, before Congress passes “the most sweeping overhaul of the financial regulatory system since the aftermath of the Great Depression,” not to sing another rousing chorus of “if they’re too big to fail, bust ’em up!”

Goldman Sachs again: a defender and a “third way” step back

Holman Jenkins at the Wall Street Journal rises to the defense of Goldman Sachs, and this time it’s not half-hearted. (You knew someone would, didn’t you? Some people are just contrary.)

Make no mistake: The gestalt behind the SEC case is that short selling is bad. Constructing deals to enable short sellers to bet against certain markets (as Goldman did) is bad. When longs lose money because of freely chosen participation in such trades, it’s bad. When shorts make money, it’s bad …

Remember, the long investors could have bought mortgages directly if they wanted to invest in housing. They wanted the more attractive premium stream from insuring mortgages for an investor who was betting they would fail. And only in hindsight has Mr. Paulson become the mastermind who made billions betting against what now is judged to have been a bubble.

Of course, you can’t go wrong betting on the media’s unwillingness to unwrap itself from the errors of hindsight bias—that bet by the SEC has paid off. But there are bigger fish being fried. For more than a year, certain knowledgeable bloggers and investigative reporters have argued that such deals—Goldman’s was hardly unique—exacerbated the bubble, with special focus on the activities of a Chicago hedge fund called Magnetar.

It’s true that such deals gave housing bulls an additional way to lose money. But to blame shorts for making the bubble worse comes close to saying salvation for the markets is to exclude participants who are bearish.

This is especially peculiar since the bubble’s true Rosetta Stone is being ignored, though it has been hammered away at by a member of Washington’s own Financial Crisis Inquiry Commission, in the person of Peter Wallison.

Mr. Wallison has publicized new data showing that Fannie, Freddie and FHA financed a lot more subprime and Alt-A loans than anyone realized (because they were mislabeled). It turns out almost half of the $10.6 trillion in U.S. mortgages outstanding in 2008 were low quality. This is the data that might have changed investors’ minds—suggesting that the American public’s capacity to shoulder housing debt was far more saturated than anybody knew.

I don’t think any account of the housing bubble collapse is even near complete without factoring in the role of the federal government and its creations, Fannie, Freddie and FHA, in encouraging subprime mortgages to make homeowners of more people. That is turn is driven by lobbyists from the real estate industry. It is part of the crony capitalism I blogged about yesterday.

Is it evil to want to empower people to own their homes? No. Is it fraught with unforeseen consequences? You bet.

(Full disclosure: I’m a sucker for writers who use “gestalt.”)

Meanwhile, out of the mainstream, a Distributist economist, John Médaille, invokes Aristotle and Aquinas as worthy bank regulators:

Not too long ago, a Prominent Economist told me that Aristotle had nothing to teach us about modern finance. I beg to differ; Aristotle, and the Scholastics who adopted his approach to economics, were surprisingly sophisticated on these topics, while so many Prominent Economists are surprisingly naïve. Indeed, Aristotle left us a principle of commerce that serves very well as a principle of regulation. This principle is the distinction he makes between natural and unnatural exchange. Modern commentators, who make no distinctions, have viewed this as a mere primitive hostility to business; actually, it was a shrewd appreciation of commerce. For Aristotle, natural exchange was that which was necessary for the provisioning of the family (the true meaning of economics.) Unnatural exchange that which had only money as it object.

The former is “natural” because it limits itself; that later unnatural because is has no natural limits. For example, a man wishing to buy bread for his family will buy only as much as he needs; this is a natural exchange. But a man wishing only to make money in the bread biz may wish to buy up all the bread and corner the market so as to raise prices and make a fortune on others’ necessities; this is an unnatural exchange. When applied to finance, a transaction is natural when it is when it is firmly and directly tied to the production of some actual product; it is unnatural the more abstract and derivative it becomes, and when its only object is to make money rather than profit from production. Thus, we may say that banks directly financing home purchases or construction are natural transactions, and less natural when they become “securitized,” bundled together and sold in packages to remote investors who will have no contact with the actual homes, banks, or borrowers. The situation becomes even more abstract when you speak of securitizing the securities (“CDO-Squared” or even “CDO-Cubed”) or with CDSs, which become pure speculative bets on the market. The more abstract the instrument, the more closely it should be scrutinized.

As things now stand, we have reversed Aristotle’s order: the natural exchanges are highly regulated, while the unnatural ones are often unregulated. In more normal times, when you went to George Bailey to get a mortgage, he squinted at you real hard to see if you are the kind of person who will pay him back for 30 years. George needs little oversight to encourage him to be prudent, since he has the bank’s capital and the depositors’ money at risk. But if George merely intends to securitize the loan, then he merely glances at you to see if you are the kind of person who will pay for two weeks, because after that you are somebody else’s problem.

(Full disclosure: (1) Tipsy is intoxicated by Distributism, a “third way” economic theory, like wine to the head of a teetotaler  – see masthead. (2) Tipsy is part owner of a title insurance company that was formed partly because mortgage loans were routinely being sold out of the community, and consequently old-fashioned county-seat-lawyer abstract opinions weren’t worth jack any more.)

Crony capitalism

I haven’t yet, and probably never will, fully think through this editorial from today’s Wall Street Journal, titled An Economy of Liars. The author is from the Cato Institute, a right-libertarian group, so read it discerningly for that bias.

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as “anarchy plus a constable.” As a romanticist, Carlyle hated the system—but described it accurately …

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing …

Hayek’s mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct.

In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out.

Note through this that it’s not just big business lying. Big business and government are in bed together.

But “financial institutions should have a duty of care to their customers”? And “Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism”?

Yes, but who will enforce that if not the “cognitively captive” regulators? Class action lawyers? Sheesh! They’re as unpopular as bureaucrats, and justifiably so in many, many (most?) cases. Dismantling regulation per se is not an adequate response. That will only leave us captive to megacorp or to a new cartel of judges and shysters with a chaotic jumble of 50 different rules, one per state.

On the other hand, a local bank, not answerable to a Mother Ship in New York City, might behave itself without massive, Washington-based regulation and without big gun bullshit slingers like the Breck Girl, John Edwards, to sue them if they do get out of line.

Isn’t this another indicator that we need some trust busting of the “too big to fail”? Then we can deregulate. Right?

Is it possible better to distill Goldman Sachs than this?

J. Bradford DeLong, an economist at Berkeley, distills the Goldman Sachs allegations so thoroughly that it would be foolish for me to try to excerpt it. This is, maybe, a 5 minute read — if you’ve never cracked an economics textbook in your life.

UPDATE:

Here’s a half-hearted defense of Goldman Sachs, not surprisingly from the Wall Street Journal.

After 18 months of investigation, the best the government can come up with is an allegation that Goldman misled some of the world’s most sophisticated investors about a single 2007 “synthetic” collateralized debt obligation (CDO)? Far from being the smoking gun of the financial crisis, this case looks more like a water pistol.

The column suggests that the SEC overlooked, or is trying in its Complaint to ignore, “the difference between a cash CDO—which contains slices of mortgage-backed securities—and a synthetic CDO containing bets against these securities … The existence of a short bet wasn’t Goldman’s dark secret. It was the very premise of the transaction.”

Did Goldman have an obligation to tell everyone that Mr. Paulson was the one shorting subprime? Goldman insists it is “normal business practice” for a market maker like itself not to disclose the parties to a transaction, and one question is why it would have made any difference. Mr. Paulson has since become famous for this mortgage gamble, from which he made $1 billion. But at the time of the trade he was just another hedge-fund trader, and no long-side investor would have felt this was like betting against Warren Buffett.

Not that there are any innocent widows and orphans in this story. Goldman is being portrayed as Mr. Potter in “It’s a Wonderful Life,” exploiting the good people of Bedford Falls. But a more appropriate movie analogy is “Alien vs. Predator,” with Goldman serving as the referee. Mr. Paulson bet against German bank IKB and America’s ACA, neither of which fell off a turnip truck at the corner of Wall and Broad Streets.