Monday, March 31, 2008

Loyalty is a one-way street for some

Q&A with Paul O'Neil

It’s so hard to understand how the subprime mortgage crisis has triggered a financial crisis of global proportions. If you have 10 bottles of water, and one bottle had poison in it, and you didn’t know which one, you probably wouldn’t drink out of any of the 10 bottles; that’s basically what we’ve got there.

Have you seen Dick Cheney since he fired you? I have been to a few events where the vice president was there, but we both did our best to ignore each other. You know, I was a pallbearer, and he was a pallbearer, too.

You mean at President Ford’s funeral?

And you didn’t say hello? Nope. It was a good time to be alone together.

Do you feel bitter about your service for the Bush administration? No. I’m thankful I got fired when I did, so that I didn’t have to be associated with what they subsequently did.

Good Intentions Corrupted

Since 2006, when the insurgency in Afghanistan sharply intensified, the Afghan government has been dependent on American logistics and military support in the war against Al Qaeda and the Taliban.

But to arm the Afghan forces that it hopes will lead this fight, the American military has relied since early last year on a fledgling company led by a 22-year-old man whose vice president was a licensed masseur.

With the award last January of a federal contract worth as much as nearly $300 million, the company, AEY Inc., which operates out of an unmarked office in Miami Beach, became the main supplier of munitions to Afghanistan’s army and police forces.

Since then, the company has provided ammunition that is more than 40 years old and in decomposing packaging, according to an examination of the munitions by The New York Times and interviews with American and Afghan officials. Much of the ammunition comes from the aging stockpiles of the old Communist bloc, including stockpiles that the State Department and NATO have determined to be unreliable and obsolete, and have spent millions of dollars to have destroyed.

In purchasing munitions, the contractor has also worked with middlemen and a shell company on a federal list of entities suspected of illegal arms trafficking.

Moreover, tens of millions of the rifle and machine-gun cartridges were manufactured in China, making their procurement a possible violation of American law. The company’s president, Efraim E. Diveroli, was also secretly recorded in a conversation that suggested corruption in his company’s purchase of more than 100 million aging rounds in Albania, according to audio files of the conversation.

This week, after repeated inquiries about AEY’s performance by The Times, the Army suspended the company from any future federal contracting, citing shipments of Chinese ammunition and claiming that Mr. Diveroli misled the Army by saying the munitions were Hungarian.

Mr. Diveroli, reached by telephone, said he was unaware of the action. The Army planned to notify his company by certified mail on Thursday, according to internal correspondence provided by a military official.

But problems with the ammunition were evident last fall in places like Nawa, Afghanistan, an outpost near the Pakistani border, where an Afghan lieutenant colonel surveyed the rifle cartridges on his police station’s dirty floor. Soon after arriving there, the cardboard boxes had split open and their contents spilled out, revealing ammunition manufactured in China in 1966.

“This is what they give us for the fighting,” said the colonel, Amanuddin, who like many Afghans has only one name. “It makes us worried, because too much of it is junk.” Ammunition as it ages over decades often becomes less powerful, reliable and accurate.

AEY is one of many previously unknown defense companies to have thrived since 2003, when the Pentagon began dispensing billions of dollars to train and equip indigenous forces in Afghanistan and Iraq. Its rise from obscurity once seemed to make it a successful example of the Bush administration’s promotion of private contractors as integral elements of war-fighting strategy.

But an examination of AEY’s background, through interviews in several countries, reviews of confidential government documents and the examination of some of the ammunition, suggests that Army contracting officials, under pressure to arm Afghan troops, allowed an immature company to enter the murky world of international arms dealing on the Pentagon’s behalf — and did so with minimal vetting and through a vaguely written contract with few restrictions.

-Supplier Under Scrutiny on Arms for Afghans

Italy Reforms

It's Old Insolvency Regime

Ricardo Hausmann, Martin Wolf, Guillermo Calvo, debate on rescue of Bear Stearns

From FT, the top macro-economists debate;

In his column last week Martin Wolf argued that it was intellectually untenable for Wall Street to resist more onerous regulation of capital requirements or liquidity. Moral hazard is already visible, he wrote, in the jump of investment banks’ share prices since the Bear Stearns rescue.

Ricardo Hausmann argues that tighter regulation during the past few years would not necessarily have led to better pricing of risk. He would put the blame on “a so-called Taylor rule - that sets the interest rate as low as possible, so long as the discomfort with inflation is not larger than the discomfort with unemployment”.

Robert Wade points out that a “new financial architecture” was discussed after the financial crises in in Mexico (1994–5) and East Asia/Brazil/Russia (1997–8) — but by 2000, when these crises appeared limited to the emerging markets, “discussion petered out”.

Just when you thought things could not get much worse, Guillermo Calvo warns that the current financial crisis could be distracting us from another problem: a reduction in central banks’ ability to anchor nominal prices. “In the short run this may be less noticeable in broad price indexes like the CPI but, in my view, it is already being reflected in, for instance, the dollar/euro exchange rate,” Calvo argues. This could have a deleterious effect on trade, he says, because while public policy can respond to trading partners’ technical superiority, for example — it is difficult to effectively reform against arbitrary swings in exchange rates.

Adam Posen echoes Martin’s fears that the current crisis will be interpreted by countries such as China and India as a strike against free market liberalisation. But he fears the misinterpretation will go further. “Life is complicated, so events get overdetermined.” The outcome could be an even deeper rejection of liberalisation, as the entire “anglo-saxon model” is blamed for what Posen calls a “regulatory ankle-sprain”.

Ricardo Hausmann: Martin makes an interesting point. If the Fed’s safety net is extended beyond commercial banks to other market participants, prudential regulation should also be extended to avoid moral hazard. Martin may have a point, but I believe he may be focusing the policy discussion in the wrong place. It is macro policy, not financial policy that needs to be at center stage.

I propose we engage in the following counter-factual scenario. Let us suppose that more stringent financial regulations had been adopted in 2003 or some such date. Let us discuss two macroeconomic scenarios.

Consider first the case where the Fed would have set the same interest rates as we observe in the historical record. In this case, the new regulations would have lead to a smaller rate of credit expansion because the regulations would have meant that, for any interest rate set by the Fed, the market for credit would have been smaller. Presumably, there would have been less mortgage lending, fewer home equity loans and less junk mail offering zero percent loans on credit cards. Aggregate demand would have been lower and presumably so would have been the rate of growth, the level of employment, the inflation
rate and the current account deficit.

Now, consider the alternative scenario in which the FOMC would have set interest rates following the way monetary policy is conducted, with the same inflation and employment targets. What would have been the consequences of this alternative and more plausible financial scenario?

Obviously, the Fed would have lowered interest rates until the amount of lending required by the inflation and employment targets had been achieved. The financial system would have been asked to find other ways to expand credit.

Maybe, that additional lending might have been safer than the form that lending actually took because risk would have been better priced. But I am not so sure that this would have been the case. With the even lower level of real interest rates, the incentives for financial engineers to invent new instruments that could be placed in large numbers would have been enormous and many more bright minds would have been hard at work at circumventing the new regulations than those that had crafted them.

My bottom line is that it is impossible to discuss the lessons of this crisis without talking about macro policy. I would put more of the blame on the way monetary policy is conducted. It is based on a so-called Taylor rule - that sets the interest rate as low as possible, so long as the discomfort with inflation is not larger than the discomfort with unemployment, with blatant disregard to the current account, the exchange rate, asset prices, international finance, the rate of growth of credit or the balance sheets of households.

In the end, a macro policy that overshoots the sustainable growth rate by encouraging millions of citizens to over-borrow is not going to be made safe through financial regulation.

Guillermo Calvo: Martin Wolf is right that the current arrangement in financial markets needs to be revised. How to do that is a much larger issue, and I agree with Ricardo Hausmann that one cannot tackle the financial system in isolation of other macro policies and, in particular, monetary policy. The financial system is much like the nervous system: it is in contact with the whole body. Important as those issues are, however, there is the risk that financial distress may be distracting us from the recent surge of another type of vulnerability, namely, much poorer price and exchange rate anchoring—a weakness that, if left unattended, may result in a new type of crisis.

The period of so-called Great Moderation spanning from the 1980s until now has given central banks the illusion that they can implement an incredibly clever nominal anchoring system by appropriately manipulating a reference interest rate (Taylor’s rule is an example), to such an extent that it is safe to let the exchange rate and the stock of money (whatever its definition) be fully determined by market forces. This arrangement could work under highly demanding rationality conditions, but even if the latter are satisfied one can find examples in which nominal anchoring requires some kind of fiscal anchoring along the way (see, for example, John Cochrane, “Inflation Determination with Taylor Rules: A Critical Review” NBER Working Paper 13409, September 2007). Thus, even under this narrow perspective, the present situation suggests that central banks may be about to lose the awesome power that they enjoyed during the Great Moderation. The reason is that central banks are beginning to venture into areas that go beyond standard liquidity management by acquiring assets, some of which could be insolvent or require major rescheduling. These are fiscal operations that might tend to deteriorate the already weak US fiscal stance, for instance. In other words, the fiscal anchor may become much weaker than it used to be, bringing about the specter of “fiscal dominance,” a phenomenon that has wreaked havoc in several developing economies. (There are even more relevant considerations that may contribute to making nominal anchoring tricky, like dumping of international reserves by Sovereign Wealth Funds while central banks peg their nominal interest rates; but this is not the place to expand on that.)

Consequently, one of the casualties of poor financial regulation may be a weakening of the central banks’ ability to anchor nominal prices. In the short run this may be less noticeable in broad price indexes like the CPI but, in my view, it is already being reflected in, for instance, the dollar/euro exchange rate. Under weak nominal anchoring, market-determined exchange rates could become highly volatile because slight changes in moods or expectations may cause them to veer into wildly different directions. And the solution cannot be found in more sophisticated or better regulated derivatives. Derivatives, if anything, make nominal anchoring even more difficult to achieve.

Weak nominal anchoring could have deleterious effects on international trade. Losing international competitiveness due to your trading partners’ technical superiority is something politicians can deal with in a sound way by, for instance, speeding up the pace of reform. But if the cause is an arbitrary swing in exchange rates, reform could actually be counterproductive, appreciating their currencies even further. Paradoxically, the “solution” could be found in crazy policies, a very dangerous path for the world economy to follow!

This is not the place to offer alternatives (although I believe that some kind of exchange rate coordination merits serious attention). My main point is that the world may be on the brink of a new regime in which exchange rates’ volatility increase the complexity of current problems by involving vital areas like world trade. I think it is time for the international community to urgently address those issues head on. Complacency got us into the subprime mess; let’s not do the same with monetary policy. Maybe my concerns are overblown, but it is always better to prevent than to cure.

Corruption in Soccer

Fabio Capello embroiled in corruption case;
Fabio Capello, the England manager, could face criminal charges after he was accused of withholding information in a corruption trial yesterday.

Capello, who was manager of Juventus during a two-year period in which the club were alleged to have fixed matches, gave evidence for over an hour to a court in Rome investigating allegations that six men conspired to control transfers by intimidating players into signing for a sports management firm. Prosecutor Luca Palamara said Capello had kept saying "I don't know" and "I don't remember" in his testimony. "We ran into a brick wall of reticence," he said. "In this court, witnesses are obliged to tell the truth, and not to refer to gossip or to say they do not remember."

There is no suggestion that Capello was involved in the match-fixing scandal and last night his lawyers issued a statement expressing their confidence that "everything will soon be completely cleared".

Yesterday's hearing centred on the role of GEA World, a sports management agency run by Davide Lippi, the son of Italy's World Cup-winning coach, Marcello. GEA World is alleged to have told players at lowly clubs that they could win a contract with Juventus if they threw games.

Teaching Economics -'Aim high in steering'

The latest EconTalk with McCloskey is highly recommended- the last part of the discussion talks about the art of teaching economics.

Discipline of economics, McCloskey was Russ's teacher of micro, style of economic teaching that is puzzle-solving, intuition based. Profession has become more Samuelsonian, more mathematical. Where would you like economics to go if you had your druthers? Teaching 18-year olds. Adam Smith, more Smithian economics, economics where maximizing is in a context of ethics where the economic actor is thought of as being a human instead of a maximizing machine. The Economic Conversation, elementary book, students and faculty are urged to talk about economics. It's not the math itself that's the problem; it's the thinking that mathematical thought is the same thing as economic thought. Math is a tool. If all we do is run models over and over again, what is point of scholarships? Chess problems, econometrics. Hayekian direction as Russ's personal revolt against Max U. Either the use of emergent market based thinking or the conversational exploration of concepts are hard to write exams for. Compulsion to grade. Time-consuming to give a grade. When we have to give a grade we fall back on the Max U kind of problem. Language is how an economy operates and it's how a science operates. An emergent market is a talk shop. Austrian approach: These conversations are creative and that's why they can't be formulated as exam problems. Information. Talk about the role of language in the economy. Best economic education tragically takes place outside the classroom. "Aim high in steering.

Though teaching style have not made much progress, textbooks are improving for the better.

Intermediate Macroeconomics- from draft of textbook by Kevin Hoover
Current intermediate macroeconomics texts suffer from three common problems:

Theory is detached from the facts of the U.S. economy. Textbooks often include boxed case studies to illustrate theoretical principles and illustrative graphs and tables of current data. The numbers in the chapters on national income accounting are updated with each edition. Yet, the facts of the economy are usually peripheral – not woven tightly into the main exposition. And it is common for students to emerge nearly as ignorant at the end of the course of the basic features of the U.S. economy as at the beginning.

Exposition of theory is not well adapted to the real world. Macroeconomic news generally reports rates of change (e.g., growth rates, inflation rates), while typical textbooks focus on levels (e.g., the aggregate supply and demand curves determine the level of prices and GDP). The teacher knows how to translate from one context to the other, but the average student finds it difficult. Much of real world macroeconomics is closely tied to the complexities of financial markets. Textbooks typically focus on “the” rate of interest as determined by the supply of and demand for money, leaving a richer analysis of financial markets to later money and banking courses.

Too much stress on theoretical closure and advanced topics at the expense of first principles. Many intermediate macroeconomics textbooks read like graduate textbooks without the mathematics.

From another forthcoming Intermediate Macroeconomics book by Chad Jones;
Economic growth is the first major topic explored in the book. After an overview chapter describes the facts and some tools, Chapter 4 presents a (static) model based on a Cobb-Douglas production function. Students learn what a model is with this simple structure, and they see it applied to understanding the 50-fold differences in per capita GDP that we see across countries. Chapter 5 presents the Solow model—but with no technological change or population growth, which simplifies the presentation. Instead, students learn Robert Solow’s insight that capital accumulation cannot serve as the engine for long-run economic growth. Chapter 6 then offers something absent in most (all?) other intermediate macro books: a thorough exposition of the economics of ideas and of Paul Romer’s insight that the discovery of new ideas can drive long-run growth.

Chapter 12 is where the payoff occurs, and we see the simple, familiar AS/AD framework. The innovation is that the graph is drawn with inflation on the vertical axis rather than the price level—perfect for teaching students about the
Volcker disinflation, the Great Inflation of the 1970s, and modern monetary policy. All of the short-run analysis—including explicit dynamics— can be performed in this single graph. Another innovation in getting to the AS/AD framework is a focus on interest rates and the absence of an LM curve. The central bank sets the interest rate directly in Chapter 11; Chapter 12 introduces a simple version of John Taylor’s monetary policy rule to get the AD curve. A final innovation in the short-run model is that it features an open economy from the start. Business cycles in the rest of the world are one source of shocks to the home economy. To keep things simple, however, the initial short-run model does not include exchange rates...

Relative to many intermediate macro books, this text features more emphasis on the world economy. This occurs in three ways. First, the longrun growth chapters are a main emphasis in the book, and these inherently involve international comparisons. Second, the short-run model features an open economy (albeit without exchange rates) from the very beginning. Finally, the book includes two international chapters in Part 4: in addition to the standard international finance chapter that appears as Chapter 15, Chapter 14 is entirely devoted to international trade.

Brad DeLong
can improve;

I wrote this book out of a sense that undergrad macro needed to have the barnacles scraped off of its hull. It is more than three-quarters of a century since Keynes wrote his Tract on Monetary Reform; it is two-thirds of a century since Hicks and Hansen drew their IS and LM curves; it is more than one-third of a century since Friedman and Phelps demolished the static Phillips curve, and since Lucas, Sargent, and Barro taught us what rational expectations could mean. All this time undergrad macro has been becoming more complicated, as new material is added while old material remains. It seemed to me that if I could successfully streamline the presentation of material, both traditional and more modern, the result would be a more understandable and comprehensible book. I hope that I have succeeded—that this book does move more smoothly through the water than its competitors, and will prove to be a better textbook for third-millennium macroeconomics courses.

The Cult of Statistical Significance

Skimming over the recent book by McCloskey's latest book, The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives, came across the following, p.169;

On the Truck and Barter blog Kevin Brancato of the Rand Corporation looked into the matter with some care, starting from a position sympathetic with Hoover and Siegler. But of their blast he concluded, “I must say that I'm disappointed … I don't think Hoover and Siegler have much new to say other than [that] the problem is not as bad as Ziliak and McCloskey claim. However, this is an empirical question, that in my mind, Hoover and Siegler fail to address thoroughly -- in fact, not even in a cursory fashion… In sum: A majority of papers in the AER in the 1980's and 1990's did not distinguish economic and statistical significance, although trends in the share are not yet determinable.” And a bit later the distinguished economist Thomas Mayer, who has for a long time been making the same point about econometric practice as we make here, remarked: “I don't understand the relevance of the table with the additional papers. Isn't the main issue whether authors pay attention to the size of the coefficients? And that is not in the table. What am I missing?” Professor Mayer is not missing anything: the main issues is, as Mayer suggests, not whether the Ziliak and McCloskey survey as originally published contained “the entire population” but whether, on the evidence of any reasonable sample of statistical practice in the American Economic Review (100 percent or an as-it-happens random sample of less than 100 percent), the authors pay attention to the size of the coeffiecients. A large majority- over 80 percent- do not. About this error, our critics Hoover and Stigler, and it appears the rest of the econometric profession, have nothing to say. “Not even,” as Brancato points out, “in a cursory fashion."

It is heartening to see that discussions on economics blogs are going mainstream in to books.

The corrupt shall inherit the earth

Chris Blattman points out that the legacy of the warlord Charles Taylor still is around in Liberia;

It's very hard to escape the Taylor legacy in Liberia. The SIM card I bought for my phone? Taylor reportedly owns a major stake in the firm. Want to move to the competition instead? That one's owned by Taylor's duplicitous Foreign Minister.

Taylor's wife, meanwhile, is in Congress. And his brother lives in luxury atop a hill outside town.

Liberia's Presidency and may be full of palatable people, but others lurk behind the scenes. Some are even elected officials.

It is not only Africa, look at others like Indonesia where the cronies still around and admired by a large segment of the population.

The Art of Presentation for the 21st Century

Presentation designer and internationally acclaimed communications expert Garr Reynolds, creator of the most popular Web site on presentation design and delivery on the net -- -- shares his experience in a provocative mix of illumination, inspiration, education, and guidance that will change the way you think about making presentations with PowerPoint or Keynote.

Presentation Zen challenges the conventional wisdom of making "slide presentations" in today's world and encourages you to think differently and more creatively about the preparation, design, and delivery of your presentations. Garr shares lessons and perspectives that draw upon practical advice from the fields of communication and business. Combining solid principles of design with the tenets of Zen simplicity, this book will help you along the path to simpler, more effective presentations.

Related; Recommended especially for Professors

A Perfect Mess

A Perfect Mess: The Hidden Benefits of Disorder
Eric Abrahamson, Professor of Management at Columbia Business School

Long-Term Planning and Capital Budgeting for NYC

An interesting event- Citizens Budget Commission Holds Forum on Long-Term Planning and Capital Budgeting for NYC

Citizens Budget Commission President Diana Fortuna

Mayor Michael Bloomberg gave the keynote address on the importance of long-term capital planning and infrastructure improvements

Communist Environmentalists

Punishments For Chinese Supermarkets Who Provide Free Plastic Bags

Assorted on Tibet

Historical claims over Tibet

Chinese Nationalism Fuels Tibet Crackdown

Tibet Protests - Both Sides

Beijing Games a Marketer's Dream or Nightmare?

Trouble in Tibet

Tibet Between Empire And Exile
Carole Mcgranahan

The Story of Tibet: Conversations with the Dalai Lama

Thomas Laird

Tibet's Cold War: The CIA and the Chushi Gangdrug Resitance 1956-1974
Carole McGranahan

INTO TIBET: The CIA's First Atomic Spy and His Secret Expedition to Lhasa

Thomas Laird

History As Propaganda: Tibetan Exiles versus the People's Republic of China
John Powers

Arab Dictators Summit

I know that Western governments often dismiss leaders they don't like as "crazy," but in the case of Qadhdhafi it really applies. And Qadhdhafi's pontifications are now more jarring than ever: he wants us to ignore his radical foreign policy shifts. Today, he gave a speech that he used to give when he used to espouse a rejectionist foreign policy. It is cute that the US administration lets him get away with a fiery speech here and there provided that he continues in his subservience to US political, economic, and military interests. Personally, I can't, as a teacher on a college campus in the US, forgive this dictator--assuming I want or can forgive him for his crimes--for the downing the of a plane that was carrying mostly college students from Syracuse University. Shame on the families of the victims who accepted to forget their loved ones in return for sums of Libyan cash.

-Angry Arab

Can Bluefin tuna become extinct and other podcasts

Bluefin tuna extinction threat
A tuna weighs 300kg. Barbara Block describes how a tuna is caught, tagged and released. One tuna tagged off the United States swam for four years after being tagged. The tags were developed in Tasmania. Of the three species of bluefin tuna, the southern bluefin tuna, managed by Australia is in the worst condition. They are most severely affected by over-fishing. California has the only facility in the world where there are bluefin tuna in captivity. Feeding and providing space for such large fish presents some major challenges. Almost all the globe's bluefin tuna catch goes to Japan. It is suggested Japan's whaling activity is a way of diverting attention from the country's tuna catch.

Humans - built for long-distance running?
Daniel Lieberman is interested in what makes the human body look the way it does. His passion is running. There are features over our whole body which help us to run well. One is the toes. Short toes help running. Tendons in the leg act as springs. These evolved around 2 million year ago. The bum tenses with every stride, preventing the trunk from pitching forward. There are features in the spine, neck and head. These all make us good long-distance runners but have no use in walking. Daniel Lieberman suggests we were good hunters on the savannas of Africa.

Steven Munro challenges the endurance running model of man. He says water played a more important part in human evolution. Early humans foraged on land, in trees and in shallow water. They lived in many coastal settings and colonised inland lake basins and rivers.

Richard Lewontin: science as politics
Should scientists speak freely on issues beyond their academic competence -- or keep quiet? Richard Lewontin is a professor of genetics at Harvard and a critic of those who conjure world systems out of faint biological trends. The acquisitive habits of bower birds don't necessarily give insights into American capitalism. The same-sex behaviour of sheep doesn't tell you much about Gay Pride. But Lewontin's late friend Steven Jay Gould, also of Harvard, was often willing to tackle big issues, from religion to race. Did he go too far?

Cooking with hominids

Public policy: It's so obvious

Dr Adam Graycar is Dean and Professor at the School of Criminal Justice at Rutgers University in New Jersey, USA. Before that he was a senior bureaucrat, as Head of the Cabinet Office in South Australia. In this talk he suggests that sometimes obvious problems could be solved if government departments would work together, instead of working in their own jurisdiction without sufficient communications with other sections.

Your irrational mind
Like it or not, you're not the beast of reason you think you are. Dan Ariely, a behavioural economist at MIT, argues that we're surprisingly and predictably irrational. Sex, freebies, expectations, placebos, price -- they all cloud our better judgment in rather sobering ways. Dan's unique research was partly inspired by a catastrophic accident which caused third degree burns to 70% of his body.

Buffy the Concept Slayer

Islam and philosophy - Tariq Ramadan

The three trillion dollar war

When he was an old man, Michael Sherbrook remembered in writing the momentous events of his youth: “All things of price were either spoiled, plucked away or defaced to the uttermost…it seemed that every person bent himself to filch and spoil what he could. Nothing was spared but the ox-houses and swincotes…”

He was talking about the destruction of Roche Abbey, but it could have been Lewes or Fountains, Glastonbury, Tintern or Walsingham, names that haunt the religious past as their ruins haunt the landscape.

These were the monasteries, suddenly and for many shockingly, destroyed during the reign of Henry VIII. But was the destruction of monastic culture in this country an overdue religious reform or the grandest of larcenies?

Muller Says European Capitalism Is `Struggling to Adapt'
Jerry Muller, a history professor at Catholic University of America, talks with Bloomberg's Tom Keene from Washington about his essay "Us and Them: The Enduring Power of Ethnic Nationalism," concepts of nationalism and European capitalism

United by Poverty in Madrassa

India and Israel

Now, almost eight years later, India is Israel’s largest arms export market in the world. Sales in 2006 were $1.5 billion, roughly the same as in each of the preceding three years as well. This from Israel’s total arms sales of $4.2 billion in 2006; the India market comprised more than one-third. Sales included upgrades for MIG 21 aircraft and T72 tanks originally purchased from Russia, the Barak anti-missile ship defense system, communications equipment, laser-guided munitions and the Phalcon. The first of five Phalcon AWACs were delivered in 2007. Co-partnerships are now developing between Indian and Israeli firms.

Israeli arms experts are also seeking to sell the Arrow II anti-tactical ballistic missile system to India, which would require U.S. approval due to shared technology in the ATBM system. This would give India a significant missile defense system. The Green Pine radar system has already been sold to India which is a critical component of the overall ATBM system.

The Polaris satellite is Israel’s first equipped with synthetic aperture radar that allows it to take high resolution imagery in all weather conditions. The radar looks through clouds or fog to see objects on the ground. Launched from south India into a polar orbit it offers new coverage of sites in Iran for Israeli defense planners. According to Indian press sources, two more such satellites will be launched by ISRO for Israel in the next few years. The Iranian nuclear program will probably be the principal collection target for these systems. Israel retains full operational control of the Polaris system including what targets are imaged. It is unknown if any intelligence derived from the imagery is shared with third parties.

-Israel & India: New Allies

Econ Talks

Ian Ayres talks to Owen Bennett-Jones of BBC

McCloskey on Capitalism and the Bourgeois Virtues


Race and the Social Contract

A Reality Check on African Aid
Between 2000 and 2006, U.S. economic aid to sub-Saharan Africa increased from $2.1 billion to $5.4 billion (in constant terms). That is commendable. But it is also the case that Africa has become the focus of aid efforts by the global development community and aid from many other countries has also gone up, in some cases by even more. European Union countries, for example, gave $21.9 billion to Africa in 2006—four times as much as the United States. The United Kingdom on its own gave $5.2 billion to Africa, almost the same amount as the United States from a country whose economy is one-sixth the size.

‘With a Few More Brains ...’
From Singapore to Japan, politicians pretend to be smarter and better- educated than they actually are, because intellect is an asset at the polls. In the United States, almost alone among developed countries, politicians pretend to be less worldly and erudite than they are (Bill Clinton was masterful at hiding a brilliant mind behind folksy Arkansas sayings about pigs).

The Dismal (Climate) Science: On Marty Weitzman, Fat Tails, And How Economists Could Better Help Us to Overcome Global Warming

Students of Virginity

How and When Experience in a President Counts

Training Teachers

Policy Reduction Budget Support -- A DFID Policy Paper
Yes, the title of the post from IMF says policy reduction- which should be poverty reduction. Maybe the staff at the Fund are a bit stressed out from all the talk about downsizing.

Mark Thoma: Adverse Selection, Loan Defaults, and Credit Rationing

The Dilbert Strategy
- Krugman
Anyone who has worked in a large organization — or, for that matter, reads the comic strip “Dilbert” — is familiar with the “org chart” strategy. To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes and lines that say who reports to whom.

Bagehot, central banking, and the financial crisis

Dealing with Adverse Selection in the Mortgage Market

How to Cast a Mortgage Lifeline?- Blinder

Infrastructure is America’s best investment

Summers: Steps To Safeguard America’s Economy

Is Poverty Caused by Irrational Behavior?

The WSJ discovers Moral Hazard, and it involves choosing to sleep under bridges

Lessons from Japan Versus Wishful US Prescriptions (Summers/De Long Edition)

Press Coverage and Political Accountability

The 2007 US current account data

Fouling up finance: Same old questions, wrong old answers

Why Become a Pirate?

Myth # 3: Governance cannot be defined?

Old and New Wisdom in Finance

I [Heart] America's Trade Deficit!

Are you on the job market

via Economic Populist

Why some people own dogs

Ms. Stevenson picked up Oliver, a 3-year-old cockapoo — half cocker spaniel, half poodle — whom she had rented before.

“Last weekend, I didn’t want to bring him back because we were having the best time,” she said as she ran her fingers through Oliver’s tan curly locks.

The agency was Flexpetz, which rents dogs that have been rescued from animal shelters in the hope that they will eventually be adopted. Flexpetz operates out of the Wet Nose Doggy Gym at 34 East 13th Street, which provides day care and boarding for dogs. The company started in San Diego and opened in Los Angeles in June and in New York in October. It plans to expand to Boston, Washington, San Francisco and London.

“There are a lot of people out there looking for companionship,” said Chris Haddix, 28, who runs the New York branch of Flexpetz. There are usually five or six dogs available for rent, many of them on display in the Wet Nose storefront window, attracting crowds.

Ms. Stevenson explained why she was a customer: “I’m single and moved here from Scotland two years ago, and it’s been difficult to meet people because everyone in New York just kind of goes about their business. But when I’m walking around with Oliver, I seem to get into so many conversations about him. It becomes a nice way to meet people.”

But it isn’t cheap. A monthly membership, which includes four one-day rentals, costs $279.95. Additional rentals cost $45 for a day, or part of a day.

-For a Temporary Best-Friend Fix, Rent a Dog (Kibble Included) for a Day

Sunday, March 30, 2008

Picturesque Poverty and Monetary Policy in Haiti

For the picturesque poverty see the Tyler Cowen's post.

For the monetary policy see the Letter of Intent of Haitian government- they're promises the Haitian government has to keep in return for IMF's assistance;

The Government believes that the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Haiti will consult with the IMF on the adoption of these measures, and in advance of any revision to the policies contained in the MEFP, in accordance with the fund’s policies on such consultation...

The program envisages attaining an inflation rate of 9.0 percent by end-September 2008. This rate slightly exceeds the FY2007 outcome, as a result of higher international prices for food and petrol. To ensure that these increases do not translate into broader inflationary pressures, base money growth will be kept slightly below that of nominal GDP, with an indicative target for the year of 9.6 percent. The bulk of monetary expansion will come from an increase in net international reserves, with a program floor of US$40 million. This will boost gross reserves coverage to 2.7 months’ worth of imports. Recognizing that appreciation of the real exchange rate is a reflection mainly of changing fundamentals, the BRH will maintain exchange rate flexibility, limiting interventions to purchases for the achievement of the program NIR target and temporary smoothing of excessive market volatility...

Building on the cessation of non-essential activities in the first program year, we will strengthen the institutional foundation for our monetary policy framework through further reinforcement of the independence of the BRH, including through strengthening its balance sheet. A strategy to divest the BRH’s interest in the state telephone company, Teleco, is currently being prepared (PC for end-March 2008), with support from the IFC. Taking into account the expected proceeds from that operation, the BRH will, together with the MEF, devise a plan for the recapitalization of the central bank (PC for end-March 2008). The plan will contain steps to revert the BRH’s quasi-fiscal losses, and put its balance sheet on a sound financial footing.

Public Choice quote of the Day a general rule states are better governed by the man in the street than by intellectuals. These are the sort of people who want to appear wiser than the laws, who want to get their own way in every general discussion because they feel that they cannot show off their intelligence in matters of greater importance, and who, as result, very often bring ruin on their country. But the other kind - the people who are not so confident in their own intelligence - are prepared to admit that the laws are wiser than they are...

-Thucydides,History of the Peloponnesian War, Speech of Cleon

Came across the quote in Buchanan's Better than Plowing and Other Personal Essays

The School of Athens

When the Renaissance learned to live with the risks of reason, a turbaned Averroes would find a place of honor standing behind Aristotle in The School of Athens, Raphael's masterpiece in the Stanza della Segnatura in the Vatican.

-David Levering Lewis, God's Crucible: Islam and the Making of Europe, 570-1215, p. 377

US Election Explainer of the Day

On Intrade, Al Gore defies the laws of probability;

Prob(Gore pres. | Gore nom.)
= 2.1%/1.7% = 123.5%

Therefore, if Gore is nominated, the probability he'll be elected president is 123.5%!

Imagine there is no Mr. Ganguli

America's Idiocy;
The Namesake” is worth watching for many reasons. It is a compelling study of personal identity. It features some of the most talented Indian actors in the business. But it is also an excuse for a thought experiment: imagine how much poorer America would be without the likes of Mr Ganguli.

Almost a third of Silicon Valley start-ups since 1995 were founded by Indians or Chinese. They also power America's great universities, particularly the science departments. About 40% of people earning PhDs in computer science and engineering are foreign-born

The gods must do randomized trials

Chris Blattman is in Liberia and he's happy with what he sees;

I hum and haw about comparison groups, going through my impact evaluation 101 schpiel. I have serious concerns that one would or could develop a control group, let alone randomize, for such a program. So I dance delicately around the subject.

"Wait a minute," interrupts the Imam, "Are you talking about a randomized control trial?"

I gape.

"Oh I see!" says one Reverend Minister, "We need a control group! This is a good idea."

It turns out his holiness was once an agronomist. "This is just like our control plots for fertilizer. But how are we going to control for spillover effects?"

An older Methodist leader frowns sitting in the corner glowers. "Please, a moment," he says. "I see a real problem here."

Here it comes. Here is the doubt and questioning I expected. We're talking about a peace building exercise, not fertilizer on a farm plot. Even I have my reservations. This man, of an older generation, clearly has other priorities.

"How," he asks "are we going to select a proper sample?"

The Future- literally seeing how you feel in real time

Neuroscientist and inventor Christopher deCharms demos an amazing new way to use fMRI to show brain activity while it is happening -- emotion, body movement, pain. (In other words, you can literally see how you feel.) The applications for real-time fMRIs start with chronic pain control and range into the realm of science fiction, but this technology is very real

The Darling of IFI's- Bhutan

Bhutan hopes to cash in on hydro-electric power

Fed-Up Money Treks to Bhutan to Grasp Gross National Happiness ;
Tshering Jamtsho uncoils the burgundy robe from around his chin and smiles as the first light of a Himalayan dawn streams through the casement chiseled into a stone-cold cell at the Pangrizampa Monastery.

Twigs crunch outside, a voice calls out from the dark and an apprentice enters the chamber gripping the ``Mopai.'' The ancient 250-page goatskin volume provides human calculators, called ``tsips,'' with intricate mathematical and astronomical formulas to compute a client's fate and fortune before birth, during life and in the afterlife.

``I am one of the 40 calculators,'' Jamtsho says over cups of the pungent yak-butter tea his predecessors began serving clients here in the Kingdom of Bhutan more than 1,500 years ago.

``What is your investment question?'' the 25-year-old financial analyst and Buddhist lama adds. ``Large numbers of Western businessmen come for our guidance.''

Last year, Jamtsho says, some 300 American and European bankers and businessmen made the grueling journey to Bhutan -- a country smaller than Switzerland, with 180 broadband subscribers, five elevators and less than 700,000 inhabitants -- to have the calculators of Pangrizampa use the hand-scripted Mopai as a financial forecasting tool.

``There's nothing extraordinary about this,'' says Tashi Yezer. He should know. Yezer is the chief executive officer of the Royal Securities Exchange of Bhutan Ltd., the country's stock market, where the trading bell only rings on Tuesdays and Fridays at 11 a.m. ``The exchange closes when our four stock brokers are done,'' Yezer says....

Bhutan now harvests only 2,000 megawatts, with plans to export 5,000 megawatts by 2020 and reach a capacity of 10,000 megawatts by 2028. ``We could have full capacity in a matter of years, if we followed the accepted market path,'' Dorji says, sitting beneath an embroidered tapestry of Buddha in the country's capital city, Thimphu, about 10 miles from the monastery...

``I intend to ultimately export Bhutanese bankers to New York and London and have them carry the philosophy of GNH as the model for corporate governance,'' Tshering says. ``The last thing I want is Western bankers coming here to modernize us with anything other than technology.''

Over at the stock exchange next door, the ground floor of a traditional Bhutanese timber building decorated with lotus flowers, clouds and phalluses to ward off hobgoblins, trading in the 16 listed companies has stopped and the combined market value holds firm at $25 million.

``We take a holistic approach to capital markets that's missing in the West,'' Yezer says, focusing on the nearby mandala, a geometric pattern that represents the universe. ``Buddhism isn't a religion or an excuse for how we do business, but it is based around a basic economic fact: What goes around, comes around. We call it karma.''

World Bank warns Pakistan economy may collapse

Economic threat to democratic transition

High Global Commodity Prices Impact Pakistan Economy;
There is not yet a crisis, but the economic picture for Pakistan is not good”, said Patel. “International prices have continued to rise, but policies and administered prices have not kept pace in Pakistan. During the past few years growth has been robust and there has been significant poverty reduction. There is a good economic foundation, but the growth can only continue if Pakistan adjusts to the new global reality, which includes high prices for oil, commodities and foodstuffs such as wheat. Countries around the globe – including the U.S., Japan and the EU are facing the same reality.”

War is what give us meaning

Dith Pran, ‘Killing Fields’ Photographer, Dies at 65;
Mr. Dith saw his country descend into a living hell as he scraped and scrambled to survive the barbarous revolutionary regime of the Khmer Rouge from 1975 to 1979, when as many as two million Cambodians — a third of the population — were killed, experts estimate. Mr. Dith survived through nimbleness, guile and sheer desperation.

Saturday, March 29, 2008

Lake with the longest name

Lake Chargoggagoggmanchauggagoggchaubunagungamaugg

More about the lake;
There is more consensus on the meaning of Chargoggagoggmanchauggagoggchaubunagungamaugg, but it turns out the consensus is wrong. In the 1920's, a reporter for The Webster Times, Lawrence J. Daly, wrote that it was a Nipmuck Indian word meaning "You fish on your side, I fish on my side and nobody fishes in the middle." That stuck even though Mr. Daly confessed repeatedly that he had made the whole thing up.

The real meaning, said Paul Macek, a historian in Webster, a community of about 17,000 just northwest of where Connecticut, Rhode Island and Massachusetts intersect, is "English knifemen and Nipmuck Indians at the boundary or neutral fishing place."

Subprime is the winner

American Dialect Society's Word of the Year 2007- Subprime.

See their full press release.

What's Halal?

Interesting comment on Tyler Cowen's blog;

By "Halal" you mean killed according to ancient superstition and not according to the latest scientific research on what actually causes least suffering to the animal being slaughtered?

I wish Jeffrey Lang had a blog.

'Enough money to burn a wet dog'

A Way with Words- an interesting radio show;
Biting the Wax Tadpole? It’s the wacky title of a new book by language enthusiast Elizabeth Little which has Martha and Grant talking about whether Coca-Cola and Chevy ran into cultural translation problems when selling products abroad. Did the Chevy Nova really sell poorly in Latin America because “No va” means “don’t go” in Spanish? You can find more information about it in Dave Wilton’s book Word Myths.

Lamentations of Arab Dictators

Gaddafi asked: "How can we accept that a foreign power comes to topple an Arab leader while we stand watching?"

He said Saddam had once been an ally of Washington, "but they sold him out".

"Your turn is next," Gaddafi told the Arab officials gathered for the conference, some of whom looked stunned while others broke into laughter at his frankness.

In his speech, the Libyan leader also criticised Arab disunity and inaction on the region's multiple crises.

"Where is the Arabs' dignity, their future, their very existence? Everything has disappeared," he said.

"Our blood and our language may be one, but there is nothing that can unite us."

Gaddafi also mocked a plan by the Arab League to start Arab cooperation on a joint nuclear programme.

"How can we do that? We hate each other, we wish ill of each other and our intelligence services conspire against each other. We are our own enemy."

-Gaddafi condemns Arab leaders

Cyprus's sex trade

Memo to Chris Blattman

I would appreciate very much if you could add some economics courses to 'Open Yale Courses'- Yale's answer to MIT's OpenCourseWare- when you start teaching. Currently there are no economics courses.

Random Artist- Alina Simone

Alina Simone

More of her music

My favorite song: Cash America Pawn

How Google and God are similar

Interesting discussion between psychologist Paul Bloom and philosopher Joshua Knobe at Blogging Heads on morality and religion.

Preissler, M. A. & Bloom, P. (2008). Two-year-olds use artist intention to understand drawings

Egan L. C., Santos L.R., Bloom P. (2007). The Origins of Cognitive Dissonance: Evidence from Children and Monkeys

Kemler Nelson, D., Egan, L. C., Holt, M. (2004) When Children Ask, ‘‘What Is It?’’ What Do They Want to Know About Artifacts?

Cognitive dissonance observed in children and monkeys;
Having made a decision, say, for chicken or Greece, what people often do to alleviate this dissonance, is update their attitudes to match the choice they made – the beef would have been too rare, Spain would have been too hot. Remarkably, psychologists at Yale University have now shown that young children and monkeys engage in these sorts of thought processes too.

Forty 4-year-olds used a scale of smiley faces to indicate how much they liked a range of animal stickers. For each child, the researchers identified three stickers which that child liked equally – let’s call these A, B, C. Each child then faced two choices – first to choose which of A or B they would like to take home. Afterwards, they then had to choose between sticker C and whichever sticker (A or B) they hadn’t selected before.

In the latter case, if the children liked the stickers equally, then on average they should have opted for sticker C over either A or B 50 per cent of the time, but in fact sticker C was selected in 63 per cent of such choices. The reason, the researchers say, is because, to reduce cognitive dissonance, the children had downplayed the appeal of whichever sticker (A or B) they had chosen not to pick earlier, thus tipping the balance in favour of C.

Economists Dissect the ‘Yuck’ Factor

Arthur C. Brooks, a professor of government and business at Syracuse University who moderated the Washington panel, spoke of how he — like thousands of other Americans — carried $7,000 in hundred dollar bills to ease the adoption of an abandoned baby in China despite a visceral reaction against the idea of buying and selling children.

“It’s very hard to predict what’s repugnant and what’s not,” Mr. Roth said. Paul Bloom, a professor of psychology at Yale, agreed. He conducted a two-year study to try to get at why people consider athletes who take steroids to be cheating, but not those who take vitamins or use personal trainers. He and his team offered different possibilities: What if steroids were completely natural? Or were not at all harmful? Or were only effective if the athlete had to work harder than before?

The only change that caused the interviewed subjects to alter their objections to steroids was when they were told that everyone else thought it was all right. “People have moral intuitions,” Mr. Bloom said. When it comes to accepting or changing the status quo in these situations, he said, they tended to “defer to experts or the community.”

Often introducing money into the exchange — putting it into the marketplace — is what people find repugnant. Mr. Bloom asserted that money is a relatively new invention in human existence and therefore “unnatural.”

Economists are asking the wrong question, Mr. Bloom said at the panel. They assume that “everything is subject to market pricing unless proven otherwise.”

“The problem is not that economists are unreasonable people, it’s that they’re evil people,” he said. “They work in a different moral universe. The burden of proof is on someone who wants to include” a transaction in the marketplace. (Mr. Roth, who acknowledges that “economists see very few tradeoffs as completely taboo,” did not take the criticism personally.)

Is God an Accident?

How group cooperation varies between cultures

What Motivates Us: Sex

Dan Moller. (forthcoming). Love and Death. Journal of Philosophy.

The science of religion

Was League of Nations better than IMF?

Rogoff and Reinhart's forthcoming book is a real gem-This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises. Some excerpts related to data issues on public debt below;

Until very recently, domestic debt was not on the radar screen of the multilateral institutions. Neither the International Monetary Fund nor the World Bank systematically collected such data. In fact, cross-country historical time series on domestically issued debt are also absent from private data collections. Reinhart, Rogoff and Savastano (2003), with extensive help from IMF staff and country sources, put together an annual series going back to 1990 for a limited number of emerging market countries.

The topic of domestic debt is so important, and the implications for existing empirical studies on inflation and external default are so profound, that we have broken out our data analysis into an independent companion piece (Reinhart and Rogoff, 2008). Here, we focus on a few major points. The first is that contrary to much contemporary opinion, domestic debt constituted an important part of government debt in most countries, including emerging markets, over most of their existence

One would think that with at least 250 sovereign external default episodes during 1800– 2007 and at least 70 cases of default on domestic public debt (not to mention the significant economic disruption associated with these events), it would be relatively straightforward to find a comprehensive long time series on public sector debt. Yet, this is not the case—far from it.

Government debt is among the most elusive of economic time series. For the advanced economies, the most comprehensive data comes from the OECD, which provides time series on general government debt since 1980. However, this data has several important limitations: it only includes a handful of emerging markets; for many advanced economies (France, Finland, Greece, and the U.K., to name a few), the data actually begins much later in the 1990s, which cannot be considered as much of a time series; and only total debt is reported, with no particulars provided of the composition of debt (domestic versus foreign) or its maturity (long-term versus short-term). To state that the IMF’s well-known World Economic Outlook (WEO) database extends to public debt requires a stretch of the imagination. Data is only provided for the G-7 from 1980 onward (out of 180 countries covered in the WEO).

The most comprehensive data on public debt comes from the World Bank’s Global Development Finance (GFD, known previously as the World Debt Tables). It is an improvement on the other databases in that it begins (for most countries) in 1970 and it provides extensive detail on the particulars of external debt. Yet, GFD also has serious limitations. There are no advanced economies included in the database (nor newly-industrialized countries (such as Israel, Korea, or Singapore, for that matter) to facilitate comparisons. Unlike data from the IMF and the World Bank for exchange rates, prices, government finances, etc., there is no data prior to 1970. Last, but certainly not least, these data only cover external debt. In a few countries, such as Panama or Côte
D’Ivoire, external debt is a sufficient statistic on government liabilities, since domestic public debt levels are relatively trivial. As Reinhart and Rogoff (2008) illustrate, however, for most countries domestic debt accounts for an important share of total government debt. The all-country average oscillates between 40 to 80 percent during 1900–2006.

In search of the elusive data on total public debt, we examined the archives of the global institutions’ predecessor, the League of Nations, and found that this institution collected information on, among other things, public domestic and external debt in its Statistical Yearbook (1926–1944). While, neither the IMF nor the World Bank continued this practice after the war, the newly-formed United Nations (UN) inherited the data collected by the League of Nations and in 1948 its Department of Economic Affairs, published a special volume on public debt, spanning 1914–1946. From that time onwards the UN continued to collect and publish the domestic and external debt data in the same format as their pre-war predecessor on an annual basis in their Statistical Yearbooks. As former colonies became independent nations, the database expanded accordingly. This practice continued until 1983, at which time the domestic and external public debt series were discontinued altogether. In total, these sources yield time series that span 1914– 1983 for the most complete cases. It covers advanced and developing economies. For the most part, it also disaggregated domestic debt into its long-term and short-term components. To the best of our knowledge, this data is not available electronically in any database, hence it required going to the original publications. This data provides the starting point for our public debt series, which have been (where possible) extended to the period prior to 1914 and post-1983.

For data prior to 1914 (including several countries that were then colonies), we consulted numerous sources, both country-specific statistical and government agencies and individual scholars. Data Appendix II provides details or the sources by country and time period. When no public debt data is available prior to 1914, we proceed to approximate the foreign debt stock by reconstructing debt from individual international debt issues. This debenture data also provide a proximate measure of gross international capital inflows. Much of the data come from scholars including Lindert and Morton, Marichal, Miller, and Wynne, among others. From these data, we construct a foreign debt series (but, not total debt). This exercise allows us to examine standard debt ratios for default episodes for several newly-independent nations in Latin America as well as Greece and important defaults such as that of China in 1921, and Egypt and Turkey in the 1860s– 1870s. These data are most useful for filling holes in the external debt time series, when countries first tap international capital markets. Their usefulness (as measures of debt) is acutely affected by repeated defaults, write-offs, and debt restructurings that introduce disconnects between the amounts of debt issued and the subsequent debt stock.

For some countries (or colonies in the earlier period) where we have only relatively recent data for total public debt, but have reliable data going much further back on central government revenues and expenditures, we calculate and cumulate fiscal deficits to provide a rough approximation to the debt stock.31
To update the data for post-1983, we mostly rely on GFD for external debt. Two very valuable recent studies facilitate the update: Jeanne and Guscina (2006) compile detailed date on the composition of domestic and external debt for 19 important emerging markets for 1980–2005; Cowan, Levy-Yeyati, Panizza, Sturzenegger (2006) perform a similar exercise for all the developing countries of the Western hemisphere for 1980–2004. Last, but certainly not least, are the official government sources themselves, which are increasingly forthcoming in providing domestic debt data, often under the IMF’s 1996 initiative, Special Data Dissemination Standard.

It is all the more interesting since both Rogoff and Reinhart have worked at the IMF's Research Department. Let us hope they put their dataset online.

One of the takeaways from the paper; it's the same old story. Look at what's happening in Argentina right now - a defacto partial default on domestic domestic debt by playing around with inflation numbers.

Five-year credit default swaps based on Argentina's debt increased 13 basis points to 576 basis points, the highest since March 17, according to Bloomberg data. That means it costs $576,000 to protect $10 million of the country's debt from default.

Lessons From Prior Banking Crises

The great emerging market inflation of 2007 and 2008

IMF asks Argentina to clarify inflation figures

Argentina 2008: Is the (already High) Inflation Rate Accelerating?
So far what the government is doing is clearly not going to control inflation. It does not anchor inflation expectation neither with its monetary policy, nor with its exchange rate policy or its fiscal policy. On the contrary, it looks more likely to make it get worse—inflation seems to be accelerating. The median voter seems to be happy with this policy, though. But it’s the policy maker’s role to appropriately consider and internalize the future effects of the current policies and adjust its present behavior accordingly—something not seen yet with the current administration.

It could be much better if the government would focus on reducing government expenditures (not just reduce the rate of growth to be lower than the growth rate of tax revenues—which are just casually high do the unusually high commodities’ prices) to achieve not only a higher and stronger primary fiscal surplus but also to enhance its sustainability. It should also let all relative prices be really free to adjust to equilibrate demand and supply (i.e. eliminate all the price controls and any type of capital controls) and let the exchange rate float. If relative prices are let to adjust, as well as the exchange rate, they will stop the growth rate of prices (i.e. inflation) and contribute, together with a non spurious fiscal surplus to contain inflation expectations—and thus wage negotiation adjustment (in quantity and frequency.) Core inflation would then be tackled with an inflation targeting regime, letting an independent central bank focus on its only goal: to preserve the value of the (domestic) currency. As of now, it will probably be better to raise interest rates to control the inflation in the short run while the rest of the reforms are put in place (including property rights that we could believe in—i.e. proper long-term institutions.). The question is, will this government be interested in implementing these and thus pursuing long-term and sustainable growth? I truly hope it. Unfortunately, I still have my doubts

Credit derivatives provide useful early warnings for the macroeconomy

Is Argentina turning the corner?- Dani Rodrik
Not at all clear, according to Guillermo Calvo. I am sitting at a colloqium on Argentina organized by my colleague Federico Sturzenegger. Argentina has recovered nicely from its crash and has been growing at Asian rates since. Calvo thinks this is just a process of recovery: the country is only making up for lost time. But could this time be different? What is encouraging is that this recovery is export and investment- led, and investment focuses on tradables instead of nontradables. The government has had an active policy of keeping the currency undervalued. So an alternative, more optimistic view would be that Argentina is turning itself into an Asian country. But there is a long way to go...

The Cost of War for Iraq

When will a Nobel laureate write a book about the cost of Iraq War for Iraq;

US Election Explainer of the Day

Clinton-Obama, Obama-Clinton
How they could run together and take turns being president.

Akhil Reed Amar, a constitutional law professor at Yale, sees a loophole in the Constitution that would permit Barack Obama and Hillary Clinton to share the presidency for four terms.

The Constitution’s 25th Amendment allows for a new paradigm of political teamwork,” he writes in Slate. “The two Democratic candidates could publicly agree to take turns in the top slot.”

The Prime Minister does what he’s told

Mislaid in Britain: Luggage and the Prime Minister;
“The prime minister got lost,” the Queen was heard to say in video footage of the photo-op moment. “He disappeared the wrong way … at the crucial moment.”...

In the end, the mix-up offered the added bonus of reaffirming the Queen’s pre-eminence in her realm. “The Prime Minister does what he’s told on these occasions,” a spokesman for Mr. Brown told reporters.

Man-made 'black hole' could end up eating the earth

Forget nuclear annihilation- there's a bigger danger;

None of this nor the rest of the grimness on the front page today will matter a bit, though, if two men pursuing a lawsuit in federal court in Hawaii turn out to be right. They think a giant particle accelerator that will begin smashing protons together outside Geneva this summer might produce a black hole or something else that will spell the end of the Earth — and maybe the universe.

Scientists say that is very unlikely — though they have done some checking just to make sure.

The world’s physicists have spent 14 years and $8 billion building the Large Hadron Collider, in which the colliding protons will recreate energies and conditions last seen a trillionth of a second after the Big Bang. Researchers will sift the debris from these primordial recreations for clues to the nature of mass and new forces and symmetries of nature.

But Walter L. Wagner and Luis Sancho contend that scientists at the European Center for Nuclear Research, or CERN, have played down the chances that the collider could produce, among other horrors, a tiny black hole, which, they say, could eat the Earth. Or it could spit out something called a “strangelet” that would convert our planet to a shrunken dense dead lump of something called “strange matter.” Their suit also says CERN has failed to provide an environmental impact statement as required under the National Environmental Policy Act.

Although it sounds bizarre, the case touches on a serious issue that has bothered scholars and scientists in recent years — namely how to estimate the risk of new groundbreaking experiments and who gets to decide whether or not to go ahead.

Taking Particle Physics to Court

Do something you're proud of everyday

James Hamilton on his late father-in-law, not the usual macroeconomic commentary;

Jack's last year was not an easy one. Everything was becoming increasingly difficult, and he came to spend most of his time in front of the TV watching nothing in particular. Margie and I were trying to figure out what we could do to bring some richness and meaning back to his life.

Our last inspiration was based on Jack's childhood hobby-- model trains. They still had a big collection of these packed up in boxes in the garage. Margie and I spent several weekends moving furniture around and constructing a big table that might serve as a train room. We thought of it as a long shot-- Jack was losing interest in so much-- but it seemed worth giving it a try.

The project turned out far more successfully than we had dreamed. Jack returned to the hobby with his boyhood passion, and spent almost all of his time in the room that was now all his. He threw his energy into painting the table and organizing the layout. He was quite enthusiastic about attending the model train exhibition that was coming to the Del Mar Fairgrounds in January. But congestive heart failure left him too weak for that last planned trip.

I had an odd thought as I reflected in late December on the past year. In thinking about the various things I'd attempted and accomplished during the year, personally and professionally, the one of which I was most proud was that train room. I'm not sure why I would single that out as the thing of which to be most proud. Maybe it was because it was a true gamble-- it could easily have failed, but we gave it our best effort anyway, and it worked. Or maybe because it was basically a fairly decent thing to try to do.

I remember my former colleague at the University of Virginia, Ken Elzinga, once described a committee he'd served on to select a student for an award that was supposed to include as a criterion moral character. Ken told me that he'd ask the candidates in the interview, "Tell us something you've done over the last year that you're most proud of. Don't worry about bragging or holding back-- tell us the very best about yourself." I remember thinking that could be a rather daunting question. But if Ken were to interrogate me for 2007, that train table would be my answer.
Which got me to thinking, maybe one of my New Year's resolutions should be to do something I'm proud of every week and not just once a year...

And then I decided, maybe the goal shouldn't just be to do something each week that I was proud of, but do something every day. Admittedly, that means lowering the standards a bit, giving myself credit for carrying out whatever simple, day-to-day personal and professional responsibilities that fall into my lap. But that's what decent people are supposed to do. And being a decent person is something you really should be proud of.

So here's an Easter thought for you to ponder: try to do something every day that you'd be proud of yourself for doing.

From the Scriptures

Thy Lord hath decreed, that ye worship none save Him, and (that ye show) kindness to parents. If one of them or both of them to attain old age with thee, say not "Fie" unto them nor repulse them, but speak unto them a gracious word.

- Koran, 17:23

Thank you, Mum

A moving tribute by Don Boudreaux to his Mum;

She was, of course, special to her friends and loved ones. But my mother will receive no footnote in any history book. No monuments will be built to her. No holidays will mark her life. No boulevards will bear her name. Two or three generations from now, no one will know or care that she existed.

Yet she was a good and great woman. Along with the countless other good and great people like her, she was vital to civilization. Remove the likes of my mother from our world and we become barbaric, brutal and dishonest. The capacity for civilized interactions outside of families disappears. Society collapses. My mom (along with my dad) contributed to civilization in the best way that anyone can hope: She taught her children to be civilized.

Such was not her conscious goal in raising her four children. Consciously, she wanted to be only a good mother, a woman who raised each of us to realize our potential. She herself was raised to understand and respect the difference between right and wrong.

For my mom there was never any excuse to do wrong. Professional philosophers will, and should, explore the meanings of right and wrong and debate questions of ethics. But these esoteric musings cannot possibly improve upon the ethics of persons like my mother.

When I was about 5, Mom took me with her to visit our next-door neighbor, Miss Jane. While at Miss Jane's home, I helped myself to a fistful of rubber bands that she kept around a doorknob in her kitchen. Mom discovered my pilfered booty only after we returned to our house. She grabbed my arm, pulled me back to Miss Jane's and made me return the rubber bands and apologize for stealing. And that's what Mom called it: stealing.

I explained that I took only lowly rubber bands. "It doesn't matter, Donald!" she rightly replied. "Stealing is stealing. And you stole. I'm ashamed of you."

To this day, I remember that incident vividly. I remember being ashamed of myself.

Do not picture my mom as being a stern disciplinarian. While she was tireless in dealing with us when we misbehaved, my mom's demeanor was always gentle and loving. Chiefly through the way she lived each day of her life, Mom made us want to be good.
Both my mother and father were born into working-class families, and Mom and Dad were working-class until they retired -- Mom from clerking in a hardware store, Dad from fitting pipes in a shipyard. Not once did I hear either of them express as much as a whiff of resentment that their incomes were below average.

It simply did not occur to them to envy wealthier families or to suppose that other persons' wealth was extracted from our family's hide. Whenever my siblings or I complained about the poor quality of our family's car or the cramped conditions of our home, Mom and Dad always said, "Be grateful for what we have and work hard so that you can have more when you grow up."

Note the optimism in this reply. Work hard and you'll achieve. As politically incorrect as it is to affirm, this statement is true.

Also politically incorrect was my parents' visceral hostility to victimhood. I recall many times as a child blaming others for my misfortunes -- say, for my poor grades in school -- and each time my parents insisting that the only person to blame was myself. How many times back then did I sulk in anger at my parents' refusal to indulge my excuses? And how many times today do I thank them for those refusals?

My father and mother raised four children to be responsible, honest, nonenvious and hardworking adults. To my mom's memory -- and to the countless other mothers and fathers in our world who've done and do the same -- I give my most heartfelt thanks.