More Economic Geography

Caption: The European Central Bank in Frankfurt, Germany. Believe it or not, it's been even more useless since the Crash of 2008 than our central bank.

Image credit: ArcCan/Wikimedia

The other day I was discussing some of the reasons that there is a big difference between the financial problems of Eurozone members like Greece and Spain that are now heavily in debt, and the situations of American states that find themselves in economic distress. Today, Dean Baker discussed another one in the course of debunking another article in the Washington Post by one of their clueless economics reporters:

Hence we have Matt Miller telling us this morning about how resolving the euro zone crisis will require that German Chancellor Angela Merkel devise a plan for "apportioning pain."

Of course the opposite is true. The pain is wholly unnecessary and self-defeating. The obvious way out of the euro crisis is to require that the European Central Bank abandon its obsession with reinforcing its Maginot Line (its 2.0 percent inflation target) and instead act like a central bank. This would mean guaranteeing the debt of the crisis countries and supporting a higher inflation rate across the euro zone.

Matt Miller's Pain

[link from original]

This failure of the European Central Bank to "act like a central bank" is another of the primary differences between what's going on in Europe and what's going on in America. In the U.S., the Federal Reserve Bank performs this function. Fed Chairman Ben Bernanke's Quantitative Easing (QE) policies are just another example of how this works. I don't know enough about the financial industry to hazard a guess about whether there is no other way the situation in Europe can be resolved. Still, I figure if QE could keep the lid on our banks' problems for this long, some similar program could handle the problems the Eurozone is having.

This is the basic problem - in a place like America or the Eurozone, it's not possible for all members to have a positive balance of trade. Money will tend to flow out of those countries or states that import more than they export. One of the things that helps ease that situation is that credit can flow into those countries or states. How that's being done right now in Europe is that big banks are lending money at exorbitant rates to the countries with a negative trade balance. In America, the states (via their banks) get this credit for next to nothing.

There are many reasons why the situations here and in Europe are different. It is foolish to suggest that American states, or America in general, is going to end up like Greece, with their creditors, in essence, threatening to break their legs if they can't come up with the cash. That's what's happening in Europe, but it's not going to happen here.

Our own path to economic ruin will be a somewhat different one, if we choose to go there.

UPDATE: Added a bit more to the discussion about where the money goes between net exporters and net importers. It wasn't clear before, probably because I thought it obvious which way the money goes. Still, if I'm bothering to explain, I should explain so people who don't think it's obvious can get caught up.

Profiles In Hackery

Caption: The first Stanhope press for the German newspaper Iserlohner Kreisanzeiger und Zeitung

Image credit: Bubo/Wikimedia

A couple of articles about people in the press caught my attention today. Taken separately, they're fascinating examples of how little in the way of intellectual honesty you need to demonstrate these days to write for a top American news organization, as long as what you write pleases the folks who run things. Taken together, they serve to explain a lot about why we know so little about what's going on in our own country these days, or at least why it's so hard to find out.

The first tale comes to us care of Yasha Levine, who has begun a project called “Shame the Hacks who Abuse Media Ethics” (SHAME). It's the story of Malcolm Gladwell, a man who has spent most of his adult life shilling for one powerful lobby or another. That wouldn't be a problem, I suppose, if he weren't also masquerading as a journalist.

Almost Gone

Looks like Venus' transit of the Sun is almost over:

Image credit: Detail of NASA SDO photograph cropped by Cujo359

Click on the image to enlarge it. Follow the image credit link to the full image.

The picture that cropped image was taken from is from the Solar Dynamics Observatory, a NASA satellite stationed between the Earth and the Sun to capture information about sunspots (a few are visible toward the bottom of the image), coronal mass ejections, and other solar phenomena. The pictures alone are priceless, I think.

Humorous Serendipity

Once in a while, a serendipitous combination of a photo and an unrelated article can produce a chuckle, as I found when I visited Reuters today:

Image credit: Screenshot of this Reuters article by Cujo359

[Click to enlarge.]

Needless to say, those are not embassy personnel in the photo. They're Queen Elizabeth and some other members of her family, including Kate Middleton of the amazing fashion evolution, at some ceremony or other. They weren't in Libya at the time.

All Over But The Shouting: Wisconsin Recall Edition

UPDATED with final vote counts. Scroll down to UPDATE 2 if you've seen the rest of this article already.

Caption: County by county results for the June 5, 2012 recall election of Wisconsin Governor Scott Walker.

Image credit: Screenshot of this interactive map by the Milwaukee, Wisconsin Journal-Sentinel by Cujo359.

It's all over but for the shouting in Wisconsin:

Gov. Scott Walker became the first governor in the country's history on Tuesday to survive a recall election, besting his 2010 rival in a contest that broke spending records and captured the nation's attention.

...

The recall race for governor was viewed as crucial nationally, with both sides seeing it as a test of whether politicians could take on unions and survive. Last year, GOP Ohio Gov. John Kasich approved a law curtailing collective bargaining that went further than Wisconsin's, but voters there overturned it in a November referendum.

Walker wins recall race over Barrett

Twitter Message Of The Day

Loved this Twitter message by astrophysicist Neil deGrasse Tyson:

Q: What do you call Alternative Medicine that survives double-blind laboratory tests? A: Regular Medicine.

Twitter Message from @neiltyson

The difference between science and pseudo-science is the skeptical process used by the former to arrive at a conclusion. If "alternative medicine" can survive that process, it is actually medicine. If it can't, it's witchcraft.

Quote Of The Day

Caption: A U.S. Air Force MQ-9 Reaper UAV, in 2007

Image credit: U.S. Air Force photo/Staff Sgt. Brian Ferguson/Wikimedia

Glenn Greenwald, discussing the seemingly endless unmanned aerial vehicle (UAV) attacks on alleged terrorists in various countries:

I ask this sincerely: what kind of country targets rescuers, funeral attendees, and people gathered to mourn? If a Hollywood film featured a villainous King ordering lethal attacks on rescuers, funerals and mourners — those medically attending to or grieving his initial victims — any decent audience member would, by design, seethe with contempt for such an inhumane tyrant. But this is the standard policy and practice under President Obama and it continues through today. Recall the outrage that was sparked when WikiLeaks released its Collateral Murder video showing a U.S. Apache helicopter during the Bush era firing on unarmed rescuers, who had arrived to retrieve the initial victims who had been shot and were laying wounded on the ground. That tactic continues under President Obama, although it is now expanded to include the targeting of grieving rituals.

U.S. again bombs mourners

I've been wondering the same thing, especially when it seems like, with rare exceptions like Greenwald, few progressives have spoken up on this. Far fewer, for instance, than speak up every year about how awful it was that we dropped atomic bombs on a serious enemy sixty years ago. I'm willing to entertain the idea that those attacks were war crimes, although I'm inclined to think they're not, but I have yet to see more than a few progressives even pose the question whether what we're doing in these countries right now qualifies as a war crime. By just about any criteria I can imagine, these are war crimes as surely as Hiroshima and Nagasaki were, and we've signed a Geneva Convention that said so since then.

There was a time not too long ago when we'd be appalled at the idea that we would be deliberately attacking targets where we knew most of the victims would be civilians, and in circumstances that are clearly far less exigent than all-out war with another large industrialized nation. We used to be shocked at the notion of attacking a target to kill off rescue and medical personnel. That was something that awful people did. Yet here we are, doing that very thing, and it's a rare progressive who objects.

Career Limiting Gestures, And God Save The Queens

[Pound notes, plus a few dollars, at the donations box of the British Museum. Image credit: Lawrence OP.]

For some reason, I just don't seem to get around to discussing these articles, even though I have them bookmarked. I'll just say they're worth reading if you want some idea of why economics policy goes the way it's been going in America recently.

The first is from Bill Black, a former Federal Savings and Loan Insurance Company (FSLIC) executive during the George H.W. Bush (A.K.A. "Big Bush") Administration. He discusses why, despite his being one of the few people in America who have successfully investigated the sort of financial fraud that brought about the Crash of 2008, he was not invited to a bipartisan congressional committee hearing on the subject:

At the large law firm where I began my professional career we were warned about making “career limiting gestures” (CLGs). I confess to being an expert in committing CLGs, such that I am unemployable in the federal government. I’m a serial whistle blower who blew the whistle too often and too effectively on too many prominent politicians and bosses running my agency. One of the proofs of what a great nation America is capable of being is that I survived and the prominent politicians and agency heads who tried so hard to destroy my career and reputation failed. Indeed, in the process they helped to make me an exemplar that public administration scholars use to illustrate how regulators should function. The latest act of Congress disinviting me from speaking truth to power has caused me to ruminate on CLGs. I have concluded that they are essential to effective regulation.

Bill Black: Career Limiting Gestures (CLG): Trying to Speak Truth to Congress

I think most large organizations and professions have some phrase to describe CLG's. I'm certainly familiar with the idea from my own time working in the defense industry. Speaking your mind, even when you're right, is potentially hazardous, as there seems to be no lack of people in authority who would rather ignore expensive or embarrassing problems than deal with them.

Economic Geography

Image credit: Composite by Cujo359 (see NOTE 1)

At his blog, Paul Krugman muses about the differences between Florida and Spain:

[A] crude calculation:

1. From IRS data, we find that Florida’s tax payments to Washington fell approximately $25 billion between 2007 and 2010, the bottom of the slump.
2. From Labor Department data, we find that in 2010 special unemployment insurance programs — extended benefits paid for from DC — were about $3 billion in 2010.
3. From SNAP (food stamp) data, we see that food benefits to Florida rose about $3 billion over the same period.

...

Aid on that scale is inconceivable in Europe as currently constituted. That’s a big problem.

Florida Versus Spain

This is why I, and anyone else with at least a basic understanding of the differences between our country and the European Union, say that we will not end up like Spain or Greece. Nor will Florida, or California. There is a federal fiscal and monetary system in America, and that makes our problems fundamentally different from those of Europe. Anyone who says American states will end up like EU members either understands even less about economics than I do, or is lying idiot.

And, to answer the obvious question, there's no reason to think such people can't be both.

NOTE 1: Florida map Mgreason/Wikipedia, Spain map Hinzel/Wikipedia, altered for composite image by Cujo359.

May, 2012 Unemployment Figures

May unemployment numbers from the Bureau of Labor Statistics are out, and they suck:

In a troubling sign of a weakening economy, the Department of Labor reported on Friday that the US added just 69,000 jobs in May, about half of what Wall Street had been expecting. At the same time, the unemployment rate edged higher to 8.2 percent, up from 8.1 percent in April.

The low jobs total was the third consecutive month of disappointing jobs numbers. Initially, economists believed that companies had over-hired during the warm winter and had slowed hiring in the spring. Now, they say the economic downturn in Europe may be having an effect here, as banks become more skittish about making loans. At the same time, another barometer of confidence – the stock market – fell 6 percent in May.

Poor unemployment report points to troubled US economy

Of course, we've seen worse, even in this Administration, but it's still a bit of a letdown for all those folks who thought that if we just stop spending everything will be alright. At least, it would be if anyone who thinks the key to solving this economic mess lies in not spending money had any idea how embarrassed he should be.

As for the ideas proffered in that Christian Science Monitor article for what explains the slowdown, I think that none of them make much sense. Europe isn't that big a trading partner, and while there are dark clouds on the financial horizon there, things haven't collapsed yet. As for the bit about overoptimistic hiring, well maybe. We had a better Christmas shopping season last year than in the two or three previous, so that might have engendered a bit of optimism. Beyond that, though, I'm not buying it.

The thing I don't see talked about is that the effects of the stimulus bill have about run out. As I predicted back then (along with a good many people who are actually serious economists) there wasn't enough stimulus to right the economy. The last effect it was going to have ended pretty much in the middle of last year. With that optimistic Christmas, which is normally a big part of the retail sales for a year, we saw some optimism into the early part of this year.

Now we're seeing how the economy is without a stimulus. It's still not in good shape, which is exactly what anyone with any sense predicted.

As usual, Robert Reich sums things up pretty well:

Face it: The jobs recovery has stalled.

What’s going on? Part of the problem is the rest of the world. Europe is in the throes of a debt crisis and spiraling toward recession. China and India are slowing. Developing nations such as Brazil, dependent on exports to China, are feeling the effects and they’re slowing as well. All this takes a toll on U.S. exports.

But a bigger part of the problem is right here in the United States, and it’s clearly on the demand side of the equation. Big companies are still sitting on a huge pile of cash. They won’t invest it in new jobs because American consumers aren’t buying enough to justify the risk and expense of doing so.

The Job Stall

Which, once again, is what anyone with any sense has been predicting for a long time now. That this doesn't include anyone in the press or the Obama Administration is more an indication of what an unrealistic world those people live in than any deficit on the part of the economists who saw this coming.

Afterword: It's at least possible that people will think I don't take Europe's problems seriously, or that I had forgotten what I wrote about them a few months ago. Neither is true. Europe's problems mean two things for the U.S. economy:

1. As Europe's economic woes deepen, there will be one less place we can hope to see increased demand for American products, and
2. When Europe's financial system goes boom, it will probably take part of ours with it. When you read about Europe's financial woes, names like Mellon, JP Morgan, and Goldman Sachs come up quite often. Those financial companies, among others, stand to lose a lot if Europe goes belly up.

So Europe's woes could well become ours as well, and to a small extent they already are. It's just that I don't see that effect just yet. What I see, like Robert Reich, is mostly the effect of American mismanagement of our own economy.