DeLong's predictions on near term economic outcomes

Brad DeLong's Semi-Daily Journal: A Weblog: Nouriel Roubini Tries to Read Tim Geithner's Mind

In my not too well informed judgment, at least, the big systemic vulnerability is that bond and currency markets do not seem to be pricing the full distribution of future possibilities. The most likely and central-case scenario for 2010, in my macroeconomic view, is one of medium-run equilibrium. Such a scenario sees:

1. A U.S. trade account near balance as foreign investors on net decide that they have a large enough share of their wealth invested in the U.S., and a stable U.S. current account deficit with net foreign assets growing at the rate of U.S. national product.

2. Consequently, a trade-weighted value of the dollar consistent with roughly balanced trade--that is, a trade-weighted value of the dollar 30% or more below what it is right now.

3. Some recovery of wages to their trend as the economy approaches closer to full employment, hence lower profits--and lower retained earnings to finance investment.

4. Continued large and growing federal budget deficits.

5. A great reduction in capital inflows and continued high budget deficits together diminish the supply of savings flowing into the financial markets, and a reduction in retained earnings increases firms' demand for outside capital. The implication is long-term interest rates in 2010 that are not low but high--supply and demand, you know.

This is the most likely future that I see: the central case. And the markets are not pricing it. The foreign exchange markets are not registering the likely large decline in the trade-weighted dollar out there in the medium-run future. The bond markets are not registering the likely large fall in long bond prices as insufficient savings supply runs into expanded investment demand.

I think I understand why the foreign exchange markets are not yet pricing the big dollar decline to come. As long as central banks are large actors in the market, the big foreign-exchange bets against the dollar undertaken by private businesses that are needed to drive the dollar down to medium-run equilibrium are very risky indeed. It's better for large private players (or they think it's better) to wait until it's clear that central banks are about to start dumping their dollar reserves for euros, yen, and renminbi before dumping their own dollar-denominated assets for euros, yen, and renminbi. Central banks are, after all, governments--and so private businesses think that it will be easy to anticipate what they are about to do and to front-run them when it's about to happen. Prematurely betting against the dollar takes on lots of risk for no real significant gain. That, at least, is how I think the big private players in foreign exchange are thinking.

I don't, however, understand the bond market. Do they expect the wage share to stay this low forever, and corporate profits [and] retained earnings to be abundant? Do they expect the capital inflow to continue forever? Do they expect the Bush administration to get serious about balancing the budget? None of these seem plausible as expectations, as modal scenarios, as central cases. But then why isn't the long bond market already pricing the supply-and-demand for loanable funds imbalance that seems inevitable in medium-run equilibrium? It's a mystery.

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DeLong doesn't think the bond and currency markets are behaving rationally. (By extensions, since recently stocks track bonds, neither is the stock market.) He's worried that hedge funds are amplifying these miscalculations. If he's right, and the dollar falls quickly enough, the consequences may be severe.

Visit Montreal - virtually

Faughnan's Tech: November 2004 - Virtual Tours of Montreal

How did Greek status look -- to the Greeks?

ClassiColor

I'd read that they were painted, but these designs seem a bit garish. They reminded me of Hindu statues.

Fewer remained in Fallujah that most had estimated

TerraNet Portal Site

The Red Crescent's Fallujah coordinator, Jotiar Nafaa, estimates that between 150 and 175 families are left in the city that once had a population of 300,000.

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I read estimates of tens of thousands of stranded civilians. If the number remaining is only 175 families, and the civilian deaths are not in the tens of thousands, then something interesting happened. It might suggest that Fallujah's tribal leaders decided to abandon the insurgents to their fate, and instructed the tribes to leave. That would fit with hints that the insurgents were no longer welcome.

There will be books to read one day that may fill in this story. If the insurgents did become unwelcome, I wonder if it will be thought they went too far explicitly tormenting and murdering obviously harmless people. Perhaps there are disadvantages to humanizing one's victims.

The worst job in the world

BBC NEWS | Asia-Pacific | Life cheap in China's mines

In May 2002, according to China's official media, 21 miners were trapped by an explosion in a mine in the north-west of the country. But instead of attempting to rescue them, the mine's owner destroyed employee records and whitewashed over scorch marks, leaving them to die.

And in June 2003 in northern China, the bodies of 36 miners who had been killed in a blast in a gold mine were found to have been hidden in an attempt to cover up the accident.

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Last year about 20,000 men died in mining accidents in China. That's the population-adjusted equivalent of 5,000 deaths in the US.

We, for now, don't live like that. Five thousand deaths would a Vietnam-level war by our standards. At the beginning of the 20th century, adjusting for population, perhaps life in US mines and major construction sites was comparable.

China is a world in itself -- living partly in the each of the past five centuries of western life.

Best neighborhoods and public spaces in north america ...

PS: PPS | Metafilter

A very nice reference for the traveler!

Challenges in evolution: male homosexuality

Richard Dawkins: Frequently Asked Questions

If a homosexuality gene lowers its own probability of being reproduced today, and yet still abounds in the population, that is a problem for commonsense as much as for Darwin's theory of evolution. And, intriguing as several of these theories may be, I have to conclude that it remains a problem.

This Dawkins FAQ page is fun reading, but I particularly enjoyed the discussion of how homosexuality fits with Darwinian selection. On reflection, though, I wasn't that impressed with Dawkins reasoning. He ought to have begun with an analysis of whether homosexuality was unique to homo sapiens, or whether it was also common among other primates, mammals, etc. It it's seen in other primates and also non-primates, then most of the explanations he advanced are unlikely to be true.

I'm inclined to the theory that there have been very substantial benefits to human and other animal societies from genes that, at least in some men, have the "unfortunate" (from the gene's perspective) additional effect of preventing reproduction. It's interesting to know this is an ongoing mystery however.

Electronic bill payment -- two routes, different motives

The New York Times > Business > Your Money > Spending: Here's the Hook: Gifts for Online Bill Payers

This is a relatively dumb article. It talks about why vendors want their customers to pay online, but it entirely misses the more interesting story of bill payment handled by banks.

Online bill payment can be done two ways:

1. Vendor controls payment.
2. Bank controls payment.

Vendors want to get money as quickly as possible. They make money on mistakes that generate payments -- when the consumer misses the error.

Banks want to send money out at the last possible moment. They don't make money on a mistake that withholds payment -- there's no way the vendor will let that happen.

In this case the interests of the Bank are identical to the interests of the consumer. Check payment controlled by the bank is a fundamentally better solution. In addition it means a single system to learn and support.

Segregation today, segregation forever?

washingtonpost.com: Alabama Vote Opens Old Racial Wounds

Alabama voters decide to preserve segregation and poll taxes. On the other hand, they recently removed laws against miscegenation.

On careful reading, however, I can see why the good guys lost (again). The bill repealing segregation also sought to establish a right to public education. That could be the nose of the elephant -- after that might come the obligation to fund a public education. Then comes communism, or, worse, liberals and the teaching of natural selection.

Yay red states.

School Segregation Remains a State Law as Amendment Is Defeated

By Manuel Roig-Franzia
Washington Post Staff Writer
Sunday, November 28, 2004

TUSCALOOSA, Ala. -- On that long-ago day of Alabama's great shame, Gov. George C. Wallace (D) stood in a schoolhouse door and declared that his state's constitution forbade black students to enroll at the University of Alabama...

...If Wallace could be brought back to life today to reprise his 1963 moment of infamy outside Foster Auditorium, he would still be correct. Alabama voters made sure of that Nov. 2, refusing to approve a constitutional amendment to erase segregation-era wording requiring separate schools for "white and colored children" and to eliminate references to the poll taxes once imposed to disenfranchise blacks.

..."There are people here who are still fighting the Civil War," said Tommy Woods, 63, a deacon at Bethel and a retired school administrator. "They're holding on to things that are long since past. It's almost like a religion."

... The amendment had two main parts: the removal of the separate-schools language and the removal of a passage -- inserted in the 1950s in an attempt to counter the Brown v. Board of Education ruling against segregated public schools -- that said Alabama's constitution does not guarantee a right to a public education. Leading opponents, such as Alabama Christian Coalition President John Giles, said they did not object to removing the passage about separate schools for "white and colored children." But, employing an argument that was ridiculed by most of the state's newspapers and by legions of legal experts, Giles and others said guaranteeing a right to a public education would have opened a door for "rogue" federal judges to order the state to raise taxes to pay for improvements in its public school system.

The argument plays to Alabama's primal fear of federal control, a fear born of years of resentment over U.S. courts' ordering the desegregation of schools and the creation of black-majority legislative districts.

"Activists on the bench know no bounds," Giles said. "It's a trial lawyer's dream."

Giles was aided by a virtually unparalleled Alabama celebrity in his battle against the amendment, distributing testimonials from former chief justice Roy Moore, whose fame was sealed in 2003 when he defied a federal court order to remove a two-ton granite Ten Commandments monument from the rotunda of the Alabama Supreme Court. They were joined by former Moore aide Tom Parker, who handed out miniature Confederate flags this fall during his successful campaign for a seat on the Alabama Supreme Court.

Arguing that the amendment could lead to higher taxes is a potent strategy in Alabama, which is one of the nation's most lightly taxed states and which resoundingly rejected a record $1.2 billion tax increase proposed last year by Gov. Bob Riley (R), a conservative, to pay for school improvements and lessen the tax burden on the poor. But many blacks view the Amendment 2 opponents' tax pitch as a smoke screen.

... This is not the first time that Steele has tangled with Alabama's constitution, a gigantic document that has more than 740 amendments and more than 310,000 words, making it the world's longest, at nearly 40 times the length of the U.S. Constitution. Four years ago, voters repealed a constitutional amendment banning interracial marriage.

... Yet the constitution, with its racist past and its racist present, only grows. On Nov. 2, it was amended three times -- numbers 743, 744 and 745.

Giles has said he would support taking out the passage about separate schools for "white and colored children" as long as the part about not guaranteeing a right to an education is kept.

Conflagration -- the european invasion of the americas

The New York Times > Opinion > Charles Mann: Unnatural Abundance is an astounding NYT essay by Charles C. Mann, author of the forthcoming "1491: New Revelations of the Americas Before Columbus." The key observations are that, from an ecological perspective, the native american peoples were but one of large number of native "species" annihilated by the european invaders, and that those invaders that as much microbe and plant as human.

He doesn't mention dogs. There were dogs in the americas before the european invasion, but we know from recent gene studies that none survived. It would be interesting to know what killed them all. I suspect it was a pathogen that european dogs had adapted to.

Why were the microbial attacks so one sided? Europeans has spent hundreds of years in cesspools of festering disease -- cities. Plagues were commonplace. European immune systems were well tuned to the a wide range of pathogens. Native americans, living in a far healthier environment, had none of these adaptations. (I wonder how the anti-evolutionists explain the death of the native americans -- do they thing God did it?) Even to this day, euros are relatively resistant to HIV.

The essay sheds new light on how the Pilgrims survived. It had always seemed strange that such an ill-planned expedition should survive a northern winter. It turns out the plague had prepared their rations. I doubt Mrs. Cheney (famed for her campaign to teach mythology in place of history) would approve.

November 25, 2004
Unnatural Abundance
By CHARLES C. MANN

... Until the arrival of the Mayflower, continental drift had kept apart North America and Europe for hundreds of millions of years. Plymouth Colony (and its less successful predecessor in Jamestown) reunited the continents. Ecosystems that had evolved separately for millennia collided. The ensuing biological tumult - plants exploding over the landscape, animal species spiking in population or going extinct...

In a phenomenon known as "ecological release," imported species can run wild because their natural predators have not come along with them. Clover and bluegrass, tame as accountants at home, transformed themselves into biological Attilas in the Americas, sweeping through vast areas so fast that the first English colonists who pushed into Kentucky found both species waiting for them. The peach proliferated in the Southeast with such fervor that by the 18th century, the historian Alfred Crosby writes, farmers feared that the Carolinas would become a wilderness of peach trees.

South America was just as badly hit. Endive and spinach escaped from colonial gardens and grew into impassable, six-foot thickets on the Peruvian coast; thousands of feet higher, mint overwhelmed Andean valleys. In the pampas of Argentina and Uruguay, the voyaging Charles Darwin discovered hundreds of square miles strangled by feral artichoke. "Over the undulating plains, where these great beds occur, nothing else can live," he observed.

... Wheat, following bluegrass and clover, occupied huge swathes of the Midwestern savanna. Meanwhile, corn conquered Africa, Asia and central Europe. Corn so thrived in 16th- and 17th-century Africa, Dr. Crosby has argued, that it sustained a population explosion that let Europeans take millions of Africans for slaves without emptying the continent.

... Soon after Europeans arrived, European diseases killed 90 percent or more of the hemisphere's original inhabitants - at least 30 million people, and possibly 100 million, according to most recent estimates.

Four years before the Pilgrims' arrival, shipwrecked French sailors accidentally unleashed an epidemic, possibly viral hepatitis, on Cape Cod, which then swept through New England. The Pilgrims moved into an Indian village, Patuxet, that had been emptied by disease; they survived the first winter only after digging up food caches in victims' houses and graves...

... American Indians were ambitious, sophisticated landscape managers. In South America, they drained vast areas of wetland; scattered networks of raised agricultural fields in Bolivia, Colombia and the Guianas; and converted much of Amazonia into an "anthropogenic" forest - a mix of gardens, orchards and agricultural forests. Visitors to the Andes still gawp at the Indian terraces that carpet the highlands - more than 2,000 square miles of them in Peru alone, according to the geographer William M. Denevan, most of them at more than 9,000 feet.

Above the Rio Grande, Indians' principal land-management tool was fire, used to create and maintain open, game-friendly forests and grazing lands. Native pyromania created a third or more of the Midwestern prairie; fire kept Eastern forests so open that the first European colonists reported being able to ride through the woods in carriages. In California, Oregon, Texas and a hundred other places, Indian burning governed the conditions under which other species thrived or failed.

When disease carried away native societies, the torches went out. Trees and underbrush erupted in ways that had not been seen for millennia, filling in areas kept open by Indian axes and Indian fire. "Almost wherever the European went, forests followed," wrote the ecological historian Stephen Pyne. Far from destroying wilderness, in other words, European settlers created it - only it was a peculiar, unprecedented kind of wilderness, shot through with European invaders and characterized by population outbreaks from species that had formerly been uncommon...

...Other researchers have made similar arguments for bison, elk and moose. All were kept down by Indians - the big mammals by hunting, the pigeon because Indians both ate it and competed with it for the nuts on which it depended. The huge herds and flocks seen by Europeans were evidence not of American bounty but of Indian absence...

Electronic Arts: The Inside Story

ea_spouse

This got a lot of commentary on Slashdot as well. Electronic Arts has a curious approach to human resources. It's stupid in several dimensions and probably illegal. Never mind morality.

Reminds me of a science fiction short story by Vernor Vinge. I suspect now that story was based on EA.

The first to survive rabies

The New York Times > National > Girl Is First to Survive Rabies Without a Shot

Dr. Willoughby said he had tried to induce the coma in part because evidence suggested that rabies did not permanently damage any brain structure. Instead, death comes because the virus seems to cause temporary dysfunction of brain centers that control critical functions like breathing and swallowing.

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An astounding win. Compared to this the Red Sox victory was plebian. We are all waiting eagerly for the journal report. I suspect NEJM will bag it.

Minneapolis church makes international news -- for its lefty politics

Economist.com | Churches and politics

THE next time you are in Minneapolis, you may like to visit St Joan of Arc church. Its weekend masses are packed; the congregation has doubled to 4,000 households in the past 12 years; the median age of its members is much lower than that of most other churches. It sends do-gooders to a sister parish in Guatemala, and professional musicians often stop by to jam at mass. This liberal Roman Catholic church hit a bump recently when conservative critics complained to Rome about some of its practices, including an open door for homosexuals. The bishop tried to intervene, but met a wall of protest from parishioners. St Joan's pastor, Father George Wertin, says that he is mindful of the church's teaching, but remains committed to inclusiveness and social justice.

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Wow, Minneapolis makes the international news -- thanks to Joan of Arc church. We've been going primarily for the children's mass; the only place we've been that works for our family. At JofA no-one gives us a second look -- we're quite prosaic there. Now if we can just keep the bishop at bay. I doubt this bit of fame will help ...

Kristof on the 'Left Behind' books

The New York Times > Opinion > Kristof: Apocalypse (Almost) Now

Not Kristof's best column, because he missed the point. Yes, the Left Behind books are nasty and virulent, but it's also true that one can (selectively) read the Bible that way. As religious extremists are fond of pointing out, there are a lot of places in the Bible where "God" is nasty as all get out. That's the God of a some literate barbarians -- the early Israelis.

Things quiet down as the Israelis focus more on spirtuality and less on destroying their enemies. Christ is a real aberration though. I just don't see the continuity between the Old Testament and the teachings of Christ. There's a legacy for sure, but Christ is really a revolutionary. (Paul does yet a third version; a fusion really that provides the right formula for longterm success. Paul is a reactionary zealot -- and a pragmatist.

Bottom line, the Left Behind folks are very much in the spirit of the Old Testament. I'd say they aren't Christian though, more like Yahwhites. Kristof's right when he says they're religious extremists, but wrong to think they're not true to the spirit of a part of the Bible. The Bible is massively inconsistent.

Obesity doesn't compare to smoking

The New York Times > Health > Data on Deaths From Obesity Is Inflated, U.S. Agency Says

They messed up the numbers. Turns out obesity isn't great for you, but it's not in the same league as smoking. Since weight gain is common with smoking cessation this wasn't merely an academic distinction.

In addition to less dangerous than smoking, obesity mortality is concentrated towards the upper end of life, so years-lost are far less than for smoking.