Bush believes in the purity of the markets?

Theoretically, Tax Reform Should Fly (washingtonpost.com)

WaPo claims Bush's policies, including removal of tax breaks for employer purchased healthcare, are based on an enthusiasm for market solutions.

I wonder. Bush has not demonstrated much understanding of economics in the past four years. Assuming it's true however, does Bush understand that markets say some disturbing things about how the disabled should be cared for?

Perhaps Bush's solution to the pension obligations is liberal application of ice floes.

A raging cry against war

The New York Review of Books: On War

Chris Hedges is not shrill. He is angry. He also knows something of war.

Sinclair Lewis redux

Fascism in America? | Metafilter

On the tyranny of genetics

Marginal Revolution: Nature, Nurture and Income

The income of adult children tends to reflect their parents income. Is this due to nurture (better schooling, more advantages, social connections) or nature (shared genes).

Bruce Sacerdote provides an answer based on adoption studies. The answer appears to be the genes.

I'd have been surprised by any other result; this tracks with other studies on the inheritance of IQ. What's interesting, however, is that even in the range of more common (?average) parental incomes the adoptee income seems quite low.

A dog dies

Molly 1989-2004

The new order: do not offend the GOP

Talking Points Memo: by Joshua Micah Marshall: November 28, 2004 - December 04, 2004 Archives

As of noon on Wednesday, a quick look at Google News suggests that reporting on CBS's and NBC's refusal to run the United Church of Christ inclusion ad is almost entirely limited to the gay press (gaywired.com, 365gay.com, etc.). There's an AP story which has been picked up by the Akron Beacon Journal, but little else.

How do the anti-evolutionists handle this?

BBC NEWS | Science/Nature | Ancestor's DNA code reconstructed

'Based on the differences that we observed between the different mammals, we were able to work out, with pretty good accuracy, what changes would have occurred during evolution and figure out what, most likely, was the ancestral sequence from which everyone started,' he told BBC News.

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I'm sure the anti-Darwinists have an answer to this, but I'm curious as to what it is. Probably the same answer their predecessors had for dinosaur bones -- created by the Devil to challenge men's faith.

Torture at Guantanamo bay

Salon.com News | More cold-blooded than Abu Ghraib

Torture, American style. I'm sure we'll excel at it.

We tried.

Yes, the blue states give money, the reds receive

A Dichotomy in Two Colors Ludwig von Mises Institute

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An anti-government (Libertarian?) web site struggles with the astonishing conumdrum -- the blue states are net donors to the budget, the red states net recipients.

The arrested president

Ottawa Independent Media Center

Canadian authorities have arrested US President George W. Bush and charged him with offences under Canada's War Crimes Act.

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Since the US army has been depleted by the Iraq conquest, the Canadians estimate it will be at least a few days before Canada is invaded ..

More from Stephen Roach of Morgan Stanley

Morgan Stanley

Roach is evidently the man of the hour. Fascinating factoids.

Global: The World's Biggest Excess
Stephen Roach (New York)

... Over the 1996 to 2004 period, annual growth in US personal consumption expenditures averaged 3.9% -- nearly double the 2.2% pace recorded elsewhere in the so-called advanced world ... the personal saving rate plunged from an already-depressed 4.6% level in 1995 to just 0.2% in September 2004....

... Moreover, there has been an important shift in the asset economy that took the US consumption dynamic to excess in recent years. The first wave came from the stock market, as household equity holdings surged from about 13% of total assets in 1991 to 35% at the peak in 2000. During the final stages of the equity bubble, individual stock portfolios supplanted real estate as the US household sector’s most important asset... the equity bubble immediately morphed into an even more powerful strain of asset appreciation -- a sustained burst of US house price appreciation that has continued to this very day...

This multi-bubble syndrome was largely an outgrowth of the Federal Reserve’s aggressive post-equity-bubble damage containment tactics -- some 550 bp of monetary easing from early 2001 through mid-2003. Housing markets benefited handsomely from the support of 45-year lows in interest rates. And consumers, who had first discovered the joys of asset-driven wealth effects during the stock market bubble of the late 1990s, quickly put their newfound skills to work in reaping the gains of the housing bubble. Not only did they benefit from the psychology of feeling wealthier, but US homeowners were aggressive in taking advantage of breakthroughs in the technology of home mortgage refinancing. It wasn’t just the reduction in interest expenses, but the so-called cash-outs from rapidly appreciating housing assets enabled consumers to uncover a new and important source of incremental purchasing power... households may have liquidated as much as 8% of their equity in real estate in order to fund current consumption. For an aging US society that needs to build saving in order to fund the not-so-distant retirement of some 77 million baby-boomers, even this partial liquidation of asset-based saving is disturbing, to say the least.

...Lacking in domestic saving, American has had to import foreign saving from abroad -- and run massive current account deficits to attract that capital.

This is where the global enablers enter the equation. First, it was private investors seeking to share in the returns of the world’s greatest productivity story. Then, when doubts surfaced on that front, foreign central banks rushed in to fill the void. Over the 12 months ending September 2004, the “official sector” accounted for 28% of total purchases of long-term US securities -- nearly double the 15% share over the prior 12 months and about four times the portion during the 2000-02 period.... that left dollar-based assets with approximately a 70% weight in official reserve portfolios -- more than double America’s 30% share in the world economy and, quite possibly, the biggest overweight in world financial markets today.

Nor is it difficult to discern the motive behind this foreign dollar-buying binge. It’s all about the lack of internal demand in Asia and Europe and the related need to draw support from export-oriented growth strategies. And, of course, central to such growth tactics are cheap currencies that underwrite export competitiveness. Asia has led the way in that regard -- with hard currency pegs in China, Hong Kong, and Malaysia and soft currency pegs in Japan, Korea, India, Taiwan, Thailand, and Indonesia. ... in the absence of this foreign support campaign, yields on 10-year Treasuries would have been in the 5 to 5.5% zone -- implying a rate structure that would have been far more problematic in providing valuation support to US asset markets and concomitant wealth-driven support to America’s asset-dependent consumer.

... Asset-dependent Americans truly have an excess consumption problem. It is still astonishing to me that the bursting of the equity bubble didn’t spawn a culture of prudence that weaned US consumers from the perils of an all too fickle wealth effect. With US house price inflation now at a 25-year high of 8.8% and with 15 states now experiencing double-digit house price inflation, this voracious appetite for risk is all the more disturbing. Similarly, Asian and European financiers -- be they private investors or central banks -- need to accept responsibility for the important role they have played in keeping the music going for saving-short, over-extended US consumers. They have taken the easy way out -- putting off the heavy lifting of structural reforms needed to unlock domestic demand and choosing, instead, to recycle foreign exchange reserves into dollars and rely on currency manipulation as a means to sell everything they can to America. In my view, America, Asia, and Europe are all equally guilty of opting for an extraordinarily reckless way to run the world.

Financial markets have an uncanny knack in restoring a sense of order to a dysfunctional world. The dollar is now center stage in this global wake-up call -- as well it should be, in my view. But dollar depreciation is not the endgame of global rebalancing. It is the means toward the end -- a potential trigger for a long overdue realignment in the mix of global saving and consumption.. By failing to face up to the imperatives of rebalancing, the world has collectively created the ultimate moral hazard -- a US consumer that is now “too big to fail.” ...

Long ago, I learned that most of the time it doesn’t pay to bet against the American consumer. There are rare occasions, however, when that rule doesn’t apply. That was the case in the early 1970s in the aftermath of the first oil shock. Back then, as a young staffer at the Federal Reserve Board, I was chastised by Fed Chairman Arthur Burns for being too negative on the US consumer. He argued that I didn’t appreciate the unflinching cyclical resilience of the US consumer -- a resilience that, ironically, was about to give way to America’s first consumer-led recession. A lot has changed in the ensuing 30 years. But for very different reasons, I now believe that another exception is in the offing. The American consumer is an accident waiting to happen. The sooner the world comes to grips with this problem, the better the chances of a successful rebalancing.

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1970s. 1970s. Nixon. Stagflation. Coming soon to a screen near you ...

Epidemic! Epidemic!

WHO aide warns of avian flu pandemic

Problem is, I burnt out on SARS last year. I still don't understand why all hell didn't break loose then. My best guess is that there were multiple strains of SARS circulating simultaneously, and an innocuous one spread faster -- immunizing the susceptibles in advance of the killer strain.

So, now there are dire warnings on Avian Flu. After anthrax (dire warnings, then nothing -- yeah, I know it's not contagious, but that wasn't what the warnings were about) and SARS, are we able to take this one seriously?

The infection estimates are 1/3 of the world with 2-100 million deaths. If that happened the economic, social, and military consequences would be enormous.

On the other hand the SARS tale is not irrelevant. Avian flu has a 70% mortality rate in the infected, but SARS was about 15-50% depending on the population studied. Those are order of magnitude comparable, but those numbers can be exceedingly misleading for many reasons.

We ought to do a lot more with public health than we do, especially in the "red states" that don't fund public health at all. Other than that ...?

A global pandemic of avian influenza is "very, very likely" and could kill tens of millions of people around the world, a top World Health Organization official said Monday.

Governments should be prepared to close schools, office buildings and factories in case of a pandemic, and should work out emergency staffing to prevent a breakdown in basic public services like electricity and transport, said Dr. Shigeru Omi, the organization's regional director for Asia and the Pacific.

Such arrangements may be needed if the disease infects 25 to 30 percent of the world's population, Omi said. That is the WHO's estimate for what could happen if the disease - currently found mainly in chickens, ducks and other birds - develops the ability to spread easily from person to person.

Deaths associated with the rapid spread of a new form of influenza would be high, he said.

"We are talking at least 2 to 7 million, maybe more - 20 million or 50 million, or in the worst case, 100" million, he said.

While many influenza experts have discussed similar figures privately, Omi's remarks represented the first time a top public health official had given such an estimate in public. But his remarks on the likelihood that the disease would start spreading easily went beyond the assessment of many scientists, who say that too little is known about the virus to gauge the odds that it will become readily transmissible.

Dr. Malik Peiris, a top influenza researcher at Hong Kong University, said that Omi's range of potential fatalities was realistic and consistent with current research into the A(H5N1) avian influenza virus. The biggest questions, he said, were whether the disease would develop the ability to spread easily from person to person and, if it did, whether it would retain its current deadliness.

... Omi and Peiris each pointed out that the high death rate recorded so far might be overstated, because people with less severe cases of the disease might not be diagnosed as having it.

Peiris also pointed out that one likely way for the disease to acquire the ability to pass easily from person to person - the acquisition of human influenza genetic material by the virus - could also reduce the death rate to the range described by Omi.

"If the virus reassorts and picks up human influenza genes then it's quite possible the severity could be limited," Peiris said.

The WHO, a Geneva-based UN agency, has reported 44 confirmed human cases of A(H5N1), 32 of whom have died, a 72.7 percent rate. The WHO has identified only one case of probable human-to-human transmission - a mother who cradled her dying daughter all night - while the rest of the cases appeared to have been acquired directly from animals.

Arctic organic sediments and an update on climate science

The New York Times > Science > Initial Findings of Arctic Expedition Upend Old Notions

Althought this longish NYT article focuses on arctic sediments and possible oil resources, it's also an update on the latest thinking about climate change. A lot of people would like to know what caused that vast methane release.

... The cores provide the first evidence that vast amounts of organic material created by plankton and other life settled on the seabed, experts say. That kind of carbon-rich accumulation is a vital precursor to the formation of oil.

Some of the deepest, oldest, most carbon-rich layers, dated to around 55 million years ago, formed during a period called the Paleocene-Eocene Thermal Maximum, when the world was running a raging temperature. Scientists believe that this relatively brief period, far warmer than the present, was caused by a spike in heat-trapping greenhouse gases far greater than the human-caused buildup that has occurred over the last century.

The initiating cause was a vast release of submarine deposits of frozen methane, a powerful greenhouse gas, but scientists do not yet know whether those gases were liberated by volcanic activity, a shift in warm sea currents, or some other force.

Around 49 million years back, with the climate cooling and the atmosphere's greenhouse burden declining, the retrieved shafts of sediment also speak of an extraordinary, short-lived era of several hundred thousand years when so much warm fresh water apparently topped the Arctic's oxygen-starved salty depths that the polar sea became matted with tiny Azolla ferns, resembling the duckweed that can choke suburban ponds.

Altogether, about 600 vertical feet of sediment from the ridge is rich dark organic material, implying that there could easily be two vertical miles or more of similar organic layers in the deeper adjacent basins, said Dr. Henk Brinkhuis, a geobiologist from Utrecht University in the Netherlands who participated in the coring project....

... The preliminary analysis reveals that the Arctic Ocean has been constantly icy for at least 15 million years, far longer than scientists had previously theorized. Dr. Moran said scientists had previously put the last ice-free conditions at four million to seven million years ago.

Experts involved in the research said these findings added sobering context to the current Arctic warming trend, which climatologists have linked to accumulating greenhouse-gas emissions and say could lead to a largely ice-free sea in summers this century.

No one expects ferns to cover the polar sea any time soon, but some experts involved with the research said the recent changes in the Arctic could result in a long-lasting warming that is likely to change the nature of the Arctic profoundly, for better and worse. In outlining the pattern of change during and after the last big Arctic warm-up, 55 million years ago, the new cores show "you can get a really strong cascade" toward warming that then can take hundreds of thousands of years to reverse, said Dr. Brinkhuis.

Whatever the future holds, it is becoming clearer with every new scientific poke at the freshly recovered shafts of layered shale, microscopic plankton fossils, pebbles and other material that the coring project will provide an unparalleled view of past climate changes at the top of the world, Arctic experts said...

... The $12.5 million project, financed by Europe, was conducted under the auspices of the Integrated Ocean Drilling Program, which is systematically coring seabeds around the world to reveal geological history.

... One of the most remarkable revelations is that the Arctic Ocean apparently briefly bloomed into a great matted soupy superlake.

Dr. Brinkhuis, who had worked for oil companies, said that previous drilling efforts by oil teams around the perimeter of the Arctic also captured this brief flowering of water plants, but no one had conceived that the layer might hint that the entire Arctic basin was one great matted pond.

"It's spectacular," he said. "Right at this transition from supergreenhouse to cooling, that's where there's this evidence of a bathtub situation there that is so fresh that this Azolla can really bloom and boom."

He said it was possible that the fast-growing plants, by absorbing huge amounts of carbon dioxide, might have contributed to the eventual decline in the atmosphere's greenhouse gas concentration and climate cooling...

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Note this was a European expedition. Perhaps in the US research into climate change is a dangerous subject.

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