US in Libya

I tend to shy away from strong opinions in the area of international relations.  I’m somewhat well-versed in the area, but it’s not an area where I’m comfortable expressing opinions, unless the proper course is somehow painfully obvious.

Tim Egan wrote a post on Obama last week titled, “In Praise of Dithering”…

http://opinionator.blogs.nytimes.com/2011/03/24/in-defense-of-dithering/

Perhaps the pace of global change at the moment is such that true dithering is impossible.   At any rate, the standard has been defined down such that “dithering” still entails dropping five hundred pound bombs on people.

Whether this is good policy or not, I hope everyone is at least made uneasy by the quiet brutality described in this piece…..

http://www.nytimes.com/2011/03/29/us/29military.html?_r=1&hp=&adxnnlx=1301400137-AlIVTCg7p8GIwwCPD9HJZg&pagewanted=print

U.S. Gives Its Air Power Expansive Role in Libya

By ERIC SCHMITT

WASHINGTON — Even as President Obama on Monday described a narrower role for the United States in a NATO-led operation in Libya, the American military has been carrying out an expansive and increasingly potent air campaign to compel the Libyan Army to turn against Col. Muammar el-Qaddafi.

When the mission was launched, it was largely seen as having a limited, humanitarian agenda: to keep Colonel Qaddafi from attacking his own people. But the White House, the Pentagon and their European allies have given it the most expansive possible interpretation, amounting to an all-out assault on Libya’s military.

A growing armada of coalition warplanes, armed with more precise information about the location and abilities of Libyan Army units than was known a week ago, have effectively provided the air cover the ragtag opposition has needed to stave off certain defeat in its de facto eastern capital, Benghazi.

Allied aircraft are not only dropping 500-pound bombs on Libyan troops, they are also using psychological operations to try to break their will to fight, broadcasting messages in Arabic and English, telling Libyan soldiers and sailors to abandon their posts and go back to their homes and families, and to defy Colonel Qaddafi’s orders.

The Obama administration has been reluctant to call the operation an actual war, and it has sought to emphasize the involvement of a dozen other countries, particularly Italy, Britain and France. In his speech on Monday night, Mr. Obama, as he has in the past, portrayed the mission as a limited one, and described the United States’ role as “supporting.”

But interviews in recent days offer a fuller picture of American involvement, and show that it is far deeper than discussed in public and more instrumental to the fight than was previously known.

From the air, the United States is supplying much more firepower than any other country. The allies have fired nearly 200 Tomahawk cruise missiles since the campaign started on March 19, all but 7 from the United States. The United States has flown about 370 attack missions, and its allied partners have flown a similar number, but the Americans have dropped 455 precision-guided munitions compared with 147 from other coalition members.

Besides taking part in the airstrikes, the American military is taking the lead role in gathering intelligence, intercepting Libyan radio transmissions, for instance, and using the information to orchestrate attacks against the Libyan forces on the ground. And over the weekend the Air Force quietly sent three of its most fearsome weapons to the operation.

The strategy for White House officials nervous that the Libya operation could drag on for weeks or months, even under a NATO banner, is to hit Libyan forces hard enough to force them to oust Colonel Qaddafi, a result that Mr. Obama has openly encouraged.

“Certainly, the implied though not stated goal here is that the Libyan Army will decide they’re fighting for a losing cause,” said Gen. John P. Jumper, a retired Air Force chief of staff. “You’re probably dealing with a force that may not be totally motivated to continue this for the long haul.”

Ten days into the assault, the officials said that Libya’s formidable integrated air defense has been largely obliterated, and that the operation was shifting to a new phase devised to put even more pressure on the country’s armored columns and ground troops.

For the Americans, six tank-killing A-10 Warthogs that fire laser-guided Maverick missiles or 30-millimeter cannons arrived on the scene this weekend. The United States also deployed two B-1B bombers, as well as two AC-130 gunships, lumbering aircraft that orbit over targets at roughly 15,000 feet, bristling with 40-millimeter and 105-millimeter cannons. The gunships’ weapons are so precise that they could operate against Libyan forces in cities, which so far have been off limits for fear of civilian casualties.

On Sunday, allied warships and submarines fired six Tomahawk cruise missiles at the headquarters of the Libyan 32nd Brigade, based in Tripoli and commanded by one of the Libyan leader’s sons, Khamis Qaddafi. Colonel Qaddafi has used the brigade in the past for internal repression.

“This is one of Qaddafi’s most loyal units and are also one of the most active in terms of attacking innocent people,” Vice Adm….

Examining Mosler Economics

I should be one of the only people who has read nearly every word on Warren Mosler’s site, www.moslereconomics.com.  The students in my Spring 2010 Harvard course, “The US in the World Economy,” joined me in most of this effort.  We spent two courses going over the readings in the “Mandatory Reading” section of the website.  It was a somewhat risky use of class time, but I think it turned out to be worthwhile.

I wanted to cover Warren’s writings mainly because his thinking is so contrary to conventional wisdom and also in its own way so logical, that if you don’t agree with him, you had better be able to articulate why.  If not it might be best to conclude that it is your own economic thinking that is in error.  In trying to figure out whether you agree or disagree with Warren, you can’t help but improve your economic thinking.

I will not be able to do Warren’s ideas justice in this space.  I will do my best to provide a quick and dirty summary of his ideas, and provide a brief outline of my criticisms.

Warren’s focus is overwhelmingly on the economy’s aggregate production function.  He views a failure to make use of this production function in the short-term (resulting in unemployment and excess capacity) to be the worst form of economic mistake.  He feels that in modern Western economies this form of economic error is committed far too often in the name of price stability and/or budget orthodoxy.

Warren argues convincingly that today’s thinking about macroeconomics, especially by non-specialists such as journalists and politicians, tends to be a muddled mix of economic wisdom today’s era of fiat currencies and flexible exchange rates and from yesterday’s era (pre-1971) era of gold-backed currency regimes.  Warren believes that we pretend that governments that have fiat currencies and flexible exchange rates have constraints –such as the need to balance budgets and current accounts over time — that in fact they don’t have.

Warren is running as a Democrat and has little patience for President Obama’s current policies.  Warren believes that the Obama administration has pursued “impossible trickle down policies that would have made even Reagan blush.”  He notes that, “There is no connection between funding the banks, and the incomes of people trying to make their payments.”  Warren strongly favors fiscal stimulus over monetary stimulus (in fact he thinks monetary stimulus is almost entirely ineffective), and in the current environment he favors a policy of a payroll tax holiday.  This is expensive (around $1trillion per year) but it’s highly effective as stimulus as it immediately increases paychecks (by 15% or so for those making <$100k if employers pass on their savings) and it focuses on those people most likely to spend.  It also has equity benefits as it eliminates, if only temporarily, a highly regressive tax.

Warren is fond of noting that the US government, as the issuer of currency, can spend without limit.  He favors government spending at times when such spending can lift the economy towards full employment.  His thinking fits broadly under the New Keynesian rubric.  Warren’s writings maintain the assumption that the Federal Reserve (as the only branch that can issue currency) and the Treasury (which spends) are independent in name only, and that institutional restrictions such as debt ceilings and no overdraft provisions can be safely ignored.  I see no reason to disagree with Warren, though he should point out that, at least in theory, the Treasury can go broke.

I feel that Warren is a bit cavalier about the issue of central bank independence.  Perhaps his practical experience has led him to believe that central bank independence is a fiction in all countries.  The academic studies I have seen, though, tend to show a positive relationship between measures of central bank independence and long-term economic growth.

Warren assumes that the government can invest effectively.  This is no doubt true in theory, but, in my view, the evidence doesn’t support it.   In my view, there is nothing correlated with high inflation rates so well as high budget deficits.  There are a number of possible reasons for this, but the most compelling to me is that government tends not to spend money effectively.

I gave a simple illustrative example in class.  Suppose that an economy consists of 1 million people all employed and earning $100 per year.  The gdp of the country is $100 million in a year (let’s call that year 2008).  As the clock is turning to 2009, there is some sort of bizarre financial market shock that causes 40% of the population to lose their job the next day.   The government is considering a policy of hiring all 400,000 workers for the year 2009 and paying them $100/year.   If these people can be put to work by the government in efficient ways, this is no doubt a good idea.  But suppose the government hires 400,000 people and in fact those people do nothing at all — then you will have $1million dollars chasing $600,000…

Defending Jalen Rose (Sort of)

There’s been a bit of an uproar and an ensuing series of television interviews and editorials written over the last week about Jalen Rose’s “Uncle Toms” statement in the documentary “The Fab Five.” I’ve been following this topic not only as a basketball fan, but as a person who attended Michigan at the same time as Jalen Rose and the Fab Five. I copied the quote here as they have stated it in a Forbes article:

“I hated everything I felt Duke stood for,” Rose said in the documentary, describing his feelings as a 17-year-old high schooler. “Schools like Duke didn’t recruit players like me. I felt like they only recruited black players that were Uncle Toms.”

Rose’s use of the derogatory phrase Uncle Tom to describe a whole generation of black basketball players at Duke has caused widespread outrage, as it should. Grant Hill, one of the Duke players of the Fab 5 era, blasted back with an editorial of his own, and others such as ESPN’s Michael Wilbon have responded as well. I think these two quotes sum up the response:

“The notion that there is one definition of “Blackness” is insidious and dangerous and too often promotes the notion that athletic achievement is “black” and academic achievement is “white.” – Michael Wilbon

“To hint that those who grew up in a household with a mother and father are somehow less black than those who did not is beyond ridiculous” – Grant Hill

Let me be very clear on my personal opinion here: Jalen Rose was wrong for referring to anyone as an Uncle Tom, this is a loaded and derogatory term that no one should use to refer to anyone. There should also be no doubt in anyone’s mind (and I would guess Jalen Rose feels this way as well) – that looking down on academic achievement is stupid and counter-productive. This topic is not new in the media or in the African American community, and it’s an important dialogue that needs to continue. But there’s an important issue that’s being overlooked in the national discussion and I want to examine it a bit more.

The title of Michael Wilbon’s article is “Grant Hill and Jalen Rose ‘Ain’t all that Different.” The article goes on in the article to tell about the many similarities between the two, and there truly are many. But let me ask this question, if you had asked 100 people in 1991, if Grant Hill or Jalen Rose were more likely to be an executive producer and a TV analyst, how many of them do you think would have answered Jalen Rose? I My point here is that people often jump to conclusions based on superficial information that just are not right. Unfortunately, in life, many important outcomes are often heavily influenced by such superficial judgments.

I think what’s getting lost in the shuffle here is what may be Jalen Rose’s deeper underlying point. Grant Hill would have gone on to a successful life in some field if he weren’t a talented basketball player. He might not be as wealthy or famous as he is now, but his capabilities, intelligence and motivation, along probably with the financial support he would get from his parents if needed, would have landed him somewhere. But what about Jalen Rose? With his single-parent upbringing and Detroit Public Schools education, how would he have fared without basketball? In a way, Duke’s choice of Grant Hill instead of Jalen Rose is important in Jalen Rose’s mind because it’s a metaphor. If Grant Hill – as an African-American – already had an uphill battle to climb, Jalen Rose had a steeper one.

This issue of racial relations and fairness is something that has been in the background of my life since I was a kid. I grew up part of my childhood in Benton Harbor, MI and part in St. Joseph, the two towns featured in Alex Kotlowitz’s “The Other Side of the River,” a book that is mostly about race relations between one town that is almost all white and affluent (St. Joseph) and another which is almost entirely Black and poor (Benton Harbor). Today I live in Oak Park, IL, probably one of the most racially integrated places in the entire country; but my house is just 1 block from Chicago’s Austin neighborhood, which is almost entirely African American, with high rates of unemployment and poverty. As I drive through Austin to work, I’m reminded on a daily basis of this uphill battle that kids who come from places like Jalen Rose face.

The fact that Grant Hill and Jalen Rose ARE so similar today should be a very important lesson to us all: you can’t judge a book by its cover. The intrinsic capabilities, motivation and intelligence of a person are not just about how many parents they have and how much money they had growing up. If Duke only recruits African-American players with a certain profile (I will let the reader judge this), then Jalen Rose certainly has every right to call them out on it – not because Duke is placing too much value on the profile it does recruit but too little on the profile it doesn’t. More importantly, whether the…

Why you shouldn’t read the NY Times for oil market information

Earlier this week, one of the lead economic correspondents from the New York Times tweeted a story from the NYT with the headline “US Economy is Better Prepared for Rising Gas Costs.” (http://www.nytimes.com/2011/03/09/business/economy/09gasoline.html). On its face, it seems reasonable enough – we’ve been facing high oil prices during much of the last decade, so to a certain extent we should have adjusted behavior.

The article cites a few facts and anecdotes, some of which counteract this point and some where the factual information has little basis. First, the authors note that many drivers have “given up their gas guzzling sport utility vehicles. Automakers, which are selling more fuel efficient cars than five years ago, reported higher sales in February even as gas prices rose.” The writers even go on to cite cash-for-clunkers as a factor later in the story. The problem with this logic should be obvious: there are over 250 million passenger vehicles in the US, and cash-for-clunkers retired a whopping 690,000 of those or, about 0.2%. The truth is that cars stay on the road for around 15 years, so the increase in fuel efficiency of new cars over the last couple of years has barely made a dent in the average stock efficiency.

Since the stock efficiency has not changed enough to make a difference – consumers have three choices in response to higher prices: drive less, reallocate income towards oil (and away from other goods), or dis-save. Next you get a few anecdotes from the NYT, telling “precisely” how consumers have changed their behavior: Tival Williams, has apparently dumped his SUV for a Mazda CX-9 and is saving $30 a week, we are told. But we don’t hear about the person who bought Tival Williams SUV; apparently he was happy about the bargain he got on it, and is using the money he saved on the deeply discounted SUV to pay for the extra gas it burns.

Next in the NYT anecdote arsenal is Ronnie Undeberg, who has started “planning errands” – this is known in the energy demand world as trip chaining, and is a strategy to reduce gasoline consumption. Trip-chaining, along with car-pooling and reducing discretionary travel are ways that consumers always respond to oil price increases in the short-run. Without doubt the last decade of oil price run-ups must have made us collectively better at changing our behavior in response to high oil prices than we used to be. But we should not equate this to the US economy as a whole being less susceptible to rising gasoline costs, as the article title implies. As a whole, consumers have historically only been capable of changing driving behavior enough to absorb at most 20% of the price increase in the short-run. So that along with the couple percentage points of increased stock efficiency through cash-for-clunkers and other inefficient vehicle retirement still leaves a heavy price burden that consumers have to accommodate somehow.

The mechanism for absorbing the remaining 80% of the price increase burden is through dis-saving and expenditure shifts, and the same Ronnie Undeberg tells us that is exactly his next step, stating that he’d scale back his cable television and cut his cellphone use if gas went up to $4 per gallon.

Dis-saving is not an option for a current portion of Americans right now, so like Ronnie, many people will be reallocating expenditures. Because of this, more money will be reallocated from cellphone and cable television and likely many other goods and services with a significant domestic component. This reallocation of expenditures to oil must slow down the recovery (there are some positive secondary impacts due to petro-dollar cycling, particularly into the capital account, but these also can’t entirely counter-act the expenditure reallocation. See more here: http://www.newyorkfed.org/research/current_issues/ci12-9/ci12-9.html)

There’s an additional factor that I think may worsen the impact of the current price increase on our economic recovery. The unemployment rate is currently still over 9%, and for the unemployed a higher % of their driving has become discretionary and thus the reduction in travel component must be a factor in holding down current oil demand. I ran a quick regression and found that unemployment rates over 6% combined with increasing oil prices serve to reduce passenger vehicle travel (VMT) by 50% more than high prices alone. So during this recession where prices are rising, US consumers have likely curtailed demand more than they would have if unemployment had been lower. As hiring picks up over the next year or so, the newly employed will have to reactivate their gasoline purchases; thus the virtuous cycle between increased employment and increased consumer spending may be dampened by the high gasoline prices. The recovery will be more sluggish.

The NYT article seems to understand this, quoting an economist who says “high oil prices always hurt our economy” and making the point that “higher fuel costs reduce consumers’ discretionary income, which is often spent on such niceties as dining out or the latest electronic devices.” Somehow, these points become not central to the main thesis of the article.

So is the US economy better prepared for high oil prices? From what I can see, the economic impact of high prices is going to be just as bad, it may just happen more quickly since consumers have practice in reacting to high prices, and a…

“Breaking Bad” and West Coast Culture

I’m not quite sure how “Breaking Bad” escaped my attention, but I discovered it only a month ago (it’s in its third season).

Without question, it’s a dark show –it is about a high school chemistry teacher who is diagnosed with cancer and decides to start cooking crystal meth.

But the writing is pitch perfect.  I couldn’t imagine a better skewering of West Coast hustler culture.

The show is based in Albuquerque, New Mexico, a city I’ve never been to and know nothing about, but in my view the locale solidly captures the feel of major West Coast cities circa- 2011.

Here are the dominant macro themes I take from Breaking Bad:

1.     Decline in the legitimacy of wealth.

Unlike “Mad Men”, “Breaking Bad” never allows outside events to penetrate the story lines— the show focuses exclusively on what’s going on in Albuquerque.

With a light touch, however, “Breaking Bad” is always commenting on the broader societal context.   For example, in Season 1, there is an episode where we learn that, in addition to being a high school history teacher, the main character, Walter White, also works the register at a car wash.  In this episode, Walter’s boss tells him that the car wash is short-staffed and he asks Walter (not for the first time, it is suggested) to help wash cars for a bit.  Walter finds himself washing the car of a student who had been disrespectful in class that very day.   The car is of the $50k variety, and we are left wondering — where did this money come from?  The viewers mind wanders to various aspects of white collar crime that this student’s parents might be involved with.

2.     Rise of the dumb criminal

The show suggests that Walter was a promising research scientist in his early life.  He, nonetheless, becomes a high-volume crystal meth producer and distributor, and arguably not a very smart or careful one (he steals the necessary equipment from the high school where he works).

The show is full of crime that is particularly stupid and ill considered in its execution.   The statement here is:  dumb crime is much more problematic, societally, than smart crime.  Smart crime is just a simple benefit-versus-cost calculation; people coldly pursuing their self-interest.  Dumb crime speaks of desperation.  And widespread dumb crime suggests widespread desperation.

Smart crime is, in some ways, predictable.  Dumb crime is random and therefore scarier.  In Las Vegas, for example, I can put myself into the mind of a smart criminal and predict how/when/why he might act.  This allows me to protect myself to some extent.  But what does one do when crime is dumb and therefore a bit random?

See the Bellagio motorcycle thief for example….

http://abcnews.go.com/Business/bellagio-casino-las-vegas-robbed-motorcycle-bandit/story?id=12395073

The alleged thief, whose father is a judge, contacted gamblers on the site twoplustwo.com with solicitations to by Bellagio $25k chips.

3.     Randomness

The utterly dominant impact of chance on one’s life course is explored throughout Breaking Bad.

4.     Utter effectiveness of violence

As Walter White’s Albuquerque comes apart at the seams, violence becomes the key determinant of power.

5.     Ineffective law enforcement

In Breaking Bad, law enforcement is reasonably good-natured, but they suffer the public sector problem — they’re underpaid and therefore lacking in talent, and they have mixed objectives.

6.     Demoralization of service sector employment

One of Walter’s meth salesman was recruited from the ranks of costume-wearing, traffic-directing, living billboards.

7.     Labyrinthian health care system

Walter, an obviously smart guy, can never figure out how to navigate the health care system, and he is stunned at every turn by the cost.

8.     Ineffective public education system

“Breaking Bad” comments minimally on this, as it is well-trodden territory.

9.     The power of addiction

Various harmful addictions provide some level of continuity to Walter’s surroundings.  No one in the show who develops an addition ever kicks it.  The only avenue Walter can find for covering his medical expenses is catering to others’ crystal meth addictions.

10. Difficulty of criminal life

Walter’s life as a drug dealer is one of continuous struggle.  The suggestion is that Walter moved into selling drugs (or hustling, more broadly) because of desperation, but, in so doing, he had a lot of company.  The hustling world in this show is extremely competitive — more like Sudhir Venkatesh’s Gang Leader for a Day than Dr. Dre’s “Kush”.

11. Decline in attention span

No one has the patience to explore the problems they face in depth.  In class, Walter’s students furtively monitor their cell phones and pay absolutely no attention at all to his lectures.  There is a memorable scene where Walter’s wife is actively monitoring an ebay.com auction during sex. …