Wednesday, January 28, 2009

Carnival of Economic Podcasts

More Or Less;
The numbers behind the news with presenter Tim Harford. This week: the figures behind fertility, statistical significance and what is a recession?

Phelps Says Unemployment Has `Exploded Like a Virus'

Levitt Says Davos Exhibits `Extravagence' of Power, Excess

Case Says Housing to Hit Bottom This Year as Building Stalls
Karl Case, an economics professor at Wellesley College and co-creator of the S&P/Case-Shiller home-price index, talks with Bloomberg's Pimm Fox and Ken Prewitt about U.S. housing.

LSE's Davies Sees More Turmoil in U.S. Insurance Market

Taleb Says Banking Is Organized to `Milk' Investors

Stephen Roach Says Mood at Davos Is `Very Pessimistic'

Yale's Levin Says Economic Stimulus May Not Be Enough


Hausmann Predicts More Fiscal Regulation in 2009

Geiger Says Lawsuit Could Expose Madoff's Swiss Assets

Big Powers/Small Conflicts - The U.S. in the Sri Lanka Peace Process

Reflections on the World Economy - Paul Volcker

Origins of and Responses to the Ongoing Financial Market Crisis

Crisis and Capitalism: Does History Suggest Where We`re Headed?
Michael Bordo, Prof. of Economics, Rutgers University; Jerry Muller, Professor of History, Catholic University of America; Robert J. Shiller, Arthur M. Okun Professor of Economics, Yale University; Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, New York University .

Scary Quote of the Day

"We now expect the global economy to come to a virtual halt," said IMF Chief Economist Olivier Blanchard

This and That

Arnold Kling doesn’t know modern macro

Junk Macroeconomic Science


From Dark Age to Renaissance

A Pat on the Back for Macro


CBO: Why Deficits Still Matter, Even Now

Sachs: A Fiscal Straitjacket


Vox’s Global Crisis Debate

Supply Curves Slope Up. Demand Curves Slope Down

Keynes and FDR;
In 1934, the British economist John Maynard Keynes visited Roosevelt in the White House to make his case for more deficit spending. But Roosevelt, it seems, was either unimpressed or uncomprehending. “He left a whole rigmarole of figures,” Roosevelt complained to his labor secretary, Frances Perkins, according to her memoir. “He must be a mathematician rather than a political economist.”

Keynes left equally disenchanted, telling Ms. Perkins that he had “supposed the president was more literate, economically speaking.”


First impressions from the Davos blogosphere

Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition

A Dark Age of macroeconomics (wonkish)

Ricardian Equivalence Does Not Imply That Obama’s Fiscal Stimulus Will Be Ineffective

International bright young things


Why Latvia Needs To Devalue Soon - A Reply To Christoph Rosenberg

Monday, January 26, 2009

Quote of the Day

The central banker from Hell?

Your critics blame your monetary policies for Zimbabwe's economic problems.

I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.


Related;
John Robertson comments on Dr Gideon Gono’s book ‘Casino Economy: Extra-ordinary Measures for Extra- ordinary Challenges.’

Assorted

Using IT to create a post-bureaucratic organization

is government budget the most important pubic data to be made available on the web?

Avoiding Twitter hacks, Koobface, and other security holes

ImprovingAccess.Org is developed by an international group of researchers interested in innovations in democratic governance. A partnership relation between the Ash Institute for Democratic Governance and Innovation at the Harvard Kennedy School and the Centre for Government Studies at Leiden University in the Netherlands resulted in the production and organization of research, conferences, publications and teaching materials.

Sunday, January 25, 2009

Political institutions and human development

Political institutions and human development - does democracy fulfil its 'constructive' and 'instrumental' role ?

Summary: Institutions are a major field of interest in the study of development processes. The authors contribute to this discussion concentrating our research on political institutions and their effect on the non-income dimensions of human development. First, they elaborate a theoretical argument why and under what conditions democracies compared to autocratic political systems might perform better with regards to the provision of public goods. Due to higher redistributive concerns matched to the needs of the population democracies should show a higher level of human development. In the following they analyze whether our theoretical expectations are supported by empirical facts. The authors perform a static panel analysis over the period of 1970 to 2003. The model confirms that living in a democratic system positively affects human development measured by life expectancy and literacy rates even controlling for GDP. By analyzing interaction effects they find that the performance of democracy is rather independent of the circumstances. However, democracy leads to more redistribution in favor of health provision in more unequal societies.

Month of birth and children's health in India

A recent working paper from World Bank-Month of birth and children's health in India
Summary: The authors use data from three waves of the India National Family Health Survey to explore the relationship between the month of birth and the health outcomes of young children in India. They find that children born during the monsoon months have lower anthropometric scores compared with children born during the fall and winter months. The authors propose and test four hypotheses that could explain such a correlation. The results emphasize the importance of seasonal variations in affecting environmental conditions at the time of birth and determining the health outcomes of young children in India. Policy interventions that affect these conditions could effectively impact the health and achievement of these children, in a manner similar to nutrition and micronutrient supplementation programs.

The latest edition to Fiscal Responsibility Laws


The Fiscal Responsibility Law adopted by parliament on November 17 provides a domestic anchor for fiscal policy and is in line with the program. The law introduces numerical and procedural rules for the preparation of annual budgets, including the obligation to achieve a decline in public debt in real terms, the prohibition of primary deficits, compliance with medium-term expenditure ceilings, and the requirement to offset the impact of legislative initiatives on the budget balance. During a transitory period, which applies to the preparation of budgets for 2010-12, the projected growth of real expenditure cannot exceed half the projected growth of real GDP. The law also establishes a fiscal council, consisting of three wise persons and a secretariat. The council, which should be operational by the end of 2009, will prepare macroeconomic forecasts and projections of budgetary aggregates; it will also assess the budgetary impact of draft legislation (scoring) and make recommendations on corrective actions when needed. Finally, the council will have an advisory role, providing information and assessments to all branches of government upon request. The authorities and staff agreed on the importance of implementing medium-term budget preparation and planning, and of providing the fiscal council and its secretariat with a budget appropriation commensurate to its mandate

-Hungary - Stand-By Arrangement - Interim Review Under the Emergency Financing Mechanism

Related;
The outlines of the Fiscal Responsibility Act
The Fiscal Council

- prepares macro-economic forecasts;

- prepares baseline projections for the budget figures;

- prepares methodological recommendations relating to fiscal planning, forecasting and impact assessment;

- prepares estimates, both following submission to Parliament and before the final vote, concerning the fiscal effects of the budget bills and supplementary budget bills as well as any other bills discussed by Parliament that may have an impact on the development of mandatory items;

- may prepare estimates concerning the budgetary impacts of draft bills other than those indicated above, as well as of motions for amendment submitted in the first or second phase of the Parliamentary debate or before the final vote which are subject to parliamentary decision;

- provides information, upon request, to the President of the Republic, the parliamentary commissioners, the president of the State Audit Office, the governor of the National Bank of Hungary and the committees of Parliament concerning issues within their competence;

- informs the budget committee of Parliament or the Government about its legislative recommendations to promote the maintenance of fiscal discipline and the transparency of public finances;

- comments on draft legislation relating to fiscal accounting rules.


Budget Simulation Model and its explanation

The Stimulus Evaluated

Myron Scholes Global Markets Forum: Evaluating Obama's Proposed Stimulus Package
A Panel Discussion featuring John Huizinga, Robert Lucas and Kevin Murphy

Here's the video

The Role for Counter-Cyclical Fiscal Policy in Singapore

The Role for Counter-Cyclical Fiscal Policy in Singapore

Summary: Singapore's policymakers have often used fiscal policy as a counter-cyclical tool. Empirical results based on a structural autoregression framework suggest that fiscal policy can be used for demand management, although the impact may be somewhat short lived. The short-lived impact could reflect a number of factors, including the absence of credit-constrained economic agents, a high propensity to save among households, monetary focus on price stability, and leakages due to economic openness. Notwithstanding, fiscal policy should still play a key stabilizing role in the current downturn given the downside risks to growth and the vast fiscal space.

Saturday, January 24, 2009

The state of GFS in Malawi

The accuracy and reliability of the data are affected by inadequate source data. A key shortcoming in this area is inadequate system of recording source data. In addition, there are serious quality problems, including data inconsistencies, that complicate program monitoring:

• While tax revenue data are received in a timely fashion, it is not always possible to reconcile them with deposits in the Malawi Government (MG) Account.

Nontax revenue, including capital revenues collected by line ministries are not properly accounted for in the fiscal reports prepared by the Ministry of Finance.

• Data on recurrent expenditure suffer from serious shortcomings partly related to insufficient bank reconciliation between expenses records prepared by line ministries and financing information prepared by the Ministry of Finance. Line ministries submit spending reports to the Ministry of Finance based on recorded expenses, while the Ministry of Finances estimates expenses based on funding data (from the Credit Ceiling Authority). At times, there are sizable discrepancies between these two sources of data for both wages and other recurrent transactions—to some extent reflecting the widespread practice of reallocation across budget lines.

• Domestically financed development expenditure estimates are based on funding released to line ministries, and estimates on externally funded expenditure are based on reported project grants and loans. Owing to differences in timing and financing modalities (e.g., some donors require prefinancing of expenditure before reimbursement), there are substantial differences between the flow of expenses and corresponding financing data. Thus, there are substantial errors in the reporting of capital spending. In addition, many donor projects are still not incorporated in the budget, and hence the corresponding expenditure is not captured in government finance statistics. Some externally funded development expenditures are likely recurrent and reported capital expenditure therefore overstated.

Data on expenditure arrears are likely incomplete, as reporting from the Commitment Control System appears to be only partial, and ministry level data are not consistent from report to report.

• The budget classification and chart of accounts may be adequate for some administrative, economic, functional and program classifications. An output-oriented activities-based budget classification (ABB) is used for the presentation of the budget. However, pro-poor expenditures that have been protected in line with the PRSP are only identified in the ABB classification. As no bridge table exists to map the ABB classification into the program classification used for expenditure reporting and accounting, pro-poor expenditures cannot be monitored.

• Financing estimates are based on monetary and debt data, rather than on government records of financing. Reporting on treasury bills directly issued to the RBM at times has been slow.

8. The authorities have received significant technical assistance from the Fund and other donors to strengthen expenditure monitoring and reporting, accounting, and statistical reporting, but results have lagged. The government has pledged to strengthen public financial management and fiscal reporting, and renewed efforts are being made to establish a work plan, including utilizing donor technical assistance more effectively.

9. Government finance data are not reported for publication in the Government Finance Statistics Yearbook (GFSY) or the International Financial Statistics (IFS). An August 2005 and August 2007 STA mission that visited Lilongwe reiterated the importance of continued efforts to implement the Integrated Financial Management Information System (IFMIS), and encouraged the authorities to improve the coverage and sectorization of government financial operations and to correctly classify transactions according to international guidelines. The mission proposed, and discussed with the authorities, a migration plan and timetable to adopt the GFSM 2001 methodology.

-Malawi: Request for a One-Year Exogenous Shocks Facility Arrangement - Staf Report

Related;
Malawi Ministry of Finance
Report on MTEF process

Is this a good idea?

From Malawi- a unit to coordinate PFM reforms;

A public financial management (PFM) unit under the Secretary of Treasury has been established in the Ministry of Finance to promote and coordinate the modernization of PFM systems. In addition, a cash management unit at the Accountant General Office has been formed to enhance the government’s capacity for cash flow planning.

-Malawi: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

The Stimulus in Brief


President Obama delivers Your Weekly Address;
No one policy or program will solve the challenges we face right now, nor will this crisis recede in a short period of time. But if we act now and act boldly; if we start rewarding hard work and responsibility once more; if we act as citizens and not partisans and begin again the work of remaking America, then I have faith that we will emerge from this trying time even stronger and more prosperous than we were before.


Related;
www.recovery.gov

Barack Obama’s Prose Style

The No.2 at White House

He woke as usual at 5 a.m., swam a mile at the Y, read papers and was in the office at 7 for the senior staff meeting at 7:30. There was a meeting in the Situation Room about Afghanistan; a leadership meeting; a conversation with the Senate majority leader, Harry Reid, Democrat of Nevada; a meeting with Senator Orrin G. Hatch, Republican of Utah; budget meetings; several conversations with the president...

Mr. Obama had settled on his fellow Chicagoan to be his chief of staff well before he was elected. He was drawn to Mr. Emanuel’s experience in both the White House and Congress and called him “the whole package” of political acumen, policy chops and pragmatism. He is also a skilled compromiser. “He knows there is a time in this business to drop the switchblades and make a deal,” said Representative Adam H. Putnam, Republican of Florida.

Mr. Emanuel initially resisted taking the job. He came around after Mr. Obama insisted, saying these were momentous times and that the awesome tasks he faced required Mr. Emanuel’s help. The president-elect also assured Mr. Emanuel that the position would be the functional equivalent of “a No. 2” or “right-hand man,” according to a person familiar with their exchanges...

Mr. Emanuel has been equally solicitous of Republicans in Congress (who also have been given access to Mr. Emanuel’s private contact information). On days he does not swim, he works out, and conducts business, at the House gym: 25 minutes on the bike, 20 minutes on the elliptical, 120 situps, 55 push-ups and many sweaty conversations with his former colleagues. In a recent encounter there, for instance, with Representative Peter Hoekstra, Republican of Michigan, Mr. Emanuel secured his support for Leon E. Panetta to head the Central Intelligence Agency.

Mr. Emanuel has also served as the administration’s chief headhunter. When the Office of Management and Budget director, Peter R. Orszag, had doubts about taking the job, Mr. Emanuel went into his default mode — jackhammering away at him, tracking him down in Hong Kong. “You can’t sit on the sidelines; you’ve got to come inside,” Mr. Emanuel told him.

Asked if “relentless” would be a fair characterization of Mr. Emanuel’s recruitment method, Mr. Orszag said, simply: “He’s Rahm. Come on.”

-Obama’s Partisan, Profane Confidant Reins It In

Interesting Idea from OMB

VUE-IT;
Visualization to Understand Expenditures in Information Technology

Carnival of Podcasts

Tyler Cowen Says Once Banks Are Nationalized, Privatization Is Hard

Levitt Sees U.S. Moving Toward Nationalizing Banks

Harvard's Goldman Sees Russia Worried Over Ruble Weakness

Luigi Zingales Opposes U.S. Bank Nationalization

Burns Says Comparison of Obama to FDR Is `Over-Emphasized'

Paul Krugman Sees Need to Get Stimulus Plan Out `Fast'

Komileva Says U.K. Forecasts `Not Pessimistic Enough'

Pimco's Clarida Sees U.S. Banks Moving Toward Nationalization

Eric Raymond on Hacking, Open Source, and the Cathedral and the Bazaar

A History of History
In the 6th century AD, the bishop of Tours began his history of the world with a simple observation that “A great many things keep happening, some of them good, some of them bad”.

For a phrase that captures the whole of history it’s among the best, but in writing about the past we are rarely so economical. From ancient epics to medieval hagiographies and modern deconstructions, historians have endlessly chronicled, surveyed and analysed the great many things that keep happening, declaring some of them good and some of them bad.

But the writing of history always illuminates two periods – the one history is written about and the one it is written in. And to look at how the writing of history has changed is to examine the way successive ages have understood their world. In short, there is a history to history.


Bad Science and Outsiders
KATHRYN HUNTER on Othello, autism with DANIEL TAMMET, Paul Dirac by GRAHAM FARMELO and Bad Science with BEN GOLDACRE


Anti-planning
British prime minister Harold Macmillan, when asked by a journalist what was most likely to blow a government off course replied, Events, dear boy, events. So how much can any government really plan in advance, given that unexpected events invariably happen?
Randal O'Toole outlines his case against government getting involved in large scale planning projects -- which he says almost always leads to disaster.


The story of highways

Islam and philosophy - Tariq Ramadan

The knee files - part one, part two

Ways of being in Polish, English and Russian
Mary Besemeres explores the different emotional and social worlds that she inhabits while using either Polish, English or Russian, each of which allow her different ways of being.

Meet the Naked Scientist
Why Naked? Dr Chris Smith has appeared on ABC RN every week for some years both on The Science Show and Breakfast. This Cambridge don and doctor has offered a lively, insightful and often cheeky interpretation of new research and has now produced a second book of the highlights. His prize-winning programs and website, called The Naked Scientist, continues to break moulds -- as he tells Nicky Phillips.

Trumpeting maths and science

One laptop per child

Nursing in Australia and the UK
Professor Linda Shields from Curtin University of Technology in Perth has written, together with Professor Roger Watson from the University of Sheffield in the UK, about the state of nursing in Australia and the UK.
She talks about the international nursing shortage which threatens the health of Australians, the nursing recruitment drive and the difference in education of Australian and British nurses, and about the treatment of nurses by health authorities in both countries.


Charles Darwin in Australia

The Trials of the Templars

At dawn on 13 October 1307 all the Templars in France were arrested by royal order, on the charge that they had been involved in secret blasphemous rituals. This led to other arrests of Templars in Europe, and an investigation by Pope Clement V. The University of Sydney Rare Books and Special Collections Library recently obtained trial documents from the Vatican archives, which John Pryor discusses with Rachael Kohn


Inside the minds of murderers and sex offenders

Ken Feinberg: what is a life worth?
Meet lawyer Ken Feinberg. It was his job to hand out US$7 billion dollars to the families of those who died and to those injured in the September 11 attacks. How did he deal with claims from the families of wealthy financiers, illegal aliens and heroic firemen? And how did he deal with grieving loved ones, squabbling relatives and a shocked nation?

Buckminster Fuller

Policy Responses to the Financial Crisis
Dr. Ben Bernanke, Chairman of the U.S. Federal Reserve System

Fiscal responsibility and the recession

Book Recommendation

People Factor: Strengthening America by Investing in Public Service
by Linda Bilmes , W. Scott Gould

Monday, January 19, 2009

Photo of the Day


Mr. Obama rolled up his sleeves on Monday and helped out at a homeless center, devoting much of his last full day as president-elect to paying tribute to Martin Luther King Jr. and to the spirit of volunteerism and public service he said Mr. King represented.

Saturday, January 17, 2009

Assorted

Thrift is No Paradox

Is Government Spending Too Easy an Answer?

If breast is best, why are women bottling their milk?;
Then, bizarrely, American women ran out of milk. “Every physician is becoming convinced that the number of mothers able to nurse their own children is decreasing,” one doctor wrote in 1887. Another reported that there was “something wrong with the mammary glands of the mothers in this country.” It is no mere coincidence that this happened just when the first artificial infant foods were becoming commercially available. Cows were proclaimed the new “wet nurse for the human race,” as the historian Adrienne Berney has pointed out in a study of the “maternal breast.” Tragically, many babies fed on modified cow’s milk died. But blaming those deaths on a nefarious alliance of doctors and infant-food manufacturers, as has become commonplace, seems both unfair and unduly influenced by later twentieth-century scandals (most infamously, Nestlé’s deadly peddling of infant formula in Africa and elsewhere, which led, in 1981, to the landmark International Code for Marketing Breastmilk Substitutes). In the United States, nineteenth- and early-twentieth-century physicians, far from pressing formula on their patients, told women that they ought to breast-feed. Many women, however, refused. They insisted that they lacked for milk, mammals no more.


Is Australia the Freest Country on Earth?

How not to close the Gaza tunnels;
What ever happened to basic economics? If people want stuff, and people are willing to supply it at the demanded price -- whether it's illegal drugs, weapons, or televisions -- they will find a way to supply it, and they will take extreme risks if the expected payoff exceeds their expected costs. Full stop. (There's even a book about this phenomenon.)

The super-smart Michael Slackman looked into the smuggling issue in 2007, and he concluded (after actual reporting!) that "to stanch the flow of weapons, Egypt will ultimately have to address the economic and social concerns of the region, and not rely solely on its security forces":


Some thoughts on fiscal policy and government debt

Recession hysteria

Where Sweatshops Are a Dream


Psychological Tricks to Demoralize the Enemy;
It was three years ago that Israel's army launched its department of psychological warfare. But its debut was less than stunning. During the Lebanon war in 2006, Israelis dropped poorly-made leaflets down on Shiite civilians in southern Lebanon. The pamphlets included a simplistic drawing of Hezbollah leader Hassan Nasrallah cowering behind a cedar tree, Lebanon's national symbol. The clumsily-delivered message was apparently that Lebanon's Schiite militia was hiding behind the country's civilians.

These flyers did not have the desired effect. Instead, the Lebanese showed them to visitors for months on end to show the Israeli army's naiveté. Many wondered whether Israel had honestly thought their pamphlets would change Lebanese minds.

Publi Financial Management reforms in Cape Verde

The Cape Verdean authorities consider it a priority to strengthen debt management.
Notable progress has already been made
:

Debt sustainability analyses (DSAs) are now conducted annually. The Ministry of Finance and the Bank of Cape Verde (BCV) recently conducted a joint DSA applying the Bank-Fund Debt Sustainability Framework. The exercise benefited from assistance from Debt Relief International (DRI) and UNDP. The next DSA will be conducted in early 2009 at the beginning of the preparation of the 2010 budget to help determine the borrowing envelope consistent with debt sustainability.

Internal controls have been substantially improved. Software from the Commonwealth Secretariat was upgraded and now records state guarantees as well as debt. With the assistance of the Crown Agents, the system will be fully operational by year-end. The software will allow for currency decomposition of the debt stock, be linked to the Government’s Financial Control Network (SIGOF), and allow for compilation of debt data in the new chart of public accounts (PNCP).

The authorities intend to further strengthen their debt management practices:
The institutional framework for debt management will be adapted. The organic law of the Ministry of Finance will be amended to give the debt management office a clear mandate, and the budget execution law will be changed to allow the Treasury to manage debt efficiently.

• A new debt management strategy will be embedded in the procedures manual of the debt management office.

The domestic market for Treasury securities will be developed. With MCC financing, Treasury securities will be easily available for purchase by nonbanks to make the market more efficient and liquid and reduce borrowing costs.

Capacity in the debt office will be reinforced. A new financial analyst was hired in September, and another will be hired in 2009. Portugal trained four staff in debt management in September.


Source;Cape Verde: Fifth Review Under the Policy Support Instrument - Staff Report

Podcasts

International Economics - Lipsky

Fazzari on Keynesian Economics

Human Rights: An Analysis of Saudi Arabia and the Impact of Islam

Paul Krugman Sees Need to Get Stimulus Plan Out `Fast'


Thoreau and the American Idyll
“I went to the woods because I wished to live deliberately, to front only the essential facts of life and not, when I came to die, discover that I had not lived. I wanted to live deep and suck out all the marrow of life.” Thus wrote the American writer and philosopher Henry David Thoreau in his seminal work, Walden, published in 1854.

A fierce opponent of slavery, a champion of the simple life, a lover of nature and an enemy of the modern, Thoreau has become emblematic of one version of American values. His work has been an inspiration to politicians and writers alike, from Martin Luther King to Gandhi, Yeats and Tolstoy. Yet in many ways Thoreau remains a mystery, a man of contradictions who advocated self-sufficiency but was happy to let others, including his mother, do his washing and cook his meals.


Your irrational mind

EU Financial Stability actors


OECD Economic Surveys: Euro Area 2009

Assorted

Why high-frequency traders are like rutting stags

Report on Policy Coherence for Development

Why coherence counts for development
Cadmium is extremely toxic to humans. Ingestion or prolonged exposure to this heavy metal can cause fever, chills and muscle aches, and in the most extreme cases, kidney failure. So when the European Commission in 2002 set the permissible level of cadmium in swordfish at 0.05 mg/kg, most people considered it a wise policy choice.

Except in the Seychelles, where swordfish was an important export product to the EU. Why, they asked, did the EU forbid the import in mid- 2003 of their swordfish while it permitted the import of crustaceans, oysters and beef liver that could contain up to 1.0 mg/kg of cadmium, or 20 times above the limit set for swordfish? This might have been passed off as an oversight, an error in calculation, until the fishermen went on to note that European vessels were allowed to catch swordfish in those same cadmium-laced waters. It took policymakers almost two years to revise the policy and set cadmium levels at a more reasonable level, thus allowing the Seychelles to resume exporting swordfish in early 2005.

While all this was being sorted out, however, fishers in Seychelles lost their export earnings and many vessels diversified their activities by targeting sharks for their fins. The intensive fishing of sharks during the ban heightened conservation and management concerns for this vulnerable group.


The White House View of the Economy
Not surprisingly, when people are worth more — because their stock portfolios or houses appreciate, for example — they tend to spend more. Here it appears that consumer spending has not taken nearly the same hit that household wealth has, though.

Friday, January 16, 2009

Art of the Day- The Farm


Miró painted his farm from the farmer’s point of view, as seen by someone who knew every pebble and leaf, every pigeon and coop, every bucket and seed. It is, like all paintings but a little more directly than some, a picture of human striving.


Related;
Daily Campello Art News

Iraq IFMIS to be operational in 2009

We are making progress in modernizing public financial management (PFM). The Board of Supreme Audit (BSA) has completed the audit of the final accounts of the federal budget for 2005 and the audit of the final accounts for 2006 is underway. We have submitted the final accounts of the federal budget for 2007 to the BSA in October. The audit reports will be submitted to the Council of Representatives and published. We have also adopted, in consultation with the Fund and the World Bank, a three-year action plan that identifies priority measures to modernize PFM, notably as regards budget preparation, execution and reporting; cash management; public procurement; cash management; and the accounting framework. We will step up our efforts to put in place, in cooperation with USAID, the renewed Iraq Financial Management Information System (IFMIS), in order to make this system fully operational in 2009.

14. We have completed about 25 percent of the data collection for the census of public service employees at end-October, but finalization of the project is being delayed due to technical problems. We will make all efforts to have the census completed by end-January 2009. After completion of the census we will move swiftly to eliminate ghost workers and adopt an action plan to computerize the payroll, as a first step for a comprehensive civil service reform. In parallel, the BSA has begun a project to verify the personnel records in line ministries, in order to clean up the existing payroll.

-Iraq: Letter of Intent and Memorandum of Economic and Financial Policies

Related;

Integrated Financial Management Information Systems: A Practical Guide

Wednesday, January 14, 2009

The Best of the Day

Slain Sri Lankan journalist pens final column;
As for me, I have the satisfaction of knowing that I walked tall and bowed to no man. And I have not travelled this journey alone. Fellow journalists in other branches of the media walked with me: most of them are now dead, imprisoned without trial or exiled in far-off lands. Others walk in the shadow of death that your Presidency has cast on the freedoms for which you once fought so hard. You will never be allowed to forget that my death took place under your watch. As anguished as I know you will be, I also know that you will have no choice but to protect my killers: you will see to it that the guilty one is never convicted. You have no choice. I feel sorry for you, and Shiranthi will have a long time to spend on her knees when next she goes for Confession for it is not just her owns sins which she must confess, but those of her extended family that keeps you in office.


On expanding balance sheets and inflationary policy

Ireland’s Doctor Doom

The Number-Cruncher-in-Chief

An expert on the Great Depression?

Tuesday, January 13, 2009

Assorted

The most outspoken man in the House gets some real power.;
The title of the book suggests the basis for the widespread interest: “Barney Frank: The Story of America’s Only Left-Handed, Gay, Jewish Congressman.” Now sixty-eight years old, Frank has represented Massachusetts’s Fourth Congressional District since 1981, and he remains best known for his decision, in 1987, to reveal that he is gay, becoming the first member of Congress to do so voluntarily. At the time, the disclosure provoked more curiosity than controversy, but, two years later, Stephen Gobie, a prostitute whom Frank had patronized and then befriended, made a series of lurid allegations about him—claiming that they had had sex in the House gym and that Frank had permitted Gobie to run a prostitution ring out of his home. An investigation by the House Ethics Committee failed to substantiate those charges, though it determined that Frank had written a misleading letter of recommendation for Gobie and had Gobie’s parking tickets waived. Nevertheless, Frank was reëlected with ease, and he became a pointed critic of the Republicans who took control of the House in 1994 and a passionate opponent of Clinton’s impeachment, in 1998. A witty and effective presence on the House floor and in committee rooms, Frank in recent years has settled into the roles of wise guy and wise man of the Democratic Party. (Conservatives “believe that life begins at conception and ends at birth,” he once remarked. More recently, he noted that Barack Obama’s continued insistence that we have one President at a time “overstates the number of Presidents we have.”) In a 2006 poll of Capitol Hill staffers by Washingtonian, published shortly before the elections that gave Democrats control of the House for the first time in twelve years, Frank was voted the brainiest, funniest, and most eloquent congressman—a notable achievement, since he often speaks in a barely comprehensible mumble.


Freedom House: World less free, Iraq and South Asia improve

Acemoglu almost discovers Public Choice?

Excess demand drives up wages?

World of Warcraft: A Course Proposal

Exogenous tax cuts and treatment interactions

Collected Macro Lectures

The Sophistry of the Balanced Budget Multiplier

Who's the Partisan Hack?

The Prince Unconstrained: A Response to Michael Taft

A Further Critique of Romer and Romer

Macro expectations

"Dynamic Scoring"

Getting the right architecture for corporate governance



Banking crisis is still afoot: Fed balance sheet to rise

Saturday, January 10, 2009

Assorted

Obama's Multipliers

Why there's so little good evidence that fiscal (or monetary) policy works


No Instruction Manual as Stimulus Bill Takes Shape

Must read for the Economic Policy Maker

Policymakers Beware: The Use and Misuse of Regressions in Explaining Economic Growth

The big correction in Latvia



An interesting Box from IMF's Republic of Latvia: Request for Stand-By Arrangement - Staff Report;

Latvia’s consolidation is relatively large. With the general government’s structural primary balance improving by 14 percent of GDP between 2009 (constant policy scenario) and 2012, Latvia’s fiscal consolidation plans would fall among the largest consolidation episodes in comparable countries during the past two decades, along with Denmark, Finland, Greece, New Zealand, or Sweden. Latvia’s consolidation is twice larger than Lithuania’s 1999-2003 adjustment motivated by EU accession. Similar results are obtained if one focuses on the primary balance of the central government.

The consolidation will need to be sustained over 3-5 years. Successful consolidations tend to be gradual, spanning over a period of time that allows savings from structural reforms to materialize. Long consolidation episodes include Japan in the 1980’s and Finland, New Zealand, Sweden, the United Kingdom and the United States in the 1990’s. Latvia’s consolidation is front-loaded, with three quarter of the structural adjustment happening in the first year versus 40 percent on average in comparable countries. However, articulated around the medium-term objective of meeting the Euro adoption criteria, Latvia’s consolidation plan is expected to last three to five years, with savings from major structural reforms materializing progressively over 2010-2013.

Latvia’s approach is expenditure heavy yet more balanced than the average. The composition of consolidations is a crucial determinant of their success. Expenditure-based consolidations tend to be associated with deeper structural reforms increasing government productivity—more important than its size in ensuring sustainable growth and development—and to be eventually more successful. Revenue-based adjustments have a greater risk of reversal in industrial economies, but can be sustained when associated with tax policy or administration reforms, particularly in emerging market and developing countries. Latvia’s consolidation is relatively expenditure-heavy, with 60 percent of the adjustment coming from expenditure cuts, but more balanced than the average.

Clear medium-term objectives, strong political leadership and mobilization of public support will be key. Consolidations tend to be more successful when perceived by markets and the population at large as durable and sustainable. In many European countries in the 1990s, consolidations were justified by the objective of the Euro adoption, which is also the case for Latvia. On the other hand, most consolidations tend to be led by new governments and under a broad consensus. Latvia’s Parliamentary elections in 2010 represent a risk.

Selected sources: “Experience with Large Fiscal Adjustments”, Occasional Paper No. 246; “Fiscal consolidation: Lessons from past experiences”, OECD, 2007; “Fiscal Adjustments: Determinants and Macroeconomic Consequences”, IMF WP 07/178, Kumar et al., 2007.

SOEs in GFS

To this end, the government is making the commitment to a new PSI benchmark of compiling the official statistics of Other Economic Flows for the general public sector arising from the holding gains with our five largest state-owned enterprises to allow for prompt detection of balance-sheet vulnerabilities and adoption of corrective actions.

-Cape Verde: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Related;
The Basics of Macroeconomic Accounts

Assorted Must Reads

Risk Mismanagement

My Genome, My Self - Steven Pinker

Data Analysts Captivated by R’s Power

What You Don’t Know About Gaza

R You Ready for R?


The rise of R


Some Thoughts for Boards of Directors in 2009

What Is Seigniorage?

Federal Reserve balance sheet

Is the Implementation Lag for Infrastructure Investment a Problem?


The Analysis of Household Surveys: A Microeconometric Approach to Development Policy

Best Quote of 2008

In our base case simulation there is an upside case that, er, corresponds on the flipside of the downside case in kind of an adverse direction.”

-World Bank economist

Friday, January 9, 2009

Assorted on Stimulus

Boost Private Investment to Boost the Economy- Hal Varian

M Govinda Rao: Fiscal stimulus at the state level now

Who should get the federal stimulus funds

By Edward L. Glaeser

If, When, How: A Primer on Fiscal Stimulus

The Right 'Stimulus'

IMF Spells Out Need for Global Fiscal Stimulus

"Fiscal measures should be reversible, and governments may want to precommit to unwinding some of the policies."

A new Blog?

Fama / French Forum
Observations, opinion, research and links from financial economists
Eugene Fama and Kenneth French.

Podcasts

Boettke on the Austrian Perspective on Business Cycles and Monetary Policy

Sowell Says U.S. May `Go Down the Tube' Under Obama


Dinallo Says U.S. Government Made `Right Call' On AIG Bailout

Zuckoff Says There Were Signs Madoff Fraud Started Legitimately
Mitchell Zuckoff, a professor at Boston University, talks with Bloomberg's Tom Keene about his book, ``Ponzi's Scheme,'' and similarities to the Bernard Madoff investment case.

Frankel Says Currency Crisis `Second Fiddle' to Economic Crisis

A lesson from Singapore

Worried about a growing public - a lesson from Singapore via Bryan Caplan;

They don't defend co-payments as a way to avoid moral hazard. They defend co-payments as a way to avoid a "buffet mentality."

Headline of the Day

Zimbabwe: Currency Facing Extinction;
A senior government official said Zimbabwe had approached South African finance minister Trevor Manuel and South African Reserve Bank governor Tito Mboweni with a proposal that they rescue the Zimbabwean economy by extending the common monetary area of rand into Zimbabwe. It currently encompasses South Africa, Namibia, Lesotho and Swaziland.

Similar proposals have been made by Steve Hanke, Cato Institute Senior Fellow and Professor of Applied Economics at Johns Hopkins University, who advocates the creation of a currency board to end Zimbabwe's spiralling inflation, and by Tomaz Salamao, executive secretary of the Southern African Development Community, SADC.

Tomaz has reportedly suggested that Zimbabwe's depleted foreign reserves be topped up with the South African currency and that Zimbabwe be allowed to join the rand monetary area.

The Zimbabwe government, invoking its sovereignty mantra, initially rejected the suggestion, but IWPR has learnt that it has backed down under the pressure of the imploding economy and proposes issuing Zimbabwean dollars that are fully backed by and convertible into rands at a fixed rate.

Under this plan, the currency board will initially be capitalised by South Africa and the rand will be allowed to circulate legally in Zimbabwe.

"The rand would effectively prop up the Zimbabwe dollar," which has become almost worthless, said a government official.

The ultimate aim would be to stabilise the exchange rate of the Zimbabwe dollar and curb hyperinflation, enabling the country to buy foreign exchange and continue to import essential goods.

Assorted

Cato Journal, Volume 28, Number 3, Fall 2008

Small States: Not Handicapped and Under-Aided, but Advantaged and Over-Aided


Cold Case Files: The Athenian Grain Merchants, 386 B.C.


Financial decisions are heavily influenced by early experiences

Ms Malmendier and Mr Nagel examined detailed survey data about American households’ finances between 1964 and 2004. Because they knew when the people in the sample were born, they could calculate the average stockmarket returns and inflation that individuals had experienced over the course of their lives. And because the data tracked financial choices over time, they could also control for factors like age, which matters because the composition of people’s portfolios is likely to change as they grow older.

Their work confirmed the Depression babies idea. Under identical market conditions, and controlling for age, people who had experienced lower stockmarket returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better.


Lords of Finance: The Bankers Who Broke the World
By Liaquat Ahamed
These early central bankers were an odd lot. Norman, who dabbled with spiritualism, apparently informed a colleague that he could walk through walls. He suffered regular nervous breakdowns, and was actually on sick leave when Britain left the gold standard again in 1931. Strong suffered from permanent ill health and was often affected by the generous use of morphine to control pain. He died in October 1928 before the Wall Street Crash and the Great Depression, but Mr Ahamed does not appear to believe that things would have turned out any differently had he lived: in a crushing conclusion, he writes that the Great Depression was “the direct result of a series of misjudgments by economic policymakers…by any measure the most dramatic series of collective blunders ever made by financial officials.” Looking back in 1948, Norman’s judgment was no less harsh. “We achieved absolutely nothing,” he said, “except that we collected a lot of money from a lot of poor devils and gave it to the four winds.”...

But the most original solution was that of President Franklin Roosevelt, soon after his inauguration in 1933. Mr Ahamed resurrects a 59-year-old agricultural economist from Cornell University by the name of George Warren, whose study of long-term trends in commodity prices led him to believe that, since falling prices were associated with depression, recovery ought to be encouraged by rising prices. The president liked the idea and decided to devalue the dollar—despite vigorous opposition from the gold bugs—simply by increasing the gold price. One of his own economic advisers lamented: “This is the end of Western civilisation.” For a number of weeks, the president would consult his advisers over boiled eggs at breakfast and randomly drive up the gold price, beginning at $31.36 an ounce until it settled at $35. By then a recovery was under way.


Financial Modelers' Manifesto


~ I will remember that I didn't make the world, and it doesn't satisfy my equations.

~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.

~ I will never sacrifice reality for elegance without explaining why I have done so.

~ Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.

~ I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.


Fuzzy Inaugural Math;
In my print column this week, I examine whether president-elect Barack Obama will break the record for inaugural crowd size, and if he does, whether we’ll know for sure. The Washington, D.C., mayor publicly aired a projected crowd size of up to four million soon after the election, but today no government agency will get behind an official number, nor is anyone planning to produce an official count on Inauguration Day.


McKinsey on decision making
Take this new McKinsey survey on how companies make good decisions, on issues such as whether they should enter a new market or buy a competitor


Questioning Techniques for Productive Problem Solving


Obama at GMU;
Only government can break the cycle that is crippling our economy, where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.


Save or Spend: Connecting the Personal to the Macro

Memo to President-Elect Obama: Three Steps for Restoring Democracy to Zimbabwe

Zimbabwe's Funny Money and the Astrophysics of Hyperinflation

The Best Stimulus?

Electricity cost puzzles

Obama Nominees, Take Note;
Remember that most of the hearing will be more about the questioners than about you. Prepare a short opening statement -- no more than five minutes -- outlining the president's goals and your goals for the department. Submit a longer "think piece" for the record.

Practice over and over, even when talking with your spouse or neighbors, saying: "Mr. Chairman . . . if confirmed . . . working with this committee I will . . . ."

While prepping, develop an answer to the one question you do not want asked. Count on someone asking it. What in your background might haunt you if made public? That, too, surely will be raised.


Six critical competencies the new political appointees will need to succeed
;
4. Leading Others

A presidential appointment is always about leadership. And leadership is about attracting and motivating followers. Author Antoine de Saint-Exupery said, "If you want people to build a ship, teach them to long for the endless immensity of the sea." An appointee should build networks of career employees, stakeholders, members of Congress, Capitol Hill staffers and private citizens - and then inspire them to launch the ship of presidential goals.


Federal Reserve Assets Decline

Measuring the trilemma's configurations over time

Acemoglu: The Models are Broken

Thursday, January 8, 2009

Quote of the Day

The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”

William Arthur Ward

Tuvalu to get an MTEF

ADB to Help Tuvalu Strengthen Public Financial Management and Good Governance
“The Improved Public Financial Management Program will assist Tuvalu with fiscal stability, improve public enterprise performance, and boost business and public confidence in the government’s financial management and governance systems,” said ADB Country Specialist Emma Ferguson.

ADB is providing a grant of $3.24 million sourced from the concessional Asian Development Fund (ADF).


Related;

Tuvalu: Capacity Development for Public Financial Management
The Government of Tuvalu (the Government) has adopted a set of five performance benchmark indicators (PBIs) developed jointly by it, the Asian Development Bank, the Australian Agency for International Development, and New Zealand International Aid and Development. The PBIs track the achievement of the stated social outcomes with a focus on improved financial management and fiscal consolidation. The PBIs are as follows:
(i) Benchmark 1.1. The Government’s recurrent expenditure each year should not exceed the total of its recurrent revenue plus a sustainable Tuvalu Trust Fund (TTF) distribution (consolidated investment fund drawdown).
(ii) Benchmark 1.2. The target minimum value of funds retained in the consolidated investment fund should not be less than 16% of the maintained value of the TTF at the beginning of the TTF year, to ensure that sustainable distribution is available to help finance annual budgets.
(iii) Benchmark 1.3. The Government’s total debt liability, both domestic and external, should not at any time exceed 60% of the gross domestic product, as specified in Te Kakeega II.
(iv) Benchmark 2.1. In 2008, the Government will increase its budgeted non-salary expenditure on basic education by at least 5%.
(v) Benchmark 2.2. In 2008, the Government will increase its budgeted non-salary expenditure on primary and preventative health services by at least 5%.


See also there Development Coordination Matrix (page 59)

Auditors on US Government finances

Fiscal Year 2008 Financial Report of the United States Government;

While significant progress has been made in improving financial management since the federal government began preparing consolidated financial statements 12 years ago, three major impediments have continued to prevent us from rendering an opinion on the accrual basis consolidated financial statements over this period of time: (1) serious financial management problems at the Department of Defense, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements. In addition to the material weaknesses underlying these major impediments, we noted three material weaknesses involving the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to cost-effectively reduce improper payments, (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, and (3) effectively manage its tax collection activities.


via IMF PFM blog

Recently from World Bank

The Complete World Development Report, 1978-2009 (Single User DVD): 30th Anniversary Edition

Development Economics through the Decades: A Critical Look at Thirty Years of the World Development Report
by Shahid Yusuf

Dept of Macro case study- Let Latvia devalue

Latvia is the new Argentina

Latvia economy: Big bailout


Why The IMF’s Decision To Agree A Lavian Bailout Programme Without Devaluation Is A Mistake


Latvia has chosen economic torture over complete collapse

Why Latvia Should Not Devalue

Wednesday, January 7, 2009

Memo to Self

Temptation Blocker: a Windows program to prevent you from using any other program (especially good to prevent you from opening your Email client or Web browser).

Time Tracker: An extension to the FireFox browser that tracks how much time you waste on various sites.

via Dan Goldstein

Presidential Council of Psychological Advisors ?

Barry Schwartz writes;

On the Economy—Understand the "Irrational" Where did our financial institutions go wrong? Many accounts focus on greed, fear, and lack of trust. And why did things get so out of hand? Why was there a housing "bubble"? Somehow, "irrational exuberance" (Robert Schiller) or "animal spirits" (John Maynard Keynes) overwhelmed rational calculations of risk and reward. And it isn't just that irrational optimism, or even blindness to market fundamentals, gets the better of our rational faculties. Rather, as George Soros has pointed out, these psychological phenomena can become part of a feedback loop that actually changes market fundamentals. "Reflexivity," he calls it. The housing bubble was not the first such phenomenon, nor will it be the last.

Economists offer little that helps us understand why such bubbles occur or how they might be prevented. They also have little to tell us about how to prevent a "downward spiral of negative expectations" that makes fear of an economic downturn self-fulfilling. Economists largely make assumptions about the rationality of human decision-making and proceed from there. Witness Alan Greenspan's recent admission that he was mistaken in assuming that markets operate rationally and efficiently. The current crisis makes it clear that ignoring the real psychology of greed, fear, trust, and irrational enthusiasm (0r pessimism) can be perilous. Economists offer little that helps us understand why such bubbles occur or how they might be prevented. A Council of Psychological Advisors could help.

History Lesson: Evolution of Checks

The Evolution of the Check as a Means of Payment: A Historical Survey;

This article traces the historical evolution of the check, focusing on its relation to complementary and competing payment technologies.

Originating in the eastern Mediterranean during the first millennium as a convenient form of payment between local merchants, checks became more versatile through the development of negotiability in sixteenth-century Europe. The suppression of banknotes in eighteenth-century England further promoted the use of checks. In the United States, nineteenth-century legislation discouraged other payment methods and eventually led to a nationwide check payment system. In the twentieth century, under the Federal Reserve's leadership, checks expanded rapidly and became the nation's default payment method.

The authors discuss some persistent historical themes surrounding checks: checks' ease of use, which provides advantages over other payment methods but creates risk to businesses and banks; checks' sophistication, which evolved through centuries of legal precedent and operational experimentation; and checks' high costs relative to other forms of payment.

Checks' traditional dominance of the U.S. payment system, the authors conclude, resulted from historical happenstances. These events gave the check relative advantages that are only now being overcome by electronic payment technologies.

Explainer of the Day


Everything You Wanted to Know about Credit Default Swaps--but Were Never Told

Unstimulating stimulus group think

- An overall concern about the groupthink that has gripped Washington on this. Go anywhere in town, ask anyone at any table at any restaurant and they will tell you two things they know to be true. One, that the only way out of this is a really big stimulus package and two, that it is perfectly okay for the United States to incur trillion-dollar-plus deficits for several years as a "way out" of our problems. These sound roughly as well thought out as the ideas produced with DC's last bout of panicked groupthink, post-9/11, when we all agreed that terrorism should be the new central focus of all our national security policy and that wherever the president saw a threat, we should go quash it, no questions asked.

-There was a time when I thought being stimulated was a good thing

How to earn respect and be a great scholar

Stephen Malt's tributes to his mentor, Samuel P. Huntington;

Last but not least, Huntington was simply a great man. Not just because of his remarkable career as scholar, teacher, mentor, magazine-founder, academic administrator, foreign-policy practitioner, and public intellectual, but because he had a rare capacity to engage with ideas he didn’t share and to respect those who disagreed with him. I took issue with him on several occasions—and didn’t pull any punches when I did—his reaction was to answer my criticisms fairly and forcefully and then help recruit me to Harvard. Needless to say, this is not typical behavior in the thin-skinned world of academe. John Mearsheimer and I dedicated a book to him not because he agreed with our thesis (though some of his own writings contain similar warnings about the distorting influence that ethnic groups could have on U.S. foreign policy), but because his willingness to say what he thought even when it might be impolitic was an inspiration for anyone who tries to grapple with the complex political challenges of our era. I will miss him, and so will his admirers (and critics) around the world.


From an earlier tribute;

I was not Sam’s student, but came to know him first as an intellectual force through his writings, then as a rather intimidating presence when I was a research fellow at Harvard in the 1980s, and later as friend and eventual colleague. To me, Sam’s true greatness is not measured by his scholarly contributions alone—though they were vast—but by his deep commitment to the life of the mind and his conviction that scholars should focus their efforts on the core political and social problems of the day. His work was often (always?) controversial, because he invariably tackled big questions and wasn’t afraid to offer provocative and sometimes unfashionable answers. In a world where most academics shun controversy and thereby render themselves irrelevant, Sam stood out. He knew that writing about politics was not a popularity contest, and that spirited but civil debate was essential to a healthy democracy. And it was impossible not to be inspired by his dedication and discipline.

Perhaps most remarkably, Sam was among the most intellectually tolerant academics I have known. He held strong views and defended them vigorously, but unlike most people in my profession, he didn’t mind if you disagreed. I can testify to this personally: when his “Clash of Civilizations” thesis was first published in article form, I debated him on this topic at the annual meeting of the American Political Science and I subsequently wrote a sharply critical review of the book for Foreign Policy magazine. Because Sam always loved a good argument—particularly if it was about substance and not ad hominem—he never held this against me and we grew closer as a result. Indeed, he subsequently helped recruit me to Harvard and he and his wife Nancy made a special effort to welcome us here. One could hardly imagine a better role model.

Question of the Day

DIE ZEIT: Can the right monetary and fiscal policy keep the US out of a recession?

Alan Greenspan: Probably not. Global forces can now override most anything that monetary and fiscal policy can do. Long-term real interest rates have significantly more impact on the core of economic activity than the individual actions of nations. Central banks have increasingly lost their capacity to influence the longer end of the market. Two to three decades, ago central banks were dominant throughout the maturity schedule. Thus, the more important question is the direction of long-term real interest rates.

Measuring the Service Output of U.S. Commercial Banks

The Value of Risk: Measuring the Service Output of U.S. Commercial Banks
Rather than charging direct fees, banks often charge implicitly for their services via interest spreads. As a result, much of bank output has to be estimated indirectly. In contrast to current statistical practice, dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output. We apply these models and find that between 1997 and 2007, in the U.S. National Accounts, on average, bank output is overestimated by 21 percent and GDP is overestimated by 0.3 percent. Moreover, compared with current methods, our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital.

Book recommendation on India

Regional Growth Dynamics in India in the Post-Economic Reform Period
Biswa Swarup Misra

BISWA SWARUP MISRA heads the Department of Economic Analysis and Policy at the Patna office of the Reserve Bank of India. He was an Economist at the Union Bank of India from 2001-2002. He is a core team member in Reserve Bank's research reports and resource person for policy documents. He has published in Banca D'Italia's Conference Volume of Workshop on Public Finance, Reserve Bank's Occasional Papers, the Journal of Quantitative Economics, and the Indian Economic Journal.

Tuesday, January 6, 2009

Think About for the Day

It's time to redefine "pro-Israel";

Did U.S. policy reflect the people's will, even a little? Hardly. "Pro-Israel" groups went into overdrive, targeting any politicians or human rights organizations that dared to question what Israel was doing to the civilian population in Lebanon. The Bush administration backed Israel to the hilt and delayed a ceasefire resolution -- just as they are doing now -- in a futile attempt to give Israel time to eke out a military victory. Not to be outdone, Congress passed a resolution of support by a vote of 410-8, after deleting a clause from the initial draft that called for both sides to minimize harm to civilians. The result of all this "support" was a major setback for Israel, however, as the ill-conceived war undermined Lebanon’s fragile democracy and left Hezbollah stronger and more popular than before. Delaying the ceasefire also cost more Israeli and Lebanese lives.

And here's the real tragedy: giving Israel unconditional support wasn't a true act of friendship then and isn't a genuine act of friendship now; on the contrary, it's positively harmful to the long-term interests of the Jewish state. Those congressmen, senators, and other government officials who are falling over themselves to defend Israel's behavior, along with the usual apologists like Marty Peretz and Alan Dershowitz, are no friends of Israel, though they undoubtedly think they are. Their support helped Israel shoot itself in the foot in 2006, and they are helping it do the same thing today.

Pundits like Walter Russell Mead are fond of claiming that the U.S.-Israel "special relationship" reflects shared religious traditions and the will of the American people. The evidence suggests otherwise: although most Americans support Israel’s existence and have more sympathy for them than they have for the Palestinians, they are not demanding that U.S. leaders back Israel no matter what it does. But that's what American politicians reflexively do, even though it encourages Israel to continue immoral and self-destructive policies (including the continued expansion of settlements) and contributes to Arab and Islamic anger at the United States.

Special Announcement- Nominations for BH Economics Blog Awards 2009

Nominations are now open- Bayesian Heresy Economics Blog Awards 2009; post your nominations in the comments.

Here are the categories from last year.

The Best Multilateral Blog is IMF's PFM blog - thanks to Michel Lazare for the kind words of encouragement (which of course affected our decision to award )-;

The MTEF Blog (see our August 22 post "Welcome to the new MTEF blog") now goes by the name "MTEF is the Bayesian Heresy." This results from the merge in principle on January 1 (but already effective in practice) of the MTEF blog with the Bayesian Heresy Blog (see in particular the December 8 posting of the Bayesian Heresy "announcing a bail out and a merge."

De facto, the Bayesian Heresy blog had not published many posts over the last few months. The MTEF blog has already inherited the rather eclectic choice of topics of the Bayesian Heresy blog, while keeping a marked for fiscal issues in general (see in particular its recent posts on MTEF and on performance budgeting). We wish full success to this new version of the MTEF blog.