FM newswire for 26 January, articles for your morning reading

Today’s links to interesting news and analysis.  If you find this useful, pass it to a friend or colleague.

  1. How to Spot a Deficit Peacock – 4 Ways to Tell When Someone Isn’t Serious About the Deficit“, Michael Linden, Center for American Progress, 20 January 2010
  2. Piecing together the liberated CRU emails to better understand how a small group of climate scientists manage the news:  “NASA: ‘Hide this after Jim checks it’”, Steve McIntyre, Climate Audit, 23 January 2010
  3. Conservatives have convinced many Americans that this hard-won knowledge is false:  “The Importance of Automatic Stabilizers“, Mark Thoma (Prof Economics, U Oregon), CBS, 24 January 2010 — See the comments here and here.
  4. More evidence:  “CNN poll: 56% oppose stimulus program“, CNN, 24 January 2010 — Andrew Mellon’s mistakes were made on the basis of inadequate economic theory. Cutting the stimulus too soon will trash the economy, and result from deliberate propaganda by conservatives.
  5. More madness:  “Democrats, Get Down to Business“, Harold Ford Jr. (D TN Congressman 1997-2007), op-ed in the New York Times, 24 January 2010 — He advocates cutting taxes for business and reducing the deficit.  
  6. This is disturbing:  “SEC mulled national security status for AIG details“, Reuters, 24 January 2010 — “U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security”
  7. Important:  “China’s Cassandra prophecy“, MercatorNet, 25 January 2010 — “The Government’s 2020 vision has been blind-sided by a think tank’s report on its population policy disaster.”  The superlative Yearbooks (“blue books”) of the Chinese Academy of Social Sciences are described here.

Below are today’s two special features:

  1. Words that might shake the nation
  2. Dumbest quote of the day

(1)  Words that might shake the nation

If a large fraction of people underwater on their homes (i.e., negative equity) walk away from their mortgages, the effects will shake our financial system to its core.  Many mortgages are non-recourse.  Many more are effectively so, as the cost of chasing the debtor exceeds any likely net recovery.  From “Underwater, but Will They Leave the Pool?“, Richard Thaler (Prof Economics, U Chicago), New York Times, 23 January 2010:

{Mortgage borrowers with negative equity} are actually suffering from a “norm asymmetry.” In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It’s as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.

He’s discussing this paper:  “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis“, Brent T. White (Law Prof, U Arizona), 7 December 2009 — Abstract:

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces:

  • the desire to avoid the shame and guilt of foreclosure; and
  • exaggerated anxiety over foreclosure’s perceived consequences.

Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

(2)  Dumbest quote of the day

US Marines Wrap Up Mission in Iraq–Victorious., Jim Hoft, Gateway Pundit, 23 January 2010 — (Of course, it was quoted by the Instapundit (who seldom misses any conservative propaganda).  Excerpt

Shhh… Don’t tell anyone. It may make George W. Bush look good. It may make Republicans look good. It may shine light on the democrat’s awful record on national defense. … America finished the fight and brought democracy to Iraq thanks to the leadership of President George W. Bush. Today the rest is history.

No WMD’s in Iraq, making us look like fools after the claims of President Bush and SecState Powell.  More seriously, this diminished our credibility to warn about the next threat (such as Iran).

We transform a secular enemy of Iran into a Shiite Islamic ally of Iran.  There is no conceivable way this improves our national defense, despite the vast cost in money and American blood. 

We may have helped build a democracy in Iraq, but that’s just a boast today.  The Parliament is an impotent joke, almost irrelevant in setting policy.  The key elections will be the referendum to decide the fate of the disputed Kirkuk Governorate.  Originally scheduled for December 2007, has been indefinitely postponed.  The March 7 parliamentary elections will tell us much about the vitality of democracy in Iraq. 

And let’s not forget that Americans did not support invading Iraq to create a democracy.  Bush would have been laughed off the stage had he given that as the primary reason.  Giving that as the basis for declaring success is “moving the goalposts” on a vast scale.

14 thoughts on “FM newswire for 26 January, articles for your morning reading

  1. ON point # 2. Agreed, this is a case of ends justifying the means, which is not right. Just because we won in Iraq, or that they now have a democracy, does not negate the false pretense we were to believe or accept upon entering Iraq.
    But who am I to say? I don’t really know or understand what went on or why? FM- is there an empirical history of the war in Iraq?

  2. Also, could you explain what conservative propaganda is? Is it propaganda espoused by conservatives… or is it propaganda conservative in nature?
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    FM reply: I use it in the first sense. As opposed to the equally common and harmful liberal propaganda (e.g., about AGW).

  3. The one marginally plausible, however contrived, reason I have heard for why invading Iraq might have made Americans safer, is that opening up its oil industry to more efficient, Western oil companies would lead to lower prices. Depriving Iranians, Russians and Hugo Chavez of funds with which to foment anti Western sentiment abroad, and buy off discontents at home.

    Revenue the Texas centric oil service industry would earn from a massive Iraqi oil build out, was simply an unavoidable side effect, of course, and had no effect whatsoever on any decision made……
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    FM reply: I dont’ understand why spending a trillion dollars (120 years of current world oil demand at $100/b) to eventually lower oil prices was superior to just ending the sanctions, which were of little value since there is no evidence Iraq had an serious atomic program in the years before the invasion.

  4. I would imagine the the next wave of migration from China will not be driven by the need to find a wife then. Night clubs in neighboring countries are going to be plagued by lonely desperate Chinese men. There best bet will be to get rich/successful as quickly as possible in order attract a women. I would imagine the coming generation of Chinese males are going to be very competitive!

  5. In regards to ‘China’s Cassandra Prophecy’ – “With higher prices commanded by fresh corpses of young women the practice has led to murders of young girls by some crime gangs looking to capitalize on distraught parents enduring the loss of a young son.”

    I find that hard to believe. I just finished reading how girls are sold into slavery- would it not be more profitable to keep them alive? Why would you destroy something that you have a shortage of? That is beyond stupid, imo.

  6. Even though China is officially atheist their default culture is ancestor worship. In such cultures being haunted by your ancestors (e.g., a lonely and horny son) is the worst thing that can happen to you. So you do things in this life to placate them.

    IMO the moral hazard of bailing out the banks (without the necessary reform) will trickle down to the masses. I think it already has – in California, the number of houses with notices of default is almost equal to houses listed on the MLS in many markets. We know that the banks are slowing down the foreclosure process. So you can imagine how much cash is needed when the home owner bought at the peak with next to nothing down and is now 3-6 months behind payment.

  7. Ain’t nothing but pure unadulterated communism! We should use those empty houses to incarcerate the folks who defaulted on their mortgages!

  8. FM remarks: I don’t understand…spending a trillion dollars…to lower oil costs…

    According to Nobel laureate economists Joseph Stiglitz, the total cost of the Iraq war runs closer to three trillion dollars. And still climbing, of course. No American troops have yet been pulled out of Iraq.
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    FM reply: Thanks for the update, however sad the news. However, the number of US troops has decreased — to aprox 112 thousand (including the departure of all US Marines).

  9. > Important: “China’s Cassandra prophecy“

    Important yes, but the article itself is best described as shortsighted.

    > A report released earlier this month [etc…]

    Reports about Chinese imbalances in sex-ratios had already been published years ago.

    > Think of it in these terms: what if the entire > population of New York City or of Australia was never > able to marry?

    The Chinese scale makes things appear outrageous, but this is not an unprecedented situation, and it can last for very long periods of time. From: “A Choice Not to Wed? Unmarried Women in Eighteenth-Century France”, Christine Adams; Journal of Social History, Vol. 29, 1996:

    “[…] historians have been aware of the fact that a sizeable minority of the population remained unmarried in early modern and modern Western Europe, possibly between fifteen and twenty percent of the population.(1) In the case of France, the evidence suggests that several million men and women – especially women – of each generational cohort never married in the eighteenth century.”

    From: “A social history of Western Europe 1880-1980”, Hartmut Kaelble:

    “A final distinctive feature of the European scene is the considerably higher proportion of unmarried people. It has been particularly large among young adults, but in Europe the incidence of people who never married was also higher than elsewhere. This large proportion of unmarried people existed in the late Middle Ages too.”

    It seems that 24M in China is not higher than historical European rates of unmarried people.

    > How China got to this pitiful state is well documented.

    The author should have gathered some more documentation: it seems that not families with one child are skewing the sex ratio, but those who can afford (by privilege or bribes) more than one: http://www.scientificamerican.com/article.cfm?id=there-are-more-boys-than-girls

    “Health policy expert Avraham Ebenstein of Harvard University examined China’s 2000 census data and found that the sex ratio of first births for couples was close to the natural sex ratio, but it became increasingly skewed following the birth of one or more daughters. That suggests parents value firstborns regardless of sex, but practice sexual selection for later children if they do not yet have a boy.”

    > Essentially, without families of their own to care for > them as this generation starts ageing [etc…]

    The idea is that freedom to procreate would reduce the gender imbalance and leave enough offspring to care for old people. These assumptions are unwarranted:
    1. See above for a Chinese counter-example: more children do not reduce gender imbalance.
    2. India: large gender imbalance comparable to the Chinese one, despite the lack of a single-child policy.
    3. Japan, Singapore: no restrictions to procreation, no gender imbalances, but diminishing birthrates and socio-economic changes lead to a lack of children to care for elders.

    It appears that “the State will need to step in with sufficient pension funds and aged care facilities” anyway, because of much more significant socio-economic forces at play. For instance, how are the hundreds of million of internal migrants supposed to care for their
    parents personally if they cannot work and live in their home towns?

    In any case, there is yet another unwarranted assumption: that the current situation will persist. However

    4. Korea, Taiwan: “Those countries have recently seen a shift back toward a balanced sex ratio, which spells hope for China and India further down the road. For instance, South Korea had a birth sex ratio of just 107.4 boys for every 100 girls in 2006, compared with 116.5 boys for every 100 girls in 1990.”

    > This belief is supported by the fact that the Government continues to argue the overall success of the one child family policy in reducing China’s population by around 400 million.

    and

    > Of course, China has never really given women true equality.

    Could it be that the Chinese government is somewhat more perspicacious than the author warrants? China could impose no restrictions on procreation and then, just like India, get both overpopulation _AND_ large gender imbalances (because of the “cultural and economic preference for sons”). It has decided that a 24M problem, which sure will strain its society, is nevertheless much more manageable than a 400M problem which in addition would entail all the same difficulties as the 24M issue.

    As for the gory stories of digging up corpses to remarry them, what is the Chinese word for “urban legend”?
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    FM reply: You do not seem to have understood this article.

    “The author should have gathered some more documentation”
    As I said in this post, this is a brief news article about a report from one of the Yearbooks (“blue books”) of the Chinese Academy of Social Sciences. I suspect all of your comments are dealth with at length in the actual report, which can be obtained by buying the Yearbook.

  10. FM mentioned that in Iraq “the number of US troops has decreased — to aprox 112 thousand (including the departure of all US Marines).

    Alas, the number of Xe (and other) mercenaries has at the same time increased. It’s the old shell game. Since we now know that Xe is merely a front for the CIA, the U.S. government is doing the old magician’s sleight-of-hand trick, telling us to watch the right hand (U.S. troops pulling out of Iraq!) while we’re supposed to ignore the left hand (U.S.-paid mercs, ex-special-forces and army rangers all, effectively U.S. troops in all but name, pouring into Af-Pak & Iraq in ever-increasing numbers). (Sigh.)
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    FM reply: Do you have any evidence that the number of mercs in Iraq has increased by 40 thousand since the number of Coalition or US troops peaked? That seems unlikely to me.

  11. And, hey, thanks for posting that “Deficit Peacock” article. Useful & clearly presented information about a very timely, topical issue. I’ve read it once, and will go over it again. There are some people who fit the description of “Deficit Peacock” in my immediate social circle.
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    FM reply: It’s become the defining characteristic of Republican politicians.

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