Today’s links to interesting news and analysis. If you find this useful, pass it to a friend or colleague.
- “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
- 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
- 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.
- 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.
- 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.
- 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”
- 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:
- Words that might shake the nation
- 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.
