strategy

We find that in 2006, 29 percent of the workforce was required to hold an occupational license from a government agency, which is a higher percentage than that found in studies that rely on state-level occupational licensing data.

That is from a new paper by Morris Kleiner and Alan Krueger.  I am happy to see such respected economists turning their attention to a neglected issue.  Here is a non-gated version of the paper.

There is, by the way, an interesting sentence buried near the end of the paper:

In contrast, union members perceive themselves as less competent than other workers.

But the Harvard economist [Dani Rodrik] finds the blog — short for Web log — useful because it serves as a reference catalog for his ideas. “I now constantly Google my own blog for ideas that I knew I had at some point,” he says. “Previously, the ideas would have come and gone. The first good thing is that I have them a little more developed, and, secondly, I can actually recover them.”

Here is the whole story, on the rise of the econ blogosphere, which has much from yours truly.  It is in this issue from the Richmond Fed, which has much of interest on economics and the economics profession.  Here is an article on experimental vs. behavioral economics.

1. The puzzle of the missing heroin

2. Falling real estate prices in China

3. Nouriel Roubini's apartment

4. Google Trends: FDIC

5. Christopher Buckley gets fatwahed

Arnold Kling weighs in:

We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon's bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.

He refers to Paulson as "the American Mussolini."

Today you get more Felix Salmon, who nails it:

America's banks -- and the world's, for that matter -- have had de facto unlimited access to very cheap Fed liquidity for many months now. That hasn't induced them to lend. Will this latest recapitalization do the trick? I'm far from convinced. And what's more, the demand for loans is drying up fast: do you really feel like buying a bigger house right now, or taking out a car loan? Well, businesses are in the same boat. In a recession, their ROI falls, so they borrow less.

I am, however, a little worried about Felix's proposal to make banks lend the money.  It's not that I have a better idea, but I suspect any scheme of compulsion will bring either higher risk or ways to game the scheme or both.  And if bank shareholders and CEOs do not wish those loans to be made, our current system of corporate governance quickly becomes unworkable.

If you're running an insolvent bank, and you get a slug of equity from Treasury, your shareholders will thank you if you use that equity to take some very large risks. If they pay off and you make lots of money, then their shares are really worth something; if they fail and you lose even more money, well, there was never really any money for them to begin with anyway.

That's Felix Salmon: read the whole thing.  Read this too.  Here is Megan McArdle on the pooling equilibrium.  Here is a good article on how Paulson "sold" his plan to the bankers.  And here are yet some more sentences to ponder:

So it in the end, we have what is basically an economic loan, but structured in a way to game bank capital adequacy requirements. What strange times we live in when Treasury and the Fed have to engineer a deal to circumvent their own regulations.

For the past three years, [Bhumika] Chaturvedi has been a top collection agent at her call center, phoning hundreds of Americans a day and politely asking them to pay up. As the U.S. financial crisis plunges Americans into debt, her business is one of the fastest-growing sectors in Indian outsourcing. It is also one of the few sectors of outsourcing in India that is still hiring aggressively.

By the way:

India handles an estimated $16 billion -- or about 5 percent -- of delinquent U.S. accounts

The responses are numerous:

"My mortgage payments are just too high, honey. I just can't make the payment this month," a weeping woman with a Southern accent recently told her in response to a call for a $200 credit card payment. "I'm sure y'all heard about the credit crunch and gas prices. I'm flat broke."

I wonder what the Indian bill collector thinks in these moments.  Has anyone tried saying: "Pay up.  My aunt earns $1300 a year and pays 80 percent interest on her microcredit loans"?  Probably not.  In fact the strategy is the opposite:

Aparup Sengupta, global chief executive officer and managing director of Aegis, encourages his debt collectors to use a "hospitable Indian touch," meaning less arm-twisting and more emotional therapy.

"This business is a performing art," Sengupta said. "We are part therapists because the core of the issue is that every human being wants to be honorable in life. We don't just push someone into a bad situation. We try to create a real solution."

Decorating the office are dozens of yellow smiley faces with the words, "Happy People. Happy Customers. Happy Investors," along with other posters that read: "Connect and Collect."

If I owed money I would simply stop answering the phone. 

I'm just back from the Future of Talent (note: sound) retreat in Tiburon, California, where I facilitated a session entitled Community...The Real Deal.  The retreat is the effort of Kevin Wheeler and his great team at Global Learning Resources.

As always, a huge highlight was the opportunity to work with Eileen Clegg, a visual journalist who creates real-time murals of sessions such as this one.  (N.B. She's also working on a very, very cool project for O'Reilly Media, chronicling the career of valley legend Doug Engelbart.)

Here's another version of the mural with all of the details visible.  Click on it to expand.

I heard of this via our friend Steve Epstein and this sounds like a pretty clever way to bring green values into daily life, and using location-based info of the phone.

The idea is that this new service, Carbon Diem, will monitor your movement. It then uses a clever algorithm to determine your method of movement and its impact to carbon. If you move walking speeds or bicycling speeds, you don't burn carbon. But if you move in say car speeds, lots of carbon. And I guess (I don't know) that it knows from the pattern, if you are in a train or bus (lots of regular stops, and obviously a regular route) and then calculates a smaller carbon footprint. And if your phone disappears at one airport and two hours later appears at another airport in a city a thousand kilometers away, it knows you've been burning some serious carbon in the jet you took...

Clever idea. Check it out at the Springwise site where the press release is featured. Thanks Steve!

Telepathy has always been a sign of kookiness but synthetic telepathy heh that's just around the corner.

The U.S. Army is developing a technology known as synthetic telepathy that would allow someone to create email or voice mail and send it by thought alone. The concept is based on reading electrical activity in the brain using an electroencephalograph, or EEG...

The idea of communicating by thought alone is not a new one. In the 1960s, a researcher strapped an EEG to his head and, with some training, could stop and start his brain's alpha waves to compose Morse code messages.

Here is a previous post in the series.

The main new proposals would:

— for the next two years, give businesses a $3,000 income-tax credit for each new full-time employee they hire above the number in their current workforce;

— allow savers with tax-favored Individual Retirement Accounts and 401(k)’s to withdraw 15 percent of those retirement savings, up to a maximum of $10,000, without paying a tax penalty as the law currently requires for withdrawals before age 59 and a half;

— bar financial institutions that take advantage of the Treasury’s rescue plan from foreclosing on the mortgages of any homeowners who are making “good-faith efforts” to make payments;

— direct the Treasury and the Federal Reserve to create a temporary facility for loans to state and local governments, similar to the Fed’s new arrangement to loan corporations money by buying their commercial paper, which are the I.O.U.s that help businesses with daily operating expenses like payrolls.

Here is the article.  I doubt if the substitution effect generated by #1 is large.  I fear the precedent set by #2 and I don't understand the enforceability of #3.  Savings withdrawals are in effect a form of fiscal policy and I don't yet see how fiscal policy is supposed to cure us of our current mess, which is rooted in coordination problems.  Let's hope #4 does not become necessary.  Of course it is before an election and each candidate has to propose doing something in addition to the status quo.  But a lot will happen between now and 1/20; fortunately these proposals won't be taken very seriously.

Here are McCain's proposals, I may discuss them soon.

Commerzbank AG, Germany's second-biggest bank, said yesterday there is ``no active market'' in the krona. The last quoted price was 340 per euro, compared with 122 a month ago.

Here is the link.  I'm starting to wonder if I should visit for a weekend; it's one of my favorite countries.  Will they let me bring my own food?

Is this a race to the top or a race to the bottom?

“The Europeans not only provided a blueprint, but forced our hand,” said Kenneth S. Rogoff, a professor of economics at Harvard and an adviser to John McCain, the Republican presidential nominee. “We’re trying to prevent wholesale carnage in the financial system.”

Here is much more on today's events.  In the current version of globalization the equilibrium seems to be that non-guaranteed banking systems are swiftly penalized and turned into zombies.  This suggests, by the way, that undoing current bank guarantees, when recovery comes, won't be as easy as we might have thought.

Addendum: Here are the opinions of many economists.

Via Mark Thoma, Susan Woodward has an idea:

The true values of mortgage assets are generally thought to be a mystery. But little-mentioned among discussions ... of the crisis is that the Treasury has access to the best resources in the business for estimating the hold-to-maturity values of mortgages and mortgage-backed securities. This team is at Fannie Mae, which the government now effectively directs.

You might laugh, or cry, but the reality is that most proposed paths out of the crisis involve a circularity problem.  And, courtesy of Chris Masse, here is another paragraph to ponder:

Krugman's award could bring Bush face-to-face with his antagonist. The president typically invites Nobel Prize winners to the White House in November or December.    

Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

Here is the link once again.  But I think the point is more effective in reverse.  Why should the boom be a boom in the first place?  The shift toward investment goods, and thus away from consumption goods production, should mean falling real wages, not rising real wages.  In other words, the Austrian theory doesn't generate the very high degree of comovement found in the data.  Or, in other words, there aren't that many countercyclical assets.

One MR commentator suggests this, this, and this as responses.  They make various points against Krugman (who I might add is not as clear as usual in this piece) but they don't solve this central problem of generating the amount of comovement found in the data.  The best shot is to relax the Austrian-favored methodological assumption of full employment; I leave it as an exercise for the reader whether that could work and what other problems for the theory it might create. 

I should add that Gordon Tullock has made much the same point, as has Bob Lucas or for that matter Piero Sraffa in 1932.

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion; Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York and State Street each receiving $2 to 3 billion. Wells Fargo will get an additional $5 billion, reflecting its acquisition of Wachovia, and Bank of America receives the same for amount for its purchase of Merrill Lynch.

...The government will purchase perpetual preferred shares in all the largest U.S. banking companies. The shares will not be dilutive to current shareholders, a concern to banking...executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings. The capital injections are not voluntary, with Mr. Paulson making it clear this was a one-time offer that everyone at the meeting should accept.

Here is the story.  No matter what your point of view, you ought to be stunned by this development.

Addendum: Brad DeLong adds musical commentary.

Not yet, the economy is staying above water.  Toward the future, here is a very good list of credit market indicators to follow.  A lot of the credit markets reopen tomorrow.  Felix Salmon is optimistic.  But in Iceland shoppers are emptying the shelves because it is hard to import food.  Kashkari says the Treasury will invest only in healthy banks; of course recapitalization makes the most sense for unhealthy banks.  One way to try to figure out what is happening is to work backwards from the lies but that can end up being very misleading.