GUJARAT AND ODISHA (PTI) The caste factor is likely to remain at the core of Gujarat Assembly polls following the emergence of caste-based movements, with major parties distributing tickets accordingly. Both the BJP and Congress have kept the caste arithmetic in mind while given tickets for polls. The Patidars and Other Backward Classes (OBCs) have been given maximum tickets by both the main parties. The BJP has nominated 50 Patidars this time, while the Congress has fielded 41 candidates from the community. The ruling party has fielded 58 OBCs while the Congress has 62 such nominees. The main opposition party has given tickets to 14 Dalits while the BJP has fielded 13. As per political pundits, this Assembly poll will be a battle to win that “extra four to five per cent vote share”. The BJP cannot afford to lose that while the Congress is trying its best to attract the castes which are ‘angry’ and can fill in that gap in the vote share. According to political analyst Achyut Yagnik, a mere swing of about four to five per cent would prove to be game changer for Congress. However, he believes that though there is some possibility the Congress may win some additional seats this time, it is too early to predict that it would come to power despite the support extended by caste leaders – Hardik Patel, Alpesh Thakor and Jignesh Mevani. “If you look at the vote share in the elections of 2002, 2007 and 2012, Congress bagged around 40 per cent while BJP got 49 per cent each time.
Monday, November 6 2017
By Jane Mayer June 16, 2017 At a press conference, the F.B.I. agent Tim Slater discusses James Hodgkinson, who shot Congressman Steve Scalise and four others. Like many mass shooters, Hodgkinson had a history of domestic abuse. Photograph by Alex Brandon Within hours of the shooting of the House Majority Whip, Steve Scalise, and four others, one couldn’t help but feel tired watching the predictable brief moment of political unity. The country has been through enough horrors to know that political adversaries will soon line up and take their battle stations on Twitter and talk shows as no solutions are found and no lessons are learned. They will blame each other’s political ideologies and rhetoric for the bloodshed. It won’t be long until the conspiracy theorists come along and throw doubt on whether the facts are the facts, or something more sinister. No one wants to talk policy reform so soon, but there’s one that is glaringly necessary, and really ought not to be divisive. Wednesday’s shooter, James Hodgkinson, reportedly had a history of domestic violence. Yet he was able to legally obtain an assault rifle. These two facts are incompatible with public safety. The Daily Beast reported , on Wednesday: In 2006, he was arrested for domestic battery and discharge of a firearm after he stormed into a neighbor's home where his teenage foster daughter was visiting with a friend. In a skirmish, he punched his foster daughter's then 19-year-old friend Aimee Moreland “in the face with a closed fist,” according to a police report reviewed by The Daily Beast. When Moreland's boyfriend walked outside of the residence where Moreland and Hodgkinson's foster daughter were, he allegedly aimed a shotgun at the boyfriend and later fired one round. The Hodgkinsons later lost custody of that foster daughter. "[Hodgkinson] fired a couple of warning shots and then hit my boyfriend with the butt of the gun," Moreland told The Daily Beast on Wednesday. Hodgkinson was also “observed throwing” his daughter “around the bedroom,” the police report said. After the girl broke free, Hodgkinson followed and “started hitting her arms, pulling her hair, and started grabbing her off the bed.” In this, Hodgkinson fits a pattern. As Rebecca Traister has written , for New York magazine, “what perpetrators of terrorist attacks turn out to often have in common more than any particular religion or ideology, are histories of domestic violence.” Traister cites Mohamed Lahouaiej Bouhlel, who drove a truck through a Bastille Day crowd in Nice, last summer, and Omar Mateen, the Pulse night-club shooter. She also cites Robert Lewis Dear, who killed three people at a Planned Parenthood clinic in Colorado Springs, in 2015. According to Traister, “two of his three ex-wives reportedly accused him of domestic abuse, and he had been arrested in 1992 for rape and sexual violence.” Last year, Amanda Taub also wrote powerfully on this issue in the Times . “Cedric Ford shot 17 people at his Kansas workplace, killing three, only 90 minutes after being served with a restraining order sought by his ex-girlfriend, who said he had abused her,” Taub wrote. “And Man Haron Monis, who holed up with hostages for 17 hours in a cafe in Sydney, Australia, in 2014, an episode that left two people dead and four wounded, had terrorized his ex-wife. He had threatened to harm her if she left him, and was eventually charged with organizing her murder.” Obviously, not everyone accused of domestic violence becomes a mass shooter. But it’s clear that an alarming number of those who have been accused of domestic abuse pose serious and often a lethal threats, not just to their intimate partners but to society at large. The statistical correlation between domestic violence and mass shootings has also been documented. As the Times reported: When Everytown for Gun Safety, a gun control group, analyzed F.B.I. data on mass shootings from 2009 to 2015, it found that 57 percent of the cases included a spouse, former spouse or other family member among the victims — and that 16 percent of the attackers had previously been charged with domestic violence. In the meantime, many domestic-violence suspects, like Hodgkinson, are arrested only to have the charges dropped later, which leaves them armed and dangerous. The National Rifle Association and its allies have successfully argued that a mere arrest on domestic-violence charges—such as Hodgkinson had—is not sufficient reason to deprive a citizen of his right to bear arms. After the Sandy Hook massacre, in 2012, an overwhelming majority of Americans favored tighter gun control, including laws that would require background checks for gun purchasers to be extended to sales at private gun shows. Yet a bill proposing that very measure failed to make it through Congress. And as David Cole, then a law professor and now the legal director of the American Civil Liberties Union, wrote last year, in the New York Review of Books , the clout of the gun lobby is even greater at the local and state level, where, after Sandy Hook, eleven states tightened their gun-control laws but some two dozen made them even looser. The N.R.A., with its yearly budget of three hundred million dollars, has mastered the dark art of substituting money for popular will. By spending strategically and threatening to “primary” any office-holder who deviates from its agenda, it has managed to impose an extremist agenda that seems almost unchallengeable. America now has something like eighty-eight guns per hundred citizens—the highest concentration in the world—yet, inevitably, there will be calls for more tomorrow. Jane Mayer has been a New Yorker staff writer since 1995. Sign up for our daily newsletter: the best of The New Yorker every day.
Wednesday, December 6 2017
Opinions The Republicans’ tax wager is worth the gamble Sen. Steve Daines (R-Mont.) squeezed into a Capitol Hill elevator to go vote on amendments to the GOP tax overhaul. (J. Scott Applewhite/Associated Press) By George F. Will By George F. Will Opinion writer December 6 at 7:27 PM Follow @georgewill The Republicans’ tax legislation is built on economic projections that are as confidently as they are cheerfully made concerning the legislation’s shaping effect on the economy over the next 10 years. This claim to prescience must amaze alumni of Bear Stearns and Lehman Brothers , which were 85 and 158 years old, respectively, when they expired less than 10 years ago in the unanticipated Great Recession. The predictions of gross domestic product and revenue growth assume, among many other things, continuation of the current expansion. It began in June 2009 and has been notable for its anemia relative to other post-1945 expansions: Its average annual growth rate has been 2 percent; theirs, 4.3 percent . But it also has been remarkably durable. It is 102 months old; the average since after World War II is 58 months. Unless the business cycle has been repealed, a recession is almost a certainty during the 10-year window for which the tax bill has been tailored. What the legislation’s drafters anticipate, indeed proclaim, is that Congress will not allow to happen what the legislation says, with a wink, will happen. So, this might mark the historic moment when Washington decided that it no longer will bother to blush. The legislation says the tax reductions for individuals will expire by 2025. Treasury Secretary Steven Mnuchin , however, says “we have every expectation that down the road Congress will extend them.” Of course Congress will. The phantom expiration is an $800 billion fudge , a cooking of the books in order to cram the tax bill into conformity with arcane parliamentary procedures that make the measure immune to filibuster. We have been down this road before: For the same reason, some George W. Bush tax cuts of 2001 were scheduled to expire at the end of 2010; 82 percent of them (measured by revenue) did not. The Democrats’ denunciation of the Republicans’ tax cuts because they especially benefit the wealthy is a recyclable denunciation of any significant tax cut. The top 1 percent of earners supply 39 percent of income tax revenue, the top 10 percent supply 70 percent, the bottom 50 percent supply 3 percent, 60 percent of households pay either no income taxes (45 percent) or less than 5 percent of their income, and 62 percent of Americans pay more in payroll taxes than in income taxes. So, any tax cut significant to macroeconomic policy — any that might change incentives sufficiently to substantially change businesses’ and individuals’ behaviors — must be primarily a cut for the affluent. Democrats pretend to worry that Republicans are executing a diabolical double play, using tax cuts to placate donors, then citing the cuts’ enlargement of the national debt as an excuse to cut entitlements. Surely Democrats know that Republicans are not insubordinate to their president, who has vowed to oppose any significant (i.e., touching Social Security or Medicare) entitlement reforms. Besides, whenever Republicans run large budget deficits — the tax legislation probably means that the next decade’s will be even larger than they would have been — they serve the Democrats’ basic agenda: They legitimize the bipartisan penchant for making big government seem cheap. Republicans, too, give people $X worth of government services and charge the recipients $Y, with Y significantly less than X. In 2002, when Dick Cheney — a strict constructionist, but not of economic data — said “ Reagan proved deficits don’t matter ,” the publicly held national debt was 33 percent the size of GDP; today it is 75 percent . At some point, the debt’s size matters, and we seem determined to learn the hard way where that point is. This tax legislation, an amalgam of earnest hoping and transparent make-believe, is a serious lunge for sustained 3 percent growth. Without this, the economy, and hence the entitlement state, will buckle beneath the strain of 10,000 of the elderly each day becoming eligible for Social Security and Medicare. The Republicans purport to know how changed tax incentives will affect corporations’ and individuals’ decisions, and how those decisions will radiate through the economy. Republicans do not know — nobody, including the Republicans’ equally overconfident critics, does — but they might be right, and their wager is worth trying. Economics is a science of incentives, and like all sciences it is never “settled.” Both sides, with their thumping predictions, have given hostages to the future, which will deal harshly with some. Perhaps most. Possibly all of them.
Wednesday, December 6 2017
Europe Years after Lehman: final rules set on strengthening banks FILE - In this Thursday, April 27, 2017 file photo, the President of the European Central Bank Mario Draghi speaks during a news conference in Frankfurt, Germany. A key global forum of banking regulators has completed a new set of rules aimed at keeping bad banks from needing taxpayer bailouts and hurting the economy, it was reported on Thursday, Dec. 7, 2017. Under the latest rules, banks must keep at least 7X percent of the capital buffers under their own internal risk calculations, compared to a stricter measure used by regulators. (Michael Probst, File/Associated Press) By David McHugh | AP By David McHugh | AP December 7 at 11:31 AM FRANKFURT, Germany — A global forum of banking regulators has finished its years-long work on rules that aim to keep weak banks from needing taxpayer bailouts and setting off financial crises like the one that led to the Great Recession. The oversight board of the Basel Committee on Banking Supervision agreed on the last batch of rules at a meeting Thursday in Frankfurt, Germany. A key part of the debate on the rules is how far banks should be allowed to diverge from regulators’ assessments of how risky their holdings are. European Central Bank head Mario Draghi, who heads the Basel Committee’s oversight board, said Thursday that the step was “a major milestone that will make the capital framework more robust.” The package “completes the global reform of the regulatory framework, which began following the onset of the financial crisis,” he said. The Basel committee rules have been an ongoing international response to the 2007-2009 financial crisis that saw the bankruptcy of U.S. investment bank Lehman Brothers and taxpayer bailouts of big banks. The financial crisis was the prelude to the Great Recession that saw many people lose their jobs and homes. Governments in the United States, Europe and elsewhere were pushed to rescue banks to prevent a cutoff of credit to businesses that would further harm the economy and increase unemployment. The new rules, dubbed Basel III, toughen an earlier set of rules and take effect from 2022. The idea is create a level playing field for banks globally and prevent troubles from spreading through the financial system. The first set of Basel III rules were published in 2010 and implemented gradually. The rules increased the amount of capital banks had to hold as a financial buffer, as measured against the risks they had taken by extending loans like mortgages. Such capital ratios, as they are called, have been criticized as not enough to ensure a stable financial system because bankers can find ways to get around the complex system of determining how risky their activities are. The new rules limit banks’ ability to arrive at a lower assessment of their level of risk than that calculated by regulators. The new rule says that the banks’ estimate of the total pile of assets against which capital must be held must not be less than 72.5 of regulators’ estimates. Draghi said the limit would prevent banks from lowballing risk in their calculations, which in the past had led to “imprudently low” capital buffers. Higher capital levels mean a more stable bank. But that prevents the use of those financial resources for potentially profitable activities like loans or investments. The problem was that before the financial crisis, the banks tended to take risks and keep the profits when risks paid off — and required bailouts from taxpayers when the bets led to losses. The new rules are “definitely an improvement,” said Volker Wieland, professor at the Institute for Monetary and Financial Stability at Frankfurt’s Goethe University. He said the rules “reduce the risk and severity of financial crisis coming from banks.” Wieland, a former economist at the U.S. Federal Reserve, said the new system of rules “prevents the banks from calculating down the risks too much.” The regulators could not agree, however, on requiring banks to hold capital buffers against possible losses on government bonds, even though the default by Greece during the eurozone debt crisis shows that sovereign bonds are not free from risk. Basel committee chairman Stefan Ingves, who is also governor of the Swedish central bank, said that “there was no consensus on how to deal with sovereign risk.” The Basel Committee, based in the Swiss city of that name, includes central bankers and regulators from 26 countries plus Hong Kong and the European Union. Standards agreed by the committee must then be enacted at the local level by member countries over a period of years. Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Close video player
Monday, December 4 2017
I wrote this in late September 2011, to explain to my circle of friends why I thought we were in the state we were in. It’s by way of background to my latest post on secular stagnation, so I’ve disabled comments on this one. The Global Bezzle: Whence it came, where it went and what it means By way of a reply to both John Quiggin and Brad DeLong, below I set out my view (which is largely based on, by which I mean largely stolen from, Dean Baker’s in “ The End Of Loser Liberalism “, including one big change of position; obviously Dean isn’t responsible for my presentation) of the roots of the current crisis, with particular evidence on how the financial sector was really quite irrelevant, other than in performing its normal role of intermediating much bigger imbalances and policy errors … The global bezzle The term, from JK Galbraith’s “The Great Crash”, originated in a quote about embezzlement: “In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should be called the bezzle. It also varies in size with the business cycle.” But I think it’s more normally used these days in a generalised sense – simply referring to that proportion of national (and indeed global) wealth which is made up of illusory, unsustainable and (obviously) unrealised capital gains. And the global bezzle matters as an economic phenomenon because people borrow against it, creating burdens of nominal debt which overhang the economy and which deepen recessions. The bezzle, at its peak value in 2006, was historically large, which is basically why we’re in the state we’re in now. Whence it didn’t come Given the amount of money used in financial sector bailouts, it is overpowering tempting to assume that the bezzle must have been located somewhere in the financial sector, possibly in subprime CDOs or derivatives or something too complicated to understand. There is, as I’ve said a couple of times before, a powerful confluence of interests in portraying the crisis as being something incomprehensibly technical in nature. Actually, it was mainly house prices. It had to be. It couldn’t have been the subprime market, it’s not big enough . At the peak in 2006, subprime mortgages in the USA totalled about US$1.5trn in total outstandings. This is slightly less than 15% of the total mortgage market, and somewhat less than 10% of total housing values. The S&P500 alone is capitalised at a bit more than US$10trn; the average monthly fluctuation in equity market values as a whole is somewhat more than the total value of the subprime mortgage market. Added to which, you will note that the “financial crisis”, with the notable exception of AIG (and of course, AIG is a “notable exception” in the non-pejorative, rule-proving sense, because it was brought down by non-insurance trading and securities lending operations) was more or less purely a banking crisis. Life assurance, pensions and mutual fund companies, to an overwhelming extent, were not exposed to subprime bonds; the main owners were hedge funds and the banking system itself. Given this, it seems unlikely that subprime could possibly have caused a large enough wealth effect to slow the economy down so badly. The US$6trn of housing wealth lost by Americans seems a more likely candidate. It couldn’t have been anything specifically American, it happened in too many different places . Geographically, within the USA , the severity of the recession matches up to the house price rise and fall, not to the incidence of subprime lending. Spain had a very severe downturn, despite having a very different mortgage market; Ireland’s was different in another way, while Greece hardly saw a lending boom at all. Australia has seen lending practices aggressive enough to strike fear into the hearts of Americans for years (a credit card linked to the mortgage balance, cobber?), while Canada saw its mortgage securitisation market freeze up rather more totally than the American one did. The financial sector’s involvement was demand-pull, not supply-push . We can contrast the dot com bubble with the telecoms one that happened at almost the same time. In both cases, the financial sector was deeply involved (it is hardly possible to have an investment bubble without them, after all). In both cases, later investigations revealed considerable unethical practice and many cases of out-and-out fraud. In the case of the dot coms, however, it was largely responsive – the public had a more or less insatiable demand for Internet company securities, and the banks were left scrambling to do what they could to satisfy the demand. The telecoms bubble was very different; there was no rabid enthusiasm on the part of the public to fund expensive and predictably unprofitable fibre-optic networks, and the banks had to use every trick in the book to get them done. I would call one a paradigm case of demand-pull and the other a paradigm case of supply-push; in the case of Pets.com, there was nothing manipulated about the absurd valuation, the company was exactly as unprofitable as it reported itself to be, but in the case of Enron, WorldCom and Global Crossing, the valuation was reverse-engineered and manipulated to the levels it needed to reach in order to justify the transactions that Skilling, Ebbers et al wanted to carry out. The real estate boom, even the subprime element of it, looks a lot more like dot com than telecom . We can note from the dot com boom that there is nothing inconsistent between classifying a speculative bubble as demand-driven, and there being substantial amounts of fraud, hype and aggressive marketing on the part of the financial sector. There were boiler rooms and chop-houses pushing stocks in the dot com years, plus hourly television ads for online brokerages, along with the (absurdly undignified) birth of the “celebrity stock analyst”. But it really is rewriting history to say that dot coms were foisted on an unwilling American investing public by a ruthless financial sector. The timelines are all wrong . The mortgage bubble was like dot coms. One of the fascinating facts is that, according to three separate teams of researchers who have looked at the LoanPerformance data (a file containing details of roughly half the subprime mortgages ever written), the “massive decline in underwriting standards” for subprime loans never happened. Depending on how you measure it, you might conclude that there was a more or less imperceptible weakening, a more or less imperceptible strengthening of standards, or nothing at all, but nobody has yet found anything to explain the difference in observed default rates between the 2002 and 2006 vintages of subprime loans, other than the fact of the real estate collapse itself. This is obviously somewhat surprising to anyone (like me) who read the SEC ’s complaint against Angelo Mozilo, but it is notable that the complaint (which was settled out of court – Mozilo admitted charges of insider dealing but not the ones of misrepresentation which are relevant here) is very keen on describing frightening products like “exception loans” or “80/20s”, but much less so on attributing actual numbers to the amount of business written on these terms. The two Fed teams and NERA show a picture of the data which is not very consistent with a sudden decision to abandon lending standards in order to feed a securitisation machine, but very consistent indeed with consistent lending standards being hit by a massive exogenous wall of demand, created due to a housing bubble. Talking about timelines, it is worth noting that more or less anything that happened after 2006 (the peak of the housing market, and the beginning of the destruction of housing wealth) was more about passing the hot potato about than anything else. The famous “Abacus” transaction which starred in the Levin Commission’s inquiry, for example, was certainly a very bad deal, but it couldn’t have been a cause of the crisis simply based on the date when it happened – it represented a last-ditch attempt to redistribute losses caused by a crisis that had already happened. Whence it came So where did the bezzle come from? In my view, it’s a mistake to see the mortgage and subprime bubble as a separate entity from the dot com/telecom bubble, and to see either as a distinct entity from the general increase in both personal sector indebtedness in the English-speaking economies, and government indebtedness in Euroland. In the past, I’ve emphasised one aspect of this – the real estate bubble as a policy response to the dot com crash – but it’s actually somewhat larger than that. Although the chart of overall personal sector debt has something of a visible inflection point around 2000, you can see that neither the debt service to income nor debt balance to total income charts for the US household sector really show either event. Although there were undeniable aspects of a speculative bubble to both the dot com and real estate bezzles, the actual long term dynamic here – the build-up of overhanging debt on the US private sector and Euroland public sector – doesn’t really look like a bubble. It looks like the cumulation of a long-term and persistent imbalance, ratcheting up the gross debt, which was sustained for longer than it could otherwise have been because of the two speculative bubbles (which inflated the value of the assets on the other side of the balance sheet), and which has now become critical as the asset side has bezzled away, making the net debt position approach the gross debt. ( Wynne Godley was writing about this trend as far back as 2000, before the dot com boom had even peaked, by the way, this point thanks to Oliver “@maxrothbarth” Rivers on twitter). And it should be clear what we’re talking about here to anyone who has paid even a bit of attention for the last twenty years; the Great Trans-pacific Imbalance. The “savings glut”, the “China effect”, what have you. Basically, the consequence of a) Chinese (also Asian, also to a limited extent other emerging markets) decision to run a large trade surplus as part of a strategy of industrialisation (or because they wanted to be sure never to end up in the position of 1998 Indonesia, or something else), combined with b) the decision on the part of Europe and the USA to accomodate this policy through substantial real appreciation of their own currencies. If you are importing capital, then the foreign sector surplus has to show up as a deficit in some other sector, mathematically. In the USA it showed up as a deficit in the personal sector, with the increase in indebtedness financing an asset price inflation. In Euroland, it showed up mainly as a big increase in government sector deficit (which in turn piled up in the peripheral European sovereigns, which also ran structural bilateral deficits with Germany), which financed ten years of the Greek policy of “low tax collection and a generous state”, although Spain also had a real estate bubble. There is a temptation to say that this, in some way, reflect power structures – that in the USA , the political importance and power of the financial sector made it highly likely that the eventual destination of the trans-Pacific capital flows would end up in an asset bubble, while the different power structures of Greece made it more likely that they would be channeled to the locally more politically powerful clients. That’s tempting, and it might even have been right. But it seems more likely to me that things just followed the path of least local resistance, and that in each country, the natural and easiest borrowing sector ended up picking up the deficit. On this analysis, Germany, Australia and Canada came out OK (so far, and Australia has actually had a big run-up in personal debt) because for one reason or another, they had a large enough surplus on their own export trade to offset the capital account imbalance. But whatever else is the case, given what happened to the balance of trade, it *couldn’t be the case that some sector of the US and European economies didn’t end up building up a large debt balance. The only way this could have happened would have been if the banking sector had taken over the reins of monetary policy, and neutralised the capital flows by lending overseas to surplus countries. Since there is no truth to the belief of “doctrine of immaculate transfer” (the belief that international capital flows can be equilibrated without price movements), this is equivalent to assuming that the banking sector would not only have been able to carry out countercyclical monetary policy by tightening its lending criteria in a boom (an act of damping feedback that is pretty steep to demand in and of itself), but also have been able to carry out a currency policy diametrically opposed to the one that the respective central banks wanted to run. I hope everyone can see why this wasn’t going to fly, and furthermore (I will try to come back to this), does this really sound like the sort of thing you want the banking sector to be doing as a matter of course? Isn’t that what central banks are for? Basically, the job of the banking sector is to intermediate. If it is intermediating a wholly unbalanced state of affairs, it is going to get wholly unbalanced itself. If the Western world is going to assume that it can consume cheap Chinese manufactured goods indefinitely (via a massive structural undervaluation of the yuan), then that is a “real bezzle”, which is going to have a counterpart financial bezzle somewhere. On this view of the world, the global “financial” crisis had a dress rehearsal in the UK housing market bubble and crash of the 1980s/90s. What we saw there was basically a dress rehearsal for the next twenty years, as the UK decided to hold an overvalued currency (as a form of anti-inflation policy), while accomodating an aggressive trading partner (Germany)’s desire to run a large bilateral trade surplus (its response to weak domestic demand). This was when Nigel Lawson’ doctrine of the “benign and self-correcting” nature of current account deficits, as long as they resulted from private sector imbalances and did not have a government sector counterpart. It didn’t work, for exactly the same reason, which is that the private sector can’t do monetary policy in a deregulated economy (in an economy with capital controls, it of course has no option). Where it went So what happened to the money then? Well, in my view it went on three very big defaults. But before I name the defaulters, let’s think about how the hell it was that this was all allowed to happen. Why weren’t people scared? Why didn’t the financial system seize up long before the bezzle got so big? Specifically, why did it go on intermediating for so long? Well, basically, it was tacitly encouraged to do so. There were three big put options. Call them the “Greenspan put” (large asset value falls will always be met by relaxation of monetary policy), the “Market Liquidity Put” (wholesale funding will always be available) and the “EMU Put” (all European sovereigns are implicitly jointly and severally guaranteed). They all three had a purpose. The Greenspan Put was meant to support the increase in gross debt of Americans, by ensuring that it would be roughly matched by an increase in the nominal (unrealised) value of asset. The market liquidity put is just an expression of the general Bagehot principle of last resort lending, but it was meant to allow the domestic banking sector to finance the increase in personal sector debt, given that personal sector deposits did not grow at the same rate. And the EMU put was needed to make EMU happen. And as the bezzle grew, the implicit liability grew and grew, and people got more and more concerned about the fact that because these things were never set out in so many words as a proper agreement, nobody had really checked that they were absolutely happy with writing an open-ended cheque. But meanwhile, the world needed to turn; the container ships from Asia kept on arriving, and consequently the bills kept piling up and the deficits needed to be intermediated. And so the financial sector leant harder and harder on the three big puts. And in my opinion it was pretty fogiveable of them to do so. The market liquidity put, most of all. It absolutely was a reasonable assumption for, say, Northern Rock to make that if they were faced with a deposit run which had little to do with the quality of their assets, but which was forced on them by the shutdown of the US market, and triggered by an irresponsible leak from the state broadcaster, that the central bank would perform its function as a central bank. It turned out to be wrong, but given that this is what central banks have been doing since time immemorial, I think it’s real hindsight to say (as the inquiry report actually did) that it was completely unreasonable to rely on it continuing into the future. The EMU put was really just as respectable, because it was heavily trailed by the political classes of all the Euro countries, and to a significant extent still is. The Greenspan put? Much less respectable. But much less important, too; intermediation didn’t really depend on it. It’s also worth pointing out that there is a huge winners’ curse here. In the USA , technical aspects of financial regulation meant that chartered banks could not make use of the market liquidity put. Which is why most US subprime lenders were nonbank specialists, who funded themselves by selling paper to the (nonbank) money market mutual funds. This is what the phrase “shadow banking” really signifies. It makes no sense to talk about the shadow banking system as if it was independent of what banks are allowed to do; the extent of the “shadow” system is defined entirely by what functions (economically) the banks have to provide, versus what they are allowed to do. And to hammer home a point, if there is a massive economy-wide imbalance that needs to be intermediated, it will be. And the question of who ends up intermediating it is decided by an auction in which the most aggressive player wins, not the most sensible. This is where the bezzle went. Assets are not guaranteed by the US government, even though people kind of thought that they would be. The financial system cannot rely on unlimited central bank support, even though it was kind of understood that they could. And the peripheral European states are not guaranteed by the system as a whole, even though for a very long time lots of people were allowed to operate on the assumption that they would be. While we thought that these things might be the case, we were all a lot richer; that’s the definition of a bezzle. What does it mean? SO … here we are. We’ve got a lot of manufactured goods hanging round the shop, which in one way or another we are not going to end up paying for – they have a counterpart in claims on our economies by Asian economies, which are denominated in currencies that are not going to be worth as much when translated back as they might previously have been. If one was feeling cute, then one might say that we are going to re-export the bezzle, but actually I don’t necessarily believe that the Asian economies involved ever made any plans based on the assumption that they were going to get paid back full real-terms value. And we’ve got a lot of fixed-nominal-terms debt claims hanging around the show, and everything feels like hell, and the main reason is that all the debt is still hanging around, but the wealth has gone, and everyone has realised that so far from being at their ideal consumption/net wealth ratio, they are miles and miles from it. (This, by the way, is my response to Brad DeLong ; we’ve had wealth-destroying events in the past, but fifteen to twenty years into the Great Trans-Pacific Imbalance, there is just s much more debt than there used to be.). The actual value of housing assets has been falling since 2006; the ability of the household sector in the USA to continue to deny this (and expand the bezzle – it’s perfectly theoretically possible for the value of housing to fall as its fictitious component continues to expand) has been gone since 2007. The Greek and peripheral European sovereigns’ ability to roll over the EMU Put has been gone for a couple of years. The demand is gone, and therefore so is an equivalent proportion of investment, and so on; when the bezzle goes, it has a multiplier on it like any other exogenous shock. All that can be done is, in the immediate term, to replace as much of the lost demand as you can with government demand (complicated, obviously, within Europe), and in the medium term to use as much inflation as the grey gnomes will let you get away with to close the gap between nominal debt and nominal income/wealth in the sensible, painless way. But what of the banks? Well, what of them? You’ll notice that they don’t have much agency in this model. That’s because I don’t think they have much agency in real life. The Enron/Worldcom/GX bubblet probably marked the chilly limit of their ability to push the credit bubble. If the banks really could systematically supply-push, then there would be a credit channel of monetary policy and some empirical confirmation of Bernanke & Blinder (1988). But there isn’t. In fact, the banks aren’t lending, not out of lack of confidence or ability to trust one another – they’re lending for the more immediate reason that there is nothing out there to lend to. Which suggests to me that a) there is no particular reason to stuff them full of liquidity in the hope that this will “get them lending again”, rather than building up risk-free profits and not doing anything with them, and b) there was not necessarily all that much point in bailing them out in the first place. The Credit Anstalt failure triggered the 1930s depression, but that was not today (“ I saw Montagu Norman in his prime / Another time, another time “). Specifically, back in the day, bank failures led to wealth shocks (and deflation led to real wealth shocks) because there was a gold standard and no deposit insurance. These days, not so much. ENVOI: Very bad things happened during the run-up to the crisis. Things were done which were dishonest; things were done which even to this day probably make it administratively more inconvenient to work out the process (although really, and this is my reply to Alex Harrowell part 1 , foreclosures are very much a second-order issue. It is terrible to be foreclosed and even more terrible to be foreclosed in a stupidly-organised process than a good one, but we are not in a depression because of foreclosures; we’re in a depression because of the massive wipeout of equity in houses of people who are still current on mortgages and always will be). Really, though, equally bad things are done every year, boom or bust. 2004 was a really great year in the financial markets, apart from for the people who were mis-sold payment protection insurance by the UK banks that year. 1996 was also a good year, unless you happened to be separated from your pension by the “income drawdown” fun and games. All through the boom years of the dot com boom, Household International engaged in absurdly aggressive marketing practices, aimed at some of the poorest people in America, with utterly usurious interest rates widely documented by the past tense community operation ACORN . All these things matter, and I’m wholly in favour of the most condign punishment of those responsible for them. Not least, getting dishonest people out of the industry frees up market share for me. But it isn’t as procyclical as you might think. All the lurid stories about sales forces on methamphetamine, forgery of documents and so on – I’m sure they happened, and it’s surely a good use of someone’s time to prosecute them. But they’re second order. They really are. At the end of the day, the economic function of the financial services industry is to reconcile the desire of savers to have instant access to their money, with the need to invest that money in projects that only pay back over time. In order to do that, you have to set a price to get people’s money into and out of their investments, and the process by which that amazingly complicated social reality is organised is 1) much more difficult an administrative task than you’d think, as evidenced by the near-total failure of all efforts to put it on a rational centrally planned basis (this, at base is why it’s so wonderfully well-paid), and 2) totally dependent on thick social institutions of trust and good faith. And because of 2), it’s a uniquely fertile environment for the kind of person who preys on thick institutions of trust and good faith. That’s the majority of the basis for regulation. But the rest of the basis for regulation – it’s to ensure that the system functions in a predictable way. The whole basis of monetary policy presumes a reasonably constant capital/assets ratio in the banking system, and a reasonably constant response of credit to money. There isn’t a separate credit channel, but the lending market is a market, and it has to be possible to make it clear at a price equal to the policy rate. If you have wild swings in capital ratios; if you have the kind of agency in the financial sector as a whole that people want to use as a rationale for blaming the financial sector as a whole for the depression, then the financial sector is making monetary policy on its own, as I said above. That doesn’t seem like a good idea to me. Higher capital ratios reduce the gearing of the system. They don’t make any difference in steady state, but they make it more difficult to expand credit during booms and they mean that capital is freed up more quickly when balance sheets shrink. There’s a tradeoff here between agility of the financial sector to finance genuine economic expansions (or indeed to intermediate policy-caused imbalances), versus the susceptibility of the system to asset bubbles, and there’s a sensible debate to be had here. But it doesn’t make sense to believe that any regulatory tweaks or changes are going to make the banking system into a new surrogate monetary authority or to delegate cyclical policy to it, let alone currency policy, or even foreign policy (since the accomodation of the trans-Pacific trade was to substantial extent a geopolitical decision), particularly if you’re going to ask them to take on this new responsibility for half the wages. Share this:
Tuesday, December 5 2017
In the aftermath of the DUP’s slick, on message conference last month, Arlene Foster’s comments on the border and customs union were – unsurprisingly – headline news. This week, after a chaotic round of statements, leaks and interviews from the Irish and British governments, the DUP and the EU, they bear reexamining. On the border, Foster rejected the idea of a hard border between the North and the Republic. She, quite rightly, identified this as a step towards economic chaos. Yet there were also no practical solutions to how the twisting, uncertain boundary between Northern Ireland and the Republic can be secured. Meanwhile the customs union was as contentious. Foster ruled out the North staying in the customs union with the assertion that the DUP ‘…will not support any arrangements that create barriers to trade between Northern Ireland and the rest of the United Kingdom or any suggestion that Northern Ireland, unlike the rest of the UK, will have to mirror European regulations’. This has been the DUP’s policy since the Referendum. However, with recent developments and talk of avoiding ‘regulatory divergence’ between the North and the Republic, it looks more than ever like one side of an equation that the party will find impossible to solve. In one sense, this is nothing new. Unionism in Northern Ireland has always been about balancing contradictory positions. However in this case, the concrete timetable imposed by the triggering of Article 50 back in March adds a different dimension. There must be a deal, before an immovable date. Any border arrangement similar to the current one – talk of a high-tech, ‘smart’ border should be discounted – replies on special status for Northern Ireland and negotiating some form of customs union access. Yet Arlene Foster’s authority to speak on the issue of the customs union is questionable. Without a sitting Assembly she can’t use her position of First Minister to justify her assertion that the North does not want to remain in the customs union. Similarly, considering Northern Ireland’s slim majority for ‘remain’ in the 2016 Referendum, there isn’t proof that the popular vote is behind her. Although even now they can’t admit it publicly, the DUP’s stance on both the border and the customs unions is as much in the hands of the government in Dublin as it is of the administration in Westminster that the Unionists prop up. Leaving aside the potential for an Irish veto of any final Brexit deal, Dublin wants the border issue tackled before talks move on to wider trade and the EU has supported this. Despite their importance to the day-to-day business at Westminster, the nature of negotiating with the EU has blunted their power. The problem for Foster and the DUP, and unionists more widely, is that they cannot sanction any form of border, however it is run, between the North and the rest of the United Kingdom. Equally, however much the DUP follow the maxim that Northern Ireland is, and always will be, part of the UK, they also know that a hard border is an act of economic suicide. Yet the EU agreeing to the North acting as a backdoor entrance to Europe is, to put it mildly, highly unlikely. To do so would undermine the single market. Equally, the Irish government has little incentive to tighten security at its own borders with the EU for Britain’s convenience. Even under WTO rules in the event of a hard Brexit, border security and check that are not compatible with a soft, porous boundary would be required. Where does this leave the Democratic Unionists? In a much tighter position than their 10 Westminster seats suggests. For all Foster’s talk of ‘making Dublin pay’ for the border and not giving in to European demands on trade, her party are in a near impossible position. Unless they can compromises of at least one of two of their red lines, the only hope for a result that doesn’t cripple the North lies, tragically, with politicians outside of the six counties. Patrick Thompson is a postgraduate student at Queen’s University, specialising in Northern Irish and Labour politics Share this:
Sunday, December 10 2017
The Twitter activity centers on an ad depicting a supporter of Republican Ed Gillespie (right), pictured here with his opponent, Lt. Gov. Ralph Northam, chasing immigrant children in a pickup truck bearing a Confederate flag. | Steve Helber/AP Photo Bots stoke racial strife in Virginia governor's race Latino Victory Fund retracted a controversial ad. But the reaction has been amplified on Twitter by automated accounts. Share on Facebook Share on Twitter Twitter bots are swarming into the Virginia governor’s race and promoting chatter about a racially charged Democratic ad days before Election Day, according to a report commissioned by allies of Democratic Lt. Gov. Ralph Northam’s campaign. The activity centers on an ad from Latino Victory Fund, depicting a child’s nightmare in which a supporter of Republican Ed Gillespie chases immigrant children in a pickup truck bearing a Confederate flag. Gillespie’s campaign reacted furiously to the ad, which barely ran on TV but got major attention online, and has made backlash to the Democratic ad a major part of its closing message. Story Continued Below That backlash erupted quickly, and Latino Victory Fund later retracted the ad. But the reaction has been amplified on Twitter by automated accounts. Out of the 15 accounts tweeting most frequently about the Latino Victory Fund ad, 13 belong to fully or partially automated bots, according to an analysis from Discourse Intelligence. (The other two accounts are Republican political operatives.) “Highly scripted, highly robotic accounts are being used to boost this message into the Twitter conversation,” said Tim Chambers, the report's author and the U.S. practice lead for digital at the Dewey Square Group. The firm was retained by the National Education Association, whose Virginia affiliate has endorsed Northam. Of the 15 accounts most frequently sending out messages about the ad from Latino Victory Fund, just two accounts belonging to GOP operatives were human, while 13 belonged to either fully or partially automated bots, according to the report from Discourse Intelligence. The National Education Association, whose Virginia affiliate backs Northam, paid for the report. Your guide to the permanent campaign — weekday mornings, in your inbox. Email Sign Up By signing up you agree to receive email newsletters or alerts from POLITICO. You can unsubscribe at any time. The 15 accounts highlighted in the report have the potential to reach 651,000 people, the report says. It notes these accounts just make up less than 1 percent of the nearly 3,000 accounts with tweets including both “Latino victory” and either “Gillespie” or “Northam.” A spokesman for Sen. Mark Warner, a Virginia Democrat who is helping lead the congressional investigation into Russian interference in the 2016 election, said the incident mirrors past bot attempts to “manipulate” social media conversations. Warner and other senators, including Republicans like South Carolina Sen. Lindsey Graham, have also warned during their investigation about attempts to interfere in future American elections as well. “What we saw during the 2016 presidential campaign was a consistent and coordinated effort by trolls and bots to ‘flood the zone’ to manipulate the conversation on social media,” Warner spokesman Kevin Hall said. “Twitter’s anonymity, reach and speed make it the perfect platform for spreading fake information and hyper partisan content.” Chambers also said more than 400 suspicious accounts have followed Northam’s campaign Twitter account in recent days, with many of them tweeting mostly in Turkish or eastern European languages. By HENRY C. JACKSON The NEA paid for the report as an in-kind donation to the Northam campaign. “NEA has followed the race very closely and has commissioned research reports on a variety of topics, including the role of social media in amplifying messages about issues in the election,” the union said. “One of those reports disclosed significant information about the use of automated bots to create an echo chamber of anti-public education and anti-social justice attacks.”
Tuesday, December 19 2017
Fancy Stats Analysis Analysis Interpretation of the news based on evidence, including data, as well as anticipating how events might unfold based on past events By relying less on their stars, the Raptors have sharpened into a dangerous contender By Josh Planos By Josh Planos December 18 at 1:16 PM Follow @jplanos Raptors guard Kyle Lowry is posting the second-highest true-shooting percentage of his career. (John E. Sokolowski/USA TODAY Sports) After a summer spent turning over a significant chunk of the roster, the Toronto Raptors have never looked better. Winners of nine of the last 10 games and 20-8 overall, no team in franchise history has played at a higher pace or scored more points per 100 possessions. Only two other teams this season, the Golden State Warriors and Houston Rockets, rank in the top 10 in offensive and defensive rating. This is, of course, by design. Shortly after the Cleveland Cavaliers unceremoniously eliminated the Raptors from the playoffs, team President Masai Ujiri made clear that his roster needed “ a culture reset .” No longer would Coach Dwane Casey be solely reliant on Kyle Lowry and DeMar DeRozan, long the bona fide all-stars of the franchise. No longer would the team play at one of the slowest paces in the league, turning games into grind-to-a-halt stalemates. Instead, the team would rev the offensive throttle, take analytically-advantageous shots in the half court and spread its length defensively along the perimeter to mitigate three-pointers. Those alterations make Toronto a contending unit against both conferences. Armed with enough firepower to trade punches with the Warriors, Rockets and Cavaliers, the Raptors match up well with all three. Toronto’s strengths fall directly in line with the deficiencies of the Rockets, Warriors and Cavaliers, too. The Rockets, Warriors and Cavaliers have noticeable struggles on the defensive end — namely, in transition, against dribble penetration and the runners that result from said action, and defending the roll man in pick-and-roll sets. Against each play type, all three rank in the bottom half of the league in points allowed per possession. Toronto ranks third, eighth and third, respectively, in points per possession on those play types. Quick-twitch ball movement has been key for the Raptors in generating points. Last year, with Toronto holding the ball for a league-leading 3.02 seconds per touch, an NBA-high 52.8 percent of Raptors baskets were unassisted. Casey’s squad has shaved more than eight percentage points off that figure and, after finishing the 2016-17 season 29th in assists per 100 possessions, Toronto now sits firmly in the top half of the league in the metric. Ball movement has simply led to better looks. The Raptors took a league-worst 15.3 percent of shots last season with a defender more than six feet away, or what NBA.com considers “wide open.” This season, that is up to 25.3 percent. Golden State, Houston and Cleveland aren’t elite in many areas, but they certainly aren’t at disallowing open looks; each allows opponents to shoot more than 23 percent of attempts with six feet or more space. As is always the case, open looks are the most efficient, sustainable shots in basketball. If Toronto’s offense can find those gleaming avenues for scoring — as it has throughout the season — then it gives the team an even better chance of scoring with or outscoring its opponent. Some of the offensive improvements are attributable to shot makeup. Attempts at the rim and beyond the three-point line, in terms of expected point value, represent some of the best looks in the modern game. Toronto is taking 6.5 more three pointers per 100 possessions than it did last season, jumping from 20th to seventh in the league rankings. When it comes to shots from less than five feet, Casey’s team has jumped from 22nd in attempts to fifth. Fueled by a seemingly tireless motor this season, the Raptors rank third in transition points per possession (1.19) and have scored the sixth-most points of any team on the break. Lowry and DeRozan finally have help, too. It’s been five years since Lowry averaged this few minutes, shot attempts, points and usage, yet he’s posting the second-highest true-shooting percentage of his career. DeRozan is averaging the second-fewest minutes of his career and his shot attempts are down, yet he’s posting a career-high true-shooting percentage (57) and assist rate (23.9 percent) and is within sniffing distance of a career-high player efficiency rating. The bench has also picked up the slack: Toronto’s second unit is scoring 38.3 points per contest (12th most); last season it scored just 31.8 (fifth fewest). Houston, Golden State and Cleveland are deft at pouncing on second-units, waiting for opponents to substitute in bench players only to pick them apart with ease. Having a bench unit capable of treading water is critical in these elite-level matchups. If the season ended Monday, this would be Toronto’s best second unit in franchise history, as defined by net rating. The Raptors don’t need to worry about watching the scoreboard implode when DeRozan and Lowry are substituted out, because there are capable replacements ready for action. Defensively, the Raptors, brimming with length on the wings, have moved up the league rankings in deflections (15.6 per game, second most), loose balls recovered (7.1 per game, eighth) and contested shots (61.6 per game, 11th). Casey’s defensive acumen is taking hold along the perimeter; only three teams allow fewer three-pointers per 100 possessions than Toronto (25.9). Last season, the Raptors ceded the 10th-most. It’s no secret that Houston, Golden State and Cleveland represent three of the top three-point shooting teams of all time. Indeed, the three lead the entire league in three-pointers made per contest. Only eight teams more efficiently defend the three-point line, according to data provided by Synergy Sports. Diluting the effectiveness of the most potent aspect of an opponent’s offense is paramount in these matchups. And Toronto — finally — evokes fear along the perimeter. In terms of net rating, or the difference in points scored and points allowed per 100 possessions, Toronto is the third-best team in the NBA this year, making the Raptors are the least-discussed contending team in the league. In some respects, this is for good reason; Toronto has never reached the Finals before. But this season, armed with a progressive, near-inverted offensive methodology and a sturdy, hyperactive defense, the Raptors are racking up wins in new ways. The rest of the league would do well to take note. Read more on the NBA:
Tuesday, December 26 2017
President Trump signs a tax overhaul bill into law in the Oval Office of the White House in Washington on Dec. 22. (Mike Theiler/Pool/Bloomberg News) There’s been a lot of speculating as to whether President Trump’s tax plan will help or hurt his party next year. We’ll know soon enough, so no point in leaning too far into this question, but here are things to watch for. On balance, I think they tilt against the plan’s reception. To be clear, the pluses and minuses I raise below are the sorts of things I think people will notice, care about and link to the tax plan. While wonks such as me will object, for example, to the higher 2018 budget deficit (CBO expects the tax cut to add almost $140 billion to next year’s deficit), most people don’t notice that sort of thing. Here’s what I think might quickly get noticed. Negatives: Higher health insurance premiums: When these go up next year — as they do every year — the Republicans will, by dint of repealing the individual mandate, probably be blamed. They will try to argue that premiums were going up anyway, but they’ll lose that argument. Higher corporate profits and stock market prices: The sharp corporate tax cut takes effect in 2018, and it will continue to juice realized and expected after-tax profits, as well as corporate share prices. So why is this a negative? Given their healthy skepticism re trickle-down effects, many in the public view this as one of the plan’s least desirable outcomes. New York Times columnist Bret Stephens argued that regular folks will be happy to see higher stock prices reflected in their retirement accounts, but that’s because he’s conflated shareholdings with share values (it’s the latter that matter most). According to recent data from NYU professor Edward Wolff, the richest 10 percent hold 84 percent of the value of the stock market; the richest 1 percent control 40 percent. I strongly doubt anyone’s going to give the tax cuts credit based on any movements in their IRA or 401(k) accounts, and given the negative background noise about rising corporate profitability, these dynamics may well generate more near-term resentment re the tax plan than appreciation. Implementation: Any tax change of this magnitude is a complicated bit of work, requiring the tax authorities at the underfunded IRS to quickly implement new systems and provide new oversight. To his credit, at least one Republican on the House tax-writing committee recognizes the need for more IRS funding, but I’d be surprised if it materializes. Employers and the companies that administer their payrolls must, pending guidance from the IRS, quickly adjust their employees’ W-4 forms to ensure that the correct amount is withheld. Eventually, by February at the soonest, that should lead to slightly higher paychecks for most workers, but any hiccups in the process will be amplified by the political scrutiny of the moment. Some key economic indicators: People notice higher interest rates on home, car and student loans, and rates are surely going up next year. Part of that is the Federal Reserve’s “normalization” campaign as they raise rates back to more normal, higher levels, but the anticipation of faster growth next year, juiced in part by the tax cut (the higher deficit spending noted above), is also nudging at least short-term rates up a bit . Bad first impression and few trust Trump: You only get one chance to make a first impression, and this plan made a bad one out of the gate. It’s hard to turn that around, especially with a widely mistrusted president who constantly lies about everything. If Trump had a sliver more credibility, his approval rating would be a lot higher, just based on the pre-tax-cut economy. That’s not going to change anytime soon, so he and his party will get less credit for the tax plan than would otherwise be the case. Positives: Impact of strong economy and falling unemployment on paychecks: In case you’re wondering what I’m up to next year, it will be arguing with Republican politicians and their surrogates about how every good data point is not a function of the tax cut. But we’re talking perception here, not reality, and the Republicans’ best hope is that they can tie the tax cut to positive economic trends that are already ongoing. Thus far, wage growth hasn’t been goosed as much as I’ve expected given the low unemployment rate, but wage growth across the board could accelerate next year. Profit-sharing and other public-relations efforts: A few big companies have been giving their workers bonuses, allegedly because of the tax cuts. That might help improve its impression, but it’s widely understood that companies such as AT&T and Comcast are getting big, permanent cuts while bonuses are a one-time thing. By the way, an interesting wrinkle here is that firms will deduct the bonuses at the current higher rate of 35 percent, a much better deal for them than next year’s bonus, which can only be deducted at 21 percent. Congress did something!: It’s possible people will give the president and Congress points for legislating something, although the accurate perception that the one thing they got it together for was largely a big goody bag for their donors will offset some credit. There’s one wild card for your watch list. I see no reason to think there’s a recession on the horizon. Outside bitcoin, which isn’t systemically connected, I don’t see speculative bubbles, and while growth has maybe accelerated a bit and unemployment is very likely to fall below 4 percent next year, inflationary pressures are still nowhere to be seen. But no one knows when the next downturn will hit, and we — meaning the federal and state governments, along with the Fed — are seriously underprepared for it. By wastefully raising the deficit, the tax cut has reduced the fiscal space the federal government has to fight back against the next downturn, and depending on when it hits, the Fed might not have much monetary space — room to lower interest rates — either. At any rate, a downturn will make the tax cut that was supposedly going to generate massive, new growth look like a really bad idea. End of the day, I think the negatives probably outweigh the positives, but we’ll see.
Saturday, December 30 2017
Home > Explainers > Aviation and the European Common Aviation Area (ECAA) Aviation and the European Common Aviation Area (ECAA) The aviation sector is a vital part of the UK economy, contributing £52bn to UK GDP in 2016 and supporting close to a million jobs . Flights to or from Europe accounted for 63% of all passengers who passed through UK airports in 2016 . What is the European Common Aviation Area (ECAA)? UK airlines currently have access to the world’s most liberalised aviation market - The European Common Aviation Area (ECAA) - through its membership of the EU. The ECAA was created in 2006 as an extension of the Single Aviation Market and is overseen by the European Aviation Safety Agency (EASA), with its legislation enforced by the European Court of Justice (ECJ). The EU has also negotiated horizontal agreements with 17 other non-ECAA countries. Through these and the ECAA, the EU governs the UK’s flight access to 44 countries, accounting for about 85% of all of Britain’s international air traffic. What do EU aviation agreements achieve in practice? UK airlines operate within the ECAA under all nine freedoms of the air : Freedoms of the air Flying over a foreign country without landing Second freedom Refuel or carry out maintenance in a foreign country without embarking or disembarking passengers or cargo Third freedom Fly from the home country and land in a foreign country Fourth freedom Fly from a foreign country and land in the home country Fifth freedom Fly from the home country to a foreign country, stopping in another foreign country on the way. Sixth freedom Fly from a foreign country to another foreign country, stopping in the home country on the way. Seventh freedom Fly from a foreign country to another foreign country, without stopping in the home country. Eighth freedom Fly from the home country to a foreign country, then on to another destination within the same foreign country. Ninth freedom Fly internally within a foreign country. The success of the ECAA is shown in the number of intra-EU routes available to consumers , which increased by 303% from 1992-2015. The liberal nature of the market has also encouraged the growth of low cost carriers (LCCs), such as easyJet and Ryanair. The increase in competition led to lower prices for consumers: average leisure fares from the UK to Europe have fallen by a third since 1993 . Outside of the ECAA, horizontal agreements (including the EU-USA Open Skies Agreement and the EU-Canada Air Transport Agreement ) cover areas such as access rights for airlines, passenger rights and investment. As a result of the ECAA and the horizontal agreements, EU airlines can fly from the UK to 17 other non-ECAA countries like the USA, Australia and New Zealand with reduced restrictions and this has greatly increased the number of routes and carriers available to consumers. However, the horizontal agreements do not provide same the level of freedom as within the ECAA. For example, the USA-EU open skies agreement omits the eighth and ninth freedoms for EU airlines. What happens to the existing aviation agreements after Brexit? Britain will automatically leave the ECAA, along with all EU-negotiated horizontal agreements, as a result of Brexit. This was confirmed by David Davis in a select committee hearing . Additionally, British airlines will no longer be under the jurisdiction of the ECJ or EASA. Michael O’Leary, the CEO of Ryanair, has been vocal in highlighting the potential impacts of this . He claims that, as airlines submit their flight plans six months in advance, flights in the period immediately after Brexit between the UK and the 44 countries to which the EU controls British access could be cancelled if no deal is reached by September 2018. Other bilateral agreements the UK has with third countries may need renegotiation as many refer to EU law and institutions. What are the five options for an aviation deal with the EU? There are several potential options for the UK in pursuing a future relationship with the EU on aviation: 1. Gain access to the market as a new member of the ECAA Britain could negotiate a similar agreement to Bosnia and Hercegovina to re-join the ECAA as a non-EU member. All nine freedoms would continue to be enjoyed by UK airlines. However, this would require unanimous support from each member state. This is highly unlikely as the Spanish have indicated that they will veto any deal that includes Gibraltar’s international airport . Membership of the ECAA is subject to ECJ and EASA jurisdiction, which conflicts with one of Theresa May’s Brexit negotiation ‘red lines’ . 2. Strike a Switzerland-style bilateral deal Switzerland has almost full access to the ECAA through a bilateral agreement . This has the advantage of being a ‘ready-made’ deal saving the UK valuable time and resources. However, this option has the same issues as membership of the ECAA: the continuing influence of the ECJ and the conflict over Gibraltar. 3. Negotiate a new ‘open skies’ bilateral deal with the EU A new agreement between the UK and the EU that is similar to existing open skies agreements is another possibility. However, this would likely be a long and difficult negotiation. Senior EU politicians such as Michel Barnier have stated that the UK cannot simply cherry pick the parts of the EU it likes. This means reaching an agreement over the role of the ECJ and EASA will be troublesome. It is likely that some of the nine freedoms currently enjoyed by the UK would have to be sacrificed to reach an agreement. Most likely these will be the seventh and ninth freedoms: the right to fly within a foreign country, and the right to fly from one foreign country to another, without stopping in the home country respectively. To make matters even more complex, EU airlines are lobbying against a deal in an attempt to reduce competition. 4. Negotiate bilateral agreements with individual member states Andrew Haines, chief executive of the Civil Aviation Authority (CAA) the UK’s aviation regulator, has suggested that the UK may be able to negotiate individually with ECAA member states if a deal with the EU as a whole cannot be reached. This may allow Britain to avoid some EU regulation and even the jurisdiction of the ECJ. The Gibraltar issue could also be bypassed if no agreement was made with Spain. However, it is unclear whether this is consistent with EU law. Also, it would be an immensely complex and time consuming exercise to reach agreements that provide all nine freedoms. 5. Fall back on old aviation agreements If the UK fails to reach a deal with the EU, it will be forced to fall back to broadly outdated agreements that were initially set out in the 1944 Convention on International Civil Aviation , otherwise known as the Chicago Convention. Under these rules, UK airlines would only enjoy the first five freedoms at most. What would happen to aviation regulation in the UK after Brexit? If the UK leaves the ECAA, British airlines will no longer be regulated by the EASA and inst
Friday, December 29 2017
Raluca Besliu 19 August 2015 Since the fall of communism, Romania's ancestral, cultural link to its forests is being undermined by corrupt political and economic interests. Turda nature reserve in Western Romania. Wikipedia/Cristian Bortes. Public domain. According to an old Romanian aphorism, 'the forest is the Romanian’s brother.' This familial bond to the forest can partly be explained as stemming from the fact that the Romanian people often sought refuge in the woods during the numerous battles that took place throughout the country’s tumultuous history. The forest became a symbol of protection and life, helping perpetuate their nation. The woods served their shielding role not only in ancient and medieval times, but also during Romania’s most recent history, ensuring a safe haven for anti-communist fighters, who resisted and opposed the communist regime from the late 1940s to the mid-1950s. Since the fall of communism, the ancient bond has been tampered with by political and economic interests, as approximately 200,000 hectares of forest have been sold by the Romanian government during the past few years. According to an audit report created by the Romanian Court of Auditors, between 1990 and 2011, over 80 million cubic meters of forests were illegally cut and sold, producing damages of over five billion dollars for the Romanian state. In 2014 alone, the National Forest Inventory indicated that around 9 million cubic meters of forest were illegally exploited. After decades of silence, on May 9 and 16 as well as June 5 and 7, hundreds of thousands of Romanians reaffirmed their ancestral connection with the forest, by taking to the streets of cities across Romania to protest against the country’s astonishing illegal logging and demand the adoption of better legislation than the proposed new Romanian Forestry Code. Despite the protests, the suggested law was adopted without changes on May 21, 2015. In Romania, the cost of forests is ten times cheaper than in other European states. If in Austria, a hectare of forest is sold for 10,000 euros, in Romania the same surface costs between 1,000 and 3,000 euros. This attracts investors from many foreign countries, including Germany, Austria, and the United States. According to Romanian law, foreign investors cannot purchase fields or forests directly, but through Romanian firms. The most telling example would be Harvard University, which owned 35,000 hectares of forest in Romania, making it the second largest owner of forests in Romania after the Romanian government. However, Harvard decided to sell its forests in Romania, after the representative of Scolopax, the Romanian firm through which it made its purchases, was accused of taking more than $1 million in bribes to induce the university to buy them at an inflated price. Many of the foreigner investors are only interested in exploiting the forests and exporting the wood and obtaining profit. One of the key companies that the protesters have been demonstrating against is Austria’s Holzindustrie Schweighofer, the biggest wood processing company in Romania. In April 2015, the company became involved in a media scandal after the Environmental Investigation Agency (EIA) released a video of one of leaders of the company willingly and knowingly accepting illegally exploited timber and encouraged additional illegal cutting through a reward system. The company denied the allegations. In turn, in July 2015, the company sued a nonprofit, Neur Weg Association, one of the most active NGOs monitoring the Schweighofer’s activities, for publishing defamatory articles on its blog and sending emails with untruthful information to journalists in Austria and Germany. Neur Weg has denied these allegations, by emphasizing that the statements contained on the blog are true and based on documentary evidence as well as discussions with credible witnesses, the veracity of which can be easily proven in court. These incidents come after, in 2014, one of the Austrian company’s suppliers, Susai Servcom, received a fine from the Forestry Inspectorate for cutting unmarked trees in Romania’s Retezat National Park and for inconsistent transportation notices. In response, the Schweighofer, responsible for the wood processing, promised to improve its system seeking to attest the wood’s provenance and refuse trees from national parks. Protesters had other reasons to be revolted by Schweighofer. In the autumn of 2014, the company sent an open letter to Prime Minister Victor Ponta threatening to conduct mass firings among its over 2,500 employees, if the new Forestry Law was to include a clause that companies could only process 30 percent of a type of wood. The company currently processes 27 percent, but intends to open a new production center. In May 2015, the company threatened to withdraw from Romania if the new law was to be adopted. According to Romania Curata, that threat was sheer artifice, since Romania is losing around 100,000 jobs, given that Schweighofer is exporting semi-manufactured products, while also externalizing most of the profit, since it is a foreign company. Apart from voicing their disapproval of abuses and questionable activities of wood processing companies such as Schweighofer, the protesters also opposed the draft legislation of the new Forest Law. While acknowledging that it brings some improvements over the previous one, mainly because of the aforementioned 30 percent limit for the maximum quantity of lumber that a company can exploit, its opponents are overall displeased with its content. One of their key problems with the new Forestry Law is that it is no longer necessary to prepare forest management plans or studies for pieces of forest smaller than 10 hectares, which means losing control over cuttings occurring on such surfaces. Another problematic modification to the Code is that Romania has decreased its reforestation commitments from two million hectares to one million by 2030. The protesters also demand that the new Forestry Code punish illegal logging more stringently , delineate the implementation of sanctions and demand the circulation of the investigation files from the Anti-Corruption Agency. Ultimately, the protesters want to ensure that Romania’s forest wealth is safeguarded and used responsibly, keeping the interest of future generations in mind as well. There is a European dimension to the matter at hand. The EU Timber Law prohibits trading on the EU market of illegally harvested timber, regardless of its origin. However, the situation in Romania suggests that the application of the legislation remains a problem that the European Union should be more amply involved in tackling. The Romanian protesters seem resolute in their fight to demonstrate their ancestral bond to forests and continue challenging the content of the Forestry Law. Their movement has just begun. This will be the third time in three years that Romanians initiate a substantial long-term non-violent protest against one of their government’s policies or initiatives. The first two were a protest movement against a Canadian-led cyanide-based gold mining project and fracking. Therefore, all were environmental initiatives intended to prevent or end a practice seen as harmful, indic
Friday, December 29 2017
Time is running out and we still need to raise about $100,000 to reach our December goal. Help us get there with a tax-deductible donation today or read why these next few days feel so critical. Social Security Will Be Solvent for the Rest of the Century Kevin Drum Dec. 12, 2017 10:30 PM Looking for news you can trust?Subscribe to our free newsletters. While we wait for results from Alabama, I have some good news to share. I was browsing through the 2017 Social Security Trustees report, and it turns out that Social Security will be solvent through the rest of the century. Here’s their chart of how things look based on different estimates of economic growth: As we all know, the official OMB/Treasury estimate of future economic growth is 2.9 percent, which means the trust fund will be flush with cash far into the future. This means everyone can stand down and leave Social Security alone. In fact, it’s doing so well that Congress might want to think about raising benefits. Hooray! Journalism That Challenges Conventional Wisdom It's what you expect from MoJo , and this past year has made clear that the dangers for independent, critical reporting are at a record level because of a perfect storm of economic and political assaults. That's why we set a stretch goal of raising $350,000 by December 31—and with just 3 days left, we still have $100,000 left to get there. Please join us with a tax-deductible donation to help fund the hard-hitting journalism that 2018 demands—or read why this moment feels so critical .