Did you think I was being a tad hyperbolic (just to throw another mathematical concept at you) when I cited Bistromathics in explaining my confusion over the nation’s economic problems?
Well, I had to laugh just now reading tomorrow’s op-ed page, which contains this Paul Krugman column.
Paul Krugman is, according to his billing, an actual economist. Most of his columns might read as though they were written by a summer intern at the National Democratic Party — he is my nominee for Most Partisan Writer Currently Published in Major Newspapers. In fact, I had to double-check to make sure this column was actually written by Paul Krugman, since it did not blame anything whatsoever on George W. Bush. But it actually is a Krugman column. And he actually is an economist.
Anyway, the part of his column that grabbed me was this part:
The most important of these privileges is implicit: it’s the belief
of investors that if Fannie and Freddie are threatened with failure,
the federal government will come to their rescue.This implicit
guarantee means that profits are privatized but losses are socialized.
If Fannie and Freddie do well, their stockholders reap the benefits,
but if things go badly, Washington picks up the tab. Heads they win,
tails we lose.Such one-way bets can encourage the taking of bad
risks, because the downside is someone else’s problem. The classic
example of how this can happen is the savings-and-loan crisis of the
1980s: S.& L. owners offered high interest rates to attract lots of
federally insured deposits, then essentially gambled with the money.
When many of their bets went bad, the feds ended up holding the bag.
The eventual cleanup cost taxpayers more than $100 billion.
Did you get that? "Someone else’s problem…" As you and I and Zaphod and Ford all know, there is a concept involved in the understanding of Bistromathics called "recipriversexclusons," and recipriversexclusons are essential in the generation of an SEP field, or "Somebody Else’s Problem" field. What’s that? Must I explain everything? Oh, all right:
"An SEP is something we can’t see, or don’t see, or our brain doesn’t
let us see, because we think that it’s somebody else’s problem…. The
brain just edits it out, it’s like a blind spot. If you look at it
directly you won’t see it unless you know precisely what it is. Your
only hope is to catch it by surprise out of the corner of your eye."
So there you have it. And if you can’t see what I’m saying, just blame it on the recipriversexclusons.
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“An SEP is something we can’t see, or don’t see, or our brain doesn’t let us see, because we think that it’s somebody else’s problem…. The brain just edits it out, it’s like a blind spot. If you look at it directly you won’t see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye. This is from your blog.
Somebody’s else problem is a concept that could fly by the seat of it’s pants to many that do not get to the core of the problem.
Paul Krugman is the top Bush hater that writes columns. Everything is Bush fault according to Krugman. I do not even read his columns because it will cause a stomach upset that cannot be cured with over-the-counter drugs.
I certainly expect Bud and his elk to stomp down on me but they are directing their anger in the wrong direction. Look in the mirror.
I didn’t even know bud HAD an elk. Myself, I merely keep a dog…
Making sense of “moral hazard”, which is what Krugman is referring rather than framing it as he does in emotionally charged terms of “private gains, socialized losses” only requires a simple analogy of risk taking behavior of a person who has insurance as opposed to one who does not. A person with insurance will engage in riskier behavior and is more aware of the actual risks she faces than the insurer.
In the case of the GSE’s their managers have been well aware of potential risks of their gurrantor role but they have expanded their mandate by holding their own paper further compounding the risk they face. They take on these risks because of implicit government guarantees. The returns from this paper are far higher than the fees earned by their primary role as a guarrantor.
The “SEP” can be neatly framed with a variety of economic terms like “moral hazard” or externality. These concepts are firmly rooted in our (English) laws and have been for almost 400 years. There is no need to dig into popular culture for some trite analogy to appear clever. Economics has the words and the concepts you seek.
Elsewhere in his column the inaptly named Krugman goes on to declare Freddie’s and Fannie’s innocence in the subprime game. But he got caught and properly chastised:
The notion that Freddie and Fannie are not real companies with a fiduciary responsibility to their shareholders really caught on during the 1990s with the result that loyal political appointees could look forward to cushy jobs with excellent pay after they finished their public-service stint.
Jamie Gorelick, who as Deputy Attorney General in the mid 1990s set up the “wall” between the criminal and intelligence functions of law enforcement, “Chairman of Fannie Mae from 1997 to 2003 (Fannie’s fraudulent accounting scheme was made public in 2004).” Clinton’s Budget Director Franklin Raines succeed Obama’s ex-VP-searcher James Johnson as Fannie’s CEO. This troika engaged in Enron-style accounting to fluff up their nest eggs.
Too bad wise man Paul doesn’t find this interesting. It must be someone else’s problem.
Mike, I’m not sure what you’re talking about. Krugman clearly acknowledged there was scandalous behavior by Fannie and Freddie. He’s not denying any of that. Really people do you actually read what was written? The problem with this financial crisis, as with others, is that in order to prevent the economy from slipping deeper into recession we have to swallow hard and bail out those who were largely responsible. And besides, the lack of responsible regulations to prevent the housing bubble were largely the result of GOP shysters like Phil Gramm who believes the economic slow down is nothing but a ‘mental recession’. Let’s just do what we have to do and move on. Otherwise we’ll be facing much more serious problems in a few years. And hasn’t the Bush adminstration created enough problems for the Obama administration to correct already?
Paul Krugman is, according to his billing, an actual economist. Most of his columns might read as though they were written by a summer intern at the National Democratic Party — he is my nominee for Most Partisan Writer Currently Published in Major Newspapers.
-Brad
That comment is just plain disgusting. You should be ashamed of yourself for that cheap shot. Paul Krugman is an credentialed economist and a brilliant one at that. He’s written many columns critical of Democrats.
As for slamming the Bush administration, you’ve done that plenty and for good reason. The Bush administration has been a disaster for our economy. This morning the DOW opened at just over 11,000, about where it was when Bush was sworn it. Job growth over the last 7-1/2 years has been worse than at any time since Herbert Hoover. Gasoline and milk prices shatter records daily. Wage growth is stagnant. Americans are saving less than at any time in history. The manufacturing sector is in shambles. The deficit has gone from $200 billion surplus to a $500 billion deficit and that doesn’t include all the money spent in Iraq and Afghanistan.
If honest, thoughtful criticism comes across as partisan to you then you are by definition a partisan yourself. Because that’s what partisans do. They attack anything thoughtful from a different persuasion as partisan. And don’t even suggest you are an independent. Your complete inability to even suggest the selection of Phil Gramm to head up the McCain economic team is anything but partisan politics at it’s very worst suggests that you are incapable of understanding the truth. Simply put, McCain is a fraud. His selection of Phil Gramm makes that crystal clear.
Seems to me that the fellow who insists upon using correct terminology from economics is the one trying to appear clever. I use popular culture because it is my own shabby idiom. It’s what I think of when I ponder these matters.
And bud, how’s your elk?
Seriously, bud, I’m a professional (“a professional WHAT,” says Cameron). Mr. Krugman stands out for the extent to which he goes out of his way to find a partisan point to emphasize. This column truly stands out because he did not do so. Sort of like a Friedman column (or a Mark Sanford speech) that fails to tell us the world is flat. Or a Dowd column that is not snarky. Or a Kristof column that doesn’t seemed designed to make us feel terribly guilty about suffering people whom we’ve been ignoring as though they were shielded by an SEP field. Or a Krauthammer column that doesn’t make him seem aptly named (“Hammer”). What marks Mr. Krugman is the particular bitterness of his partisanship. It’s HIS idiom. And it’s the key to his popularity among those who like him. They share his bitterness.
More on Phil Gramm. He was up to his neck in the Enron Scandal. Here’s the link and excerpts from a 2001 article in the Public Citizen website:
http://www.citizen.org/cmep/energy_enviro_nuclear/electricity/Enron/articles.cfm?ID=7104
In December 2000, Phil Gramm helped muscle a bill through Congress without a committee hearing that deregulated energy commodity trading. This act allowed Enron to operate an unregulated power auction — EnronOnline — that quickly gained control over a significant share of California’s electricity and natural gas market.
Phil Gramm’s legislation was in conflict with the explicit recommendations of the President’s Working Group on Financial Markets, which is composed of representatives from the Department of Treasury, the Board of Governors of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Working group expressly recommended against deregulating energy commodity trading because the traders would be in strong positions to manipulate prices and supply.
From June 2000 through December 2000 — prior to the bill’s passage — California experienced significant price spikes but only one Stage 3 emergency (requiring “rolling blackouts”). After passage of Gramm’s energy commodity deregulation bill in December 2000, Stage 3 emergencies increased from one to 38 until federal regulators helped end the crisis by imposing price controls in June 2001. Phil Gramm’s legislation, for which Enron was the primary lobbyist, allowed Enron’s unregulated energy trading subsidiary to manipulate supply in such a way as to threaten millions of California households and businesses with power outages for the sole purpose of increasing the company’s profits.
Mr. Krugman stands out for the extent to which he goes out of his way to find a partisan point to emphasize. This column truly stands out because he did not do so.
-Brad
That’s absolute, complete and utter nonsense. Krugman’s articles are thoughtful and completely non-partisan. He was a very strident critic of many Clinton policies. Go back and read his writings in their entirety. It’s true that Krugman has been a very strong critic of the Bush Administration, but he’s done so on the basis of facts, not partisanship. The facts are damning enough, he doesn’t need to stress any particular partisan point. You’re just plain wrong on this one Brad.
Brad, You say “Seems to me that the fellow who insists upon using correct terminology from economics is the one trying to appear clever. I use popular culture because it is my own shabby idiom. It’s what I think of when I ponder these matters.”
Ok, let’s leave it at that, Brad 1 Steve 1. I know that an editorial must entertain and inform perhaps I just don’t care for your “idiom.”
OT for this post:
I have found some errors in reasoning regarding energy in these pages. Like not recognizing the importance of the “Jevons Paradox” when discussing the unintended consequences of conservation.
You also have pounded the table about SUVs. You favor some kind of user tax and you deamonize their owners. I know you like being provocative but these recommendations and characterizations are unhelpful. There are only about 35 million SUVs on the road out of a combined fleet of over 240 million vehicles. But your recommendations are already moot. The market has already severely taxed existing SUVs to the tune of about 50%. Many consumers with auto loans for SUVs find that they have a vehicle worth a fraction of what they owe. If that is not a tax I don’t know what is.
Ok, Let me pose a couple of questions: “If you impose a national 55mph speed limit to save 4% of our current gasoline use how might the “Jevons Paradox” be used to analyze first short term effects and then long term effects on quantity of energy demanded?” A bonus question: “Does conservation increase wealth?” I know you can write a clever column in the popular idiom to entertain and inform us.
The Jevons Paradox doesn’t apply to the oil issue. (At least not in the long run). Why? Because the world’s oil production is peaking and hence it is a geological impossibility to use more of it. Hence if automobiles become 10% more efficient (55 limit or something else) that won’t result in an increase in oil consumption because of cost reductions. Since we will have less to use on a per capita basis for the forseeable future we will be forced to use less. One way to do that is to drive the same amount in a more efficient vehicle. Or we can drive fewer miles in the same vehicle. Or, some combination of the 2. Either way we will have less and less oil to use regardless of any increased efficiency.
Hey, you know what I’m doing in that new blog picture? I’m trying to catch sight of something protected by an SEP field while simultaneously thinking, “What the hell is a Jevons paradox?”
Yes, the market is chasing SUVs out the door, but pardon me for wanting the doorknob to hit them in the butt on the way out. The ownership of an SUV by anyone who does not need to traverse the Kalahari in his daily commute is and always has been grotesquely antisocial, a pointless gesture of support to petrodictators and their terrorist clients that is simply indefensible. I guess I want to say, as folks finally make the rational decision not to buy them, “And don’t think about doing it again if gas prices drop!”
I’m so conscious that most of the things we can do to boost independence — drill in the ANWR, increase speed limits, invest in solar and wind, is such a partial, inadequate solution that it prejudices me toward overkill: Drive up gas prices AND tax SUVs AND quit widening roads AND build mass transit, knowing that we’ll never do them all, so maybe it’s good to overshoot a few objectives, when possible.
Oh, and I looked up Jevons Paradox and it supports my position: Build a more efficient car, and you drive down per-vehicle demand, which lowers prices, which… But not if increase gas taxes, and refuse to widen roads to accommodate all those cars. Jevons Paradox is an argument against relying on any one dynamic, such as conservation. It’s a selling point for my “shoot it, stab it, strangle it, chop it up, drive extra nails in its coffin and then jump up and down on its grave” approach to unhelpful energy habits.
And yes, I’m being a bit facetious. I just think we need to stop doing all the stupid things we do, and start doing all the smart ones we can think of. Then, MAYBE we’ll get somewhere.
bud –
Mickey Kaus and others are on the Krugman trail vis-à-vis Fannie and Fred; here’s some and here’s a link to a deeper analysis with recommendations. As Mickey points out, Krugman wrote that “Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago,” but that assertion is not factual.
That link has the following follow-up:
It would be helpful to turn this into a non-partisan debate, but Fannie and Freddie are in the business of privatizing profits and socializing losses as Krugman himself states. Some folks figured that out early on and used the board and executive appointments as a reward. I’m sure Republicans did that too, although I haven’t looked for any examples.
BTW, nice try using Gramm as a distraction, but keep in mind that Krugman was a paid Enron advisor; in his defense, he did criticize the company after he left that gig.
That first link is broke. Here’s the fix.
Mike, I don’t see Fannie/Freddie as a partisan issue. It’s becoming clear that these giants are in deep trouble and if they fail the entire housing market is likely to collapse althogether and perhaps totally wreck the entire economy. I remember when Chrysler failed back in the mid 70s (I think) and the government bailed them out I was appalled. That was unnecessary.
This is different. It’s sort of like the decision a ship’s captain makes regarding flooding of the boiler room in order to save the ship. He may have to sacrifice the lives of 10 men to save 1,000. Here we have to sacrifice a bit of our free-market soul in order to save the economy. It’s not pretty but in this case it’s necessary.
As for Phil Gramm, I can’t think of any other decision by a presidential candidate that is more abhorent to me in the last 20 years than McCain’s selection of this neo-con brute to head up his economic team. He represents all the failures of the borrow and spend GOP strategy over the last 28 years that essentially steals from the working and middle classes and gives to the very wealthy. His brand of economic policy has led us to the point where a CEO can head up a company that goes bankrupt while still earning millions of dollars. That’s not the free-market but rather a form of socialism that favors a tiny handful of extremely wealthy individuals. The fact that McCain will distance himself from the most egregious comments from Gramm yet retain his services shows just how far to the neo-con right McCain has gone. All hard-working Americans should reject McCain simply because of his decision to hire Gramm; it’s a deal breaker for me.
Brad you say, Yes, the market is chasing SUVs out the door, but pardon me for wanting the doorknob to hit them in the butt on the way out. The ownership of an SUV by anyone who does not need to traverse the Kalahari in his daily commute is and always has been grotesquely antisocial, a pointless gesture of support to petrodictators and their terrorist clients that is simply indefensible. I guess I want to say, as folks finally make the rational decision not to buy them, “And don’t think about doing it again if gas prices drop!”
I’m so conscious that most of the things we can do to boost independence — drill in the ANWR, increase speed limits, invest in solar and wind, is such a partial, inadequate solution that it prejudices me toward overkill: Drive up gas prices AND tax SUVs AND quit widening roads AND build mass transit, knowing that we’ll never do them all, so maybe it’s good to overshoot a few objectives, when possible.
Oh, and I looked up Jevons Paradox and it supports my position: Build a more efficient car, and you drive down per-vehicle demand, which lowers prices, which… But not if increase gas taxes, and refuse to widen roads to accommodate all those cars. Jevons Paradox is an argument against relying on any one dynamic, such as conservation. It’s a selling point for my “shoot it, stab it, strangle it, chop it up, drive extra nails in its coffin and then jump up and down on its grave” approach to unhelpful energy habits.
Bud,
We have about 16 trillion barrels of oil equivalent (BOE) of hydrocarbon resources in the world and any number of them is convertible to liquid fuels. We might be running out of cheap oil but we’re not running out of oil or substitutes for oil.
We’re at 80%+ water cut in our lower 48 fields and they are still producing the Saudi’s are at about 20% water cut. Original Oil in Place is about two thirds of what has been produced. Technology has been increasing reserves for decades, producing more of the OOIP. We’ve got a long way to go.
Have you followed Craig Ventner’s (human genome project) work on booting up new life forms (bacteria) to produce hydrocarbons? The oil companies are interested. Also, take a look at Kurzweil’s forecasts for rapid technological change; competitive solar in five years.
Steven, no I’m not familiar with the Ventner or Kurzweil work. Most of what I know about the energy situation comes from the oildrum.com. They present a wide variety of perspectives, some of which suggest we have ample supplies of oil for 50+ years. Generally though the oildrum discusses the various issues and solutions concerning peak oil. Indeed there are many solutions but the concensus now suggests that drilling more, even at a greatly accelerated pace (if that is even possible) is not going to help much, if any. Simply put, we must come up with solutions that don’t involve gasoline/diesel ICE.