Government and the public good

Economists are trained to have a technocratic perspective: to think about how the world would work if we were running it in the public interest. As we gain experience, many of us are disappointed to learn that government and public interest are only loosely connected, and that the instruments of government policy — anti-trust, financial regulation, monetary policy — are crude ones. Did the Microsoft anti-trust case make things better for consumers? Will Dodd-Frank make the world safer? We’ve learned to be modest about what we can do — and, as Churchill might have said, we have a lot to be modest about.

That’s the reasonable version, but in the hands of an expert like Deirdre McCloskey, a rant is a lot more entertaining. From her post, lightly edited for continuity:

Spanish submarines too heavy to float

No, not The Onion:

After spending nearly one-third of a $3 billion budget to build four of the world’s most advanced submarines, the project’s engineers have run into a problem: the submarines are so heavy that they would sink to the bottom of the ocean. Miscalculations by engineers at Navantia, the construction company contracted to build the S-80 submarine fleet, have produced submarines that are each as much as 100 tonnes (110 US tonnes) too heavy.

From Quartz, via Gian Luca Clementi. A question to test yourself:  how important is $3b to Spain’s overall fiscal situation?

Update (May 23):  Facebook update from a friend: “Doesn’t this count as stimulus whether it sinks or not?”

Congress shocked — shocked! — that Apple avoids taxes

To paraphrase one of Stan Zin’s favorites, Inspector Renault in Casablanca: Congress is shocked to find that the US corporate tax system is riddled with loopholes. We often hear business leaders complain that the US has one of the highest corporate income tax rates in the world — and it’s true.  But it’s also true that the system collects very little revenue.

Is FRED the iTunes of macroeconomic data?

Our Global Economy students know that the St Louis Fed’s FRED is our favorite source of data: easy access, graphics, iPad and Excel add-ins — what more could you want? Well, they’re working on it. World Bank data? OECD data? That and more could be coming our way soon.

Which got us thinking. If FRED becomes the source of choice — the iTunes, so to speak, of the business — would it make sense for private data producers to post some of their data there? Should S&P post some of its data on FRED to reach a broader audience? Bloomberg? What would you do if you ran a data company? What would you do if you ran FRED?

A default by any other name…

Among the things they didn’t teach me in grad school: for markets to work, we need to know (1) what the object is and (2) who owns it. Too obvious? Well, not in the real world. Credit default swaps were designed to provide insurance against bond defaults, but investors found out the hard way that European bonds could lose a lot of value without triggering a CDS “default event.” Some European actions seemed intended to produce precisely this result.

Kim Schoenholtz passes on this WSJ piece suggesting that the International Swap Dealers Association is trying to close the loophole. From the article: “the [proposed] newly imposed credit event would include any action taken by a governmental authority leading to a write-down; expropriation; conversion, exchange or transfer of debt obligations; or any action that otherwise affects creditors’ rights in a way that reduces what they are owed.” Well, duh!

News flashes

First: The Onion is hiring. If you think, as we do, that the world needs more humor, here’s your chance. From Stan Zin, who may be your competition: All candidates must fulfill the following requirements:

1. A viewing of our new pilot, Onion News Empire
2. A review posted on Amazon (linked to in application)
3. Three (3) reasons why the candidate is qualified for the position (either on resume, cover letter, or attached as a separate document)

If interested, please apply here: http://bit.ly/12jfFLA

Second: Billie Sol Estes has died. His connection to Global Economy fans and survivors: he collected millions in bogus cotton subsidies. I’m sure he’d laugh at the deal the US struck to pay off Brazilian cotton growers, too. If them, why not him?

“The point is to protect the consumer”

A good one from Kim Ruhl: Tesla Motors sells high-end electric cars direct to the consumer. But North Carolina’s car dealers have proposed a law prohibiting sales except through — wait for it — car dealers. Robert Glaser, president of the N.C. Automobile Dealers Association, comments, apparently without irony: “The whole point of the system is to protect the consumer.” Quote from here, more here.

Sanctioning Iran

One of the things we do as academics is try to figure out how things work, and then report what we find in academic journals.  To take examples close to home, we might look into the causes of international capital flows, explore the impact of anti-dumping laws, examine regulations about financial disclosure, and so on.  Some of this has practical long-term value, but the short-term goal is to engage in a discussion with other experts, which we hope will lead to deeper understanding of the topics. By design, the target audience is small.  Here are a couple examples.

Austerity in Portugal revisited

Portugal continues to push hard for this year’s “Call me Argentina” award.  You may recall that their constitutional court invalidated the government’s attempts to save money by cutting the bonuses of government workers — yes, they get two a year. That was ruled unconstitutional because it discriminated against government workers. Last week, the Times reports, they “struck down [more] austerity measures … [and] called into question [whether] the government can meet its budgetary goals.” Evidently having no money is not a legal basis for cutting spending in Portugal.

The question is what happens next if the government runs out of funds. They can’t print euros, but can they pay workers in something else? This surely isn’t the end of the story.

Arbitraging the textbook market

Price discrimination is used by sellers to increase revenue, but resisted by buyers looking for better deals. Hence the ongoing battle between sellers trying to segment the market and buyers trying to get around the segmentation. Airline tickets are a good example, but security regulations tying tickets to original purchasers killed off the resale market. DVDs are another, with prices differing enormously by region. Technical standards make resale difficult because players differ across regions, but clever technology can often get around that.