Keynesian Spirits


Mad as Hell

As a student of economics, and hopefully (mostly) a rational human being, I am supposed to offer intelligent policy proposals to deal with our substantial and increasing social and economic ills. However, considering the great vision and courage our democratic leaders have shown during these numerous and currently unfolding crises, it can be hard to stop oneself from engaging in the behaviour exhibited below.

 

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All Hail The Guardian

The newspaper industry has been under great financial pressures for the last decade or so, pressures that have intensified with a severe economic downturn and the rise of the internet and social media. In the past few years, newspapers have seen large falls in subscriptions, and sales in general, as we shift our ways of getting news. A large number of advertisers have pulled back partly due to the recessions and weak recoveries, but mostly because more channels of communication are now available to them and they are preferring to target consumers through the internet. Many newspapers have been shut down, many others restructured substantially by hastily arranged new owners and the survivors have been cutting jobs furiously, but they nevertheless continue to bleed.

However, great reporting by newspapers such as the Guardian continues to remind us of the central role newspapers play in our democracies and why they must be protected. For many years now, the Guardian has strongly pursued the story of phone-hacking by the Murdoch-owned tabloid, News of the World. The Guardian was criticised by some for pursuing this line due to a political agenda. Rebekah Brooks, former editor of the News of the World and former head of News International even wrote a letter in 2009 to the Chairman of the Commons culture committee stating that News International would “refute allegations that illegal phone tapping was a widespread practice” and that the Guardian had “substantially and likely deliberately misled the British public.” Many others, including high-up police officers like Yates, were equally dismissive. However, today it is the Guardian and its high quality journalism that stand vindicated.

Nick Davies, the extraordinary investigative reporter who doggedly pursued the phone-hacking scandal until it actually led to some accountability was also a major player in the Wikileaks’ US embassy cables’ release. Many of his early reports failed to generate much reaction and it is nearly after more than five years of hard work that the issue got the attention it deserved. It is such investigative, dogged, principled and unstintingly honest and righteous journalism that every nation requires to prosper. Reporting must be without fear or favour.


Did Blair Seek Murdoch’s Blessing for Iraq War?

How important was the support of the Times and the Sun for Blair in finally deciding to attack Iraq? See below a troubling, though not entirely conclusive, insight from a Guardian story:

Throughout his years in power, Blair had regular secret meetings with Murdoch, many abroad, and was in regular telephone contact. [Lance] Price [‘a journalist and ex-spin doctor who worked at No 10 as Campbell’s deputy’] has gone as far as to claim that Murdoch “seemed like the 24th member of the cabinet”.

Blair insisted no record was ever kept of the meetings or calls, so they were totally deniable. Cherie Blair has said that her husband’s decision to go to war in Iraq in 2003 was a “close call”. So it was – and there is evidence that the final decision was taken only after Murdoch’s encouragement was received and his blessing given. Blair talked to the media tycoon three times on the telephone in the 10 days before the US-led invasion. Details obtained under freedom of information show Blair called Murdoch on 11 March, 13 March and 19 March 2003. British and US troops began the invasion on 20 March, with the Times and Sun voicing total support.


Politicians and the best way to cook lobster

The Conservative throws the animal, live, into a pot of a boiling water.

The Marxist smashes it over the head with a hammer, then puts it in the boiling water.

The Liberal puts the lobster into a pot of cold water, then slowly heats it up.


Diverging Eurozone Monetary Policy Needs

From San Francisco Fed’s Fernanda Nechio:


The Thirst for Blood – Russia in Afghanistan

A chilling excerpt from Tariq Ali’s review of ‘A Long Goodbye: The Soviet Withdrawal from Afghanistan’ by Artemy Kalinovsky and ‘Afgantsy: The Russians in Afghanistan 1979-89’ by Rodric Braithwaite:

One Russian veteran of the Afghan war wrote:

“The thirst for blood … is a terrible desire. It is so strong that you cannot resist it. I saw for myself how the battalion opened a hail of fire on a group that was descending towards our column. And they were our soldiers, a detachment from the reconnaissance company who had been guarding us on the flank. They were only 200 metres away and we were 90 per cent sure they were our people. And nevertheless – the thirst for blood, the desire to kill at all costs. Dozens of times I saw with my own eyes how the new recruits would shout and cry with joy after killing their first Afghan, pointing in the direction of the dead man, clapping one another on the back, and firing off a whole magazine into the corpse ‘just to make sure’ … Not everyone can master this feeling, this instinct, and stifle the monster in his soul.”


On Slow and Boring Films

Even though the Palme d’Or was only recently awarded to Terrence Malick’s thoughtful and meditative work, The Tree of Life, American and British critics seem quite concerned about the faltering standards of American films, with studios consistently pushing for comic book adaptations, sequels and other equally unexciting, unoriginal and unadventurous films. Below are some excerpts from an article written on this issue by NYT’s top film critics:

“Thinking is boring, of course (all that silence), which is why so many industrially made movies work so hard to entertain you. If you’re entertained, or so the logic seems to be, you won’t have the time and head space to think about how crummy, inane and familiar the movie looks, and how badly written, shoddily directed and indifferently acted it is. And so the images keep zipping, the sounds keep clanging and the actors keep shouting as if to reassure you that, yes, the money you spent for your ticket was well worth all this clamor, a din that started months, years, earlier when the entertainment companies first fired up the public-relations machine and the entertainment media chimed in to sell the buzz until it rang in your ears.”

“…“The Hangover Part II,” which I find boring, raked in $137.4 million over the five-day Memorial Day weekend. It’s the kind of boring that makes money, partly because it’s the boring that many people like, want to like, insist on liking or are just used to, and partly because it’s the sort of aggressively packaged boring you can’t escape, having opened on an estimated 17 percent of American screens. Filled with gags and characters recycled from the first “Hangover,” the sequel is grindingly repetitive and features scene after similar scene of characters staring at one another stupidly, flailing about wildly and asking what happened. This is the boring that Andy Warhol, who liked boring, found, well, boring.”

“Movies may be the only art form whose core audience is widely believed to be actively hostile to ambition, difficulty or anything that seems to demand too much work on their part. In other words, there is, at every level of the culture — among studio executives, entertainment reporters, fans and quite a few critics — a lingering bias against the notion that movies should aspire to the highest levels of artistic accomplishment.”

“Some of this anti-art bias reflects the glorious fact that film has always been a popular art form, a great democratic amusement accessible to everyone and proud of its lack of aristocratic pedigree. But lately, I think, protests against the deep-dish and the highbrow — to use old-fashioned populist epithets of a kind you used to hear a lot in movies themselves — mask another agenda, which is a defense of the corporate status quo. For some reason it needs to be asserted, over and over again, that the primary purpose of movies is to provide entertainment, that the reason everyone goes to the movies is to have fun. Any suggestion to the contrary, and any film that dares, however modestly, to depart from the orthodoxies of escapist ideology, is met with dismissal and ridicule.”

“Why is it, though, that “serious” is a bad word in cultural conversations, or at least in discussions of film? Why is thinking about a movie an activity to be avoided, and a movie that seems to require thinking a source of suspicion? It seems unlikely, to say the least, that films like “Uncle Boonmee,” “Meek’s Cutoff,” “The Tree of Life” or Jean-Luc Godard’s recently and belatedly opened “Film Socialisme” will threaten the hegemony of the blockbusters, so why is so much energy expended in defending the prerogatives of entertainment from the supposed threat of seriousness? I certainly don’t think fun should be banished from the screen, or that popular entertainment is essentially antithetical to art. And while I derive great pleasure from some movies that might be described as slow or tedious, I also find food for thought in fast, slick, whimsical entertainments. I would like to think there is room in the cinematic diet for various flavors, including some that may seem, on first encounter, unfamiliar or even unpleasant.”

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Films – In Defense of Slow and Boring


How Governments Actually Choose Commission Heads

From a Guardian editorial:

“The story goes that back in the early noughties, Adair Turner was rung up by a smooth-cheeked power-broker in Downing Street. They really wanted him to lead an inquiry – ideally, the crucial area of drugs policy. To which the former head of the CBI replied that he had a footnote in one of his books calling for the liberalisation of the illegal-drugs trade. A long pause on the other end of the phone – and then, ‘Well, how about pensions?'”


The Wall Street Leviathan

Jeff Madrick has written a useful piece on the findings of the Financial Crisis Inquiry Commission (USA). Here are some of the most striking things he brings up:

“Bernanke told the FCIC: As a scholar of the Great Depression, I honestly believe that September and October 2008 was the worst financial crisis in global history, including the Great Depression…Out of maybe the 13, 13 of the most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two. “

“The single most stunning finding of the FCIC report is that if all Citigroup’s assets had been accounted for accurately, its ratio of assets to capital would have been forty-eight to one in 2007, not the twenty-two to one it had been reporting that year. The ratio of forty-eight to one was irresponsible—higher than the capital ratios at the most aggressive investment banks, such as Bear Stearns, and far higher than the capital ratios of other banks. The Fed apparently had no idea of this.”

“The legislation repealing Glass-Steagall, the Gramm-Leach-Bliley Act of 1999, had one other subtle but highly significant consequence, as the FCIC report explains. It diluted the government’s regulatory authority over the new financial conglomerates such as Citigroup. Under the legislation, the Fed, the strongest of the regulators when it did its job properly, now oversaw only bank holding companies, the umbrella organizations under which the bank subsidiaries operated. The 1999 act mandated that the Fed rely on the SEC to oversee bank subsidiaries that dealt in securities, and that the Office of the Comptroller of the Currency oversee commercial banks. The practical result was that much of importance thus fell through the cracks of the 1999 bill. The FCIC report refers to this stripped-down authority as “Fed-Lite.” The Fed failed to do its job in any case. It made no adequate analysis of the risky CDOs. As far back as 2005, a peer review by other Federal Reserve banks criticized the New York Fed, then under Tim Geithner, for inadequate oversight.”


How useful is the financial services sector?

Before the recent financial crisis ravaged the lives of tens of millions and jolted the certainties of academic economists and policymakers, regulatory bodies like Britain’s Financial Services Authority used to boost that they offered a ‘light touch’ regulation. Regulatory bodies worldwide seemed to be in a race to lower regulatory standards and openly show their faith in the invisible hand.

No longer. Adair Turner, chairman of the FSA, has taken Keynes’ words to heart (When the facts change, I change my mind. What do you do, sir?) and has taken the lead in thinking beyond the standard models and has been making strong, rather ‘radical’ policy proposals for the financial services sector. No one disagrees with the idea that a well-functioning, innovative financial sector is essential for any economy, but disagreements about safety of individual institutions and the whole system, remuneration and other issues persist. Hence, original thinking should be and is very welcome.

Below are the main points from Mr. Turner’s recent speech at Cambridge University:

1/ Taxation: While core capital requirements will be increased from 2% to 7%, they should ideally be at least double, if not treble this number.

2/ Higher pay: The trend to defer bonuses and award them in shares may have the perverse effect of actually increasing bankers’ pay in the long-term. On the other hand, we’ve already heard that bankers are using certain instruments to actually get round this problem of deferred payment.

3/ Rent extraction: A large amount of the banks’ activities essentially extract rent and do not add to social welfare:

(a) Tax management activities earn banks large fees and help firms avoid paying tax to the exchequer.

(b) Creation of obscure products that hide risks for investors and hence lead to unbearably high risks being taken not just by individual investors but by big institutional investors.

(c) Financial products offering so-called protection lead to greater volatility, which sets of another product creation cycle to allow investors to hedge risks from this increased volatility.

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BBC’s Peston on Turner speech

John Cassidy on the usefulness of Wall Street