Narrowing Ecologies of Global Finance

August 25, 2008

Paul McCulley of PIMCO on why global interconnectedness has complicated the picture for central bankers:

The mobility of capital combined with the mobility of information across countless interconnected nodes, hindered occasionally by politics and the transparency tolerance of various governments, gives the largest holders of capital something of a “God-complex” in today’s global economy. Small banks expand to become mega-banks, regional banks consolidate to become universal banks, and foreign central banks “self-insure” to become sovereign wealth funds. Wealth and capital supercede the common CEO, the everyday purchasing manager, and humble central bankers of today in velocity, mobility and connectivity. Global central bankers in particular need to catch up quickly.


The article in a nutshell:

  • Global asset prices are deflating
  • This is having a contractionary effect on the real economy and causing a decrease in aggregate demand (or, at least the growth of agg demand in certain countries)
  • The problems of the financial system – whose collateral is these falling assets – is resulting in a reduction of available credit.
  • Central banks are doing everything they can to liquefy the banks and to ensure the world that they will not let the big banks fail. But it’s not having enough of the desired effect – cost of capital is still too high for the banks.

I’m not sure what McCulley’s prescription is, though he seems to suggest that central banks should pay more attention to asset prices. I think by now we should realize that asset prices are as important to consumption and demand as consumer prices (blogged about here).


KC Concert II

August 24, 2008

Here are a couple of pics from the Kenny Chesney concert last night Raleigh. I went with a big group of my new friends from school.

That was my third KC concert (second one blogged about here) and I had feelings of deja-vu when he played some of the same songs I’ve heard at every concert. It’s weird to repeat things after a multi-year break. I felt the same way visiting the Calgary airport a few weeks ago.

It makes me think about how random life is and also about how much has changed in my life… mostly for the better!

What’s Most Important In This Election?

August 23, 2008

The other night, Paul and I were arguing about the election. I am still undecided. Paul was trying to convince me to vote for Obama.

Why I’m Undecided

I am totally opposed to Obama’s plans for taxes and healthcare. If they get passed, I think it will be disastrous for the country. On both of these issues, I prefer McCain’s plans.

But when it comes to “social” issues, I think Obama will be a better president. He will nominate left-leaning judges to courts that are likely to hear cases on gay marriage and other issues that are important to me. Beyond the judge thing, I think Obama has the opportunity to permanently change public opinion on these matters.

Paul’s Argument

Paul makes an interesting, if cynical, argument. He says a) social issues are more important anyway; and b) major policy proposals have little chance of passage. He uses Bush as an example: Bush claimed to be fiscally conservative yet his administration has been marked by huge budget deficits, profligate spending, a collapsing currency, and inflation.

This is a smart argument because it plays on my cynicism about the Federal Government. But even if it is logically coherent, I’m not sure it’s empirically plausible. There are numerous recent examples of presidents affecting major policy changes: Bush tax cuts, Iraq War, NAFTA, and several examples from the Reagan administration.

So when I’m thinking about who to vote for, I’m assuming there’s a reasonable chance that his policy proposals will become law. And so I have to decide what’s more important to me: healthcare and taxes or social issues?

Obama Town Hall

August 20, 2008

My friend Alan got me tickets to an Obama Town Hall in Raleigh last night.  It was fun and our seats were amazing!

Is College a Waste of Time?

August 13, 2008

Charles Murray writes that higher education in its current form is a waste of time. As an alternative, he suggests a system of certification exams:

Outside a handful of majors — engineering and some of the sciences — a bachelor’s degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance. Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses.

The solution is not better degrees, but no degrees. Young people entering the job market should have a known, trusted measure of their qualifications they can carry into job interviews. That measure should express what they know, not where they learned it or how long it took them. They need a certification, not a degree.

The model is the CPA exam that qualifies certified public accountants. The same test is used nationwide. It is thorough — four sections, timed, totaling 14 hours. A passing score indicates authentic competence (the pass rate is below 50%). Actual scores are reported in addition to pass/fail, so that employers can assess where the applicant falls in the distribution of accounting competence. You may have learned accounting at an anonymous online university, but your CPA score gives you a way to show employers you’re a stronger applicant than someone from an Ivy League school.

Certification tests need not undermine the incentives to get a traditional liberal-arts education. If professional and graduate schools want students who have acquired one, all they need do is require certification scores in the appropriate disciplines. Students facing such requirements are likely to get a much better liberal education than even our most elite schools require now.

Certification tests will not get rid of the problems associated with differences in intellectual ability: People with high intellectual ability will still have an edge. Graduates of prestigious colleges will still, on average, have higher certification scores than people who have taken online courses — just because prestigious colleges attract intellectually talented applicants.

But that’s irrelevant to the larger issue. Under a certification system, four years is not required, residence is not required, expensive tuitions are not required, and a degree is not required. Equal educational opportunity means, among other things, creating a society in which it’s what you know that makes the difference. Substituting certifications for degrees would be a big step in that direction.

I’m not sure I like this idea, mostly because college was a lot of fun. But I guess that’s kinda the point.

** With this post I’m creating a new blog category: “status quo bias.” In my opinion, we are averse to new and different ideas because they are new and different — they challenge the status quo. That doesn’t mean they’re bad, though. If nothing else, it’s fun to think about “radical” ideas.**

Beijing National Stadium

August 13, 2008

Here’s a neat satellite image of the Beijing National Stadium. Click on the picture for the link to the NASA website with details about the image.

McCain endorses Will’s Healthcare Plan

July 30, 2008

Back in December I wrote down some details of my free market healthcare reform plan. It appears that McCain has endorsed aspects of my plan. John Goodman (advisor to McCain) in today’s WSJ:

Under the McCain plan, no longer would employers be able to buy insurance with pretax dollars. These payments would be taxable to the employee, just like wages. However, every individual would get a $2,500 credit (and every family would get $5,000) to be applied dollar-for-dollar against taxes owed.

The McCain plan does not raise taxes, nor does it lower them. Instead, it takes the existing system of tax subsidies and treats everyone alike, regardless of income or job status. All health insurance would be sold on a level playing field under the tax law, regardless of how it is purchased.

The impact would be enormous. For the first time, low- and moderate-income families would get just as much tax relief as the very rich when they purchase health insurance. People who must purchase their own insurance would get just as much tax relief as those who obtain it through an employer. Whereas Mr. Obama would continue the current practice of giving the vast bulk of federal help to the rich (through tax subsidies) and the poor (through spending programs), the McCain tax credit would give the most new tax relief to the middle class.

The McCain plan would also encourage all Americans to control costs. The tax credit would subsidize the core insurance that everyone should have. It would not subsidize bells and whistles (marriage counseling, acupuncture, etc.) as the current system does. Since employees and their employers will be paying for additional coverage with aftertax dollars, everyone will have an incentive to compare the value of extra health benefits to the value of other things money can buy. When they eliminate health-care waste, they would get to keep every dollar they save.

The McCain tax credit would be refundable. People could apply $2,500 per person or $5,000 per family to the purchase of health insurance, even if they do not owe any income taxes. Families would not have to wait until April 15 the following year to get their credit. They could obtain the subsidy at the time the insurance is purchased.

The credit would also be transferable. Insurance companies and other intermediaries would be able to help families obtain their credit and apply it directly to health-insurance premiums.

The McCain health plan would allow people to buy insurance across state lines — thus creating a competitive, national market for health insurance. It would provide additional federal money for people who have been denied coverage because of a pre-existing condition, making it easier for people who have lost their insurance to obtain new coverage. It would also encourage Medicare to become a smarter, more efficient buyer of care.

The McCain plan will not solve all our health-care problems. But it has a far better chance of positively reforming the system than any other plan that has been proposed in this campaign season.