Political Economy of Financial Reform

From Ryan Grim and Arthur Delaney of the Huffington Post, a muckraking investigation of the House Financial Services Committee:

In the fall of 2008, Democrats took the White House and expanded their Congressional majorities as America struggled through a financial collapse wrought by years of deregulation. The public was furious. It seemed as if the banks and institutions that dragged the economy to the brink of disaster -- and were subsequently rescued by taxpayer funds -- would finally be forced to change their ways.

But it's not happening. Financial regulation's long slog through Congress has left it riddled with loopholes, carved out at the request of the same industries that caused the mess in the first place. An outraged American public is proving no match for the mix of corporate money and influence that has been marshaled on behalf of the financial sector.

The banking committee is the second-largest in Congress -- the Transportation and Infrastructure Committee has three more members -- and is known as a "money committee" because joining it makes fundraising, especially from donors with financial interests litigated by the panel, significantly easier.

The Democratic leadership chose to embrace this concept, setting up the committee as an ATM for vulnerable rookies. Eleven freshman representatives from conservative-leaning districts, designated as "frontline" members, have been given precious spots on the committee. They have individually raised an average of $1.09 million for their 2010 campaigns, according to the Center for Responsive Politics; by contrast, the average House member has raised less than half of that amount.

That makes achieving meaningful reform all the more challenging for the committee chair, Barney Frank:

Ultimately, though, Democrats are essentially relying on a "great man" strategy, figuring they can dump as many bank-friendly Democrats on the committee as they want and Frank will generally keep them in line. "We have a lot of faith in Barney. He can handle it," says a senior Democratic aide when asked about the phenomenon. Frank's senior staffers, say several current and former committee aides, similarly outmatch their counterparts. The chairman, they say, is able to use the knowledge gap at both the member and the staff level to his advantage.

"The good news is that we have, in my opinion, the most extraordinarily competent chair of that committee in place. He knows his subject, he's one terrifically smart pol, and he has a lot of self-confidence, to say the least," says Majority Leader Steny Hoyer (D-Md.).

All Quiet on the Banana Front

In the Times, Eduardo Porter looks back at the long running trade dispute over the EU's preferential treatment of banana imports from former colonies, which has finally come to an end. He writes:

When this started, trade was trumpeted as the single most important tool for development. Europe insisted that its special treatment of its former colonies was central to its post-imperial responsibilities. The United States and Latin American countries vowed to hold the line for free trade — over bananas at least — to make it a tool of development for all.

Today nobody talks about bananas. Stalled global trade talks (remember Doha?) barely get mentioned. There are a lot of problems out there, including the collapse of world trade in the wake of the global recession and the looming threat of protectionism. Yet there has also been a rethinking about trade’s supposed silver bullet role in economic development.

Bridges Weekly Trade News Digest has more on the case, and Paul Krugman laments, for a rather selfish reason.

Yo, PBS raps

Oh, dear...

Keynes vs. Hayek, with hip-hop:


What Bruce Bartlett said.

Update (1/25/10): Now there's a video, too.

Yo NAMA

The Times reports from Copenhagen:

The focus on reducing emissions from land use change is an important shift from the Kyoto Protocol, the first attempt by the nations of the world to develop a global plan to limit climate change. Current drafts circulating here would allow land-use activities that reduce emissions to be included in the United Nations Nationally Appropriate Mitigation Activities program, or NAMA, so countries could use that to achieve emissions reduction goals or targets.

But at the WTO in Geneva, NAMA is Non-Agricultural Market Access. Not only is the Doha round sputtering, it appears they are also losing control of their acronyms...

Our Ballooning Government

Is the Value-Added Tax (VAT) an idea whose time has come to the United States? In the midst of an article about this interesting question in the Times, I come upon this:

Introducing such a tax would probably require an overhaul of the entire federal tax code, no small order, and something the government last did in 1986. At the time the goal was to simplify the tax system, to raise money more efficiently and with fewer headaches for taxpayers.

Since then, federal spending has ballooned, while the government’s ability to raise taxes has become increasingly inefficient.

Ballooned? I don't see any ballooning here: Yes, there is a bit of a jump at the end due to automatic stabilizers and appropriate (though not big enough) countercyclical fiscal policy, but there's clearly no upward trend in federal spending since the mid-1980s. Moreover, federal government purchases - i.e., the stuff that's in the G component of GDP - accounted for 7.5% of GDP in 2008, down from 9.8% in 1986.

Update: Actually, since the graph goes through 2008, the main countercyclical fiscal policy (i.e., the stimulus bill) isn't in there.

The Liberty of Insignificance

China no longer enjoys it, Martin Wolf writes:

A country’s exchange rate cannot be a concern for it alone, since it must also affect its trading partners. But this is particularly true for big economies. So, whether China likes it or not, its heavily managed exchange rate regime is a legitimate concern of its trading partners. Its exports are now larger than those of any other country. The liberty of insignificance has vanished.

Anti-Dumping in My Backyard

Southwest Ohio's friendly neighborhood steelmaker, AK Steel, is among those being hit with antidumping tariffs by China, the Oxford Press reports:

The head of locally-based AK Steel said the company will “vigorously appeal” a decision by China, the world’s biggest steel consumer, to impose anti-dumping import taxes of up to 25 percent on specialized steel imports from Russia and the United States.China’s Ministry of Commerce said today, Dec. 10, that U.S. and Russian companies are selling flat-rolled electrical steel, a product used in the power industry for items such as transformers, at unfairly low prices in China. Starting Friday, Dec. 11, importers will need to pay anti-dumping deposits ranging from 10.7 percent to 25 percent to import the product from U.S. companies such as AK Steel.

Historically, the US steel industry has been a leading user of antidumping actions, so one naturally wonders if this is another example of the retaliation dynamic studied by Feinberg and Reynolds.

The College Tour

In the Times, high school senior Lauren Edelson writes of a new cliche on the campus tour:

I was surprised when many top colleges delivered the same pitch. It turns out, they’re all a little bit like Hogwarts — the school for witches and wizards in the “Harry Potter” books and movies. Or at least, that’s what the tour guides kept telling me.

During a Harvard information session, the admissions officer compared the intramural sports competitions there to the Hogwarts House Cup. The tour guide told me that I wouldn’t be able to see the university’s huge freshman dining hall as it was closed for the day, but to just imagine Hogwarts’s Great Hall in its place.

At Dartmouth, a tour guide ushered my group past a large, wood-paneled room filled with comfortable chairs and mentioned the Hogwarts feel it was known for. At another liberal arts college, I heard that students had voted to name four buildings on campus after the four houses in Hogwarts: Gryffindor, Ravenclaw, Hufflepuff and Slytherin. Several colleges let it be known that Emma Watson, the actress who plays Hermione Granger in the movies, had looked into them. I read, in Cornell’s fall 2009 quarterly magazine, that a college admissions counseling Web site had counted Cornell among the five American colleges that have the most in common with Hogwarts.

Hmm... for something different, she should visit Carleton College in Northfield Minnesota, where the tour guide would no doubt highlight the fact that a scene from "Mighty Ducks 3" was filmed in Carleton's Great Hall.

Economics PhDs

From the NSF report on the Survey of Earned Doctorates, which covers PhDs awarded in the US, for the 2007-08 academic year:

• Number of econ PhD recipients: 1091
• Percent female: 34.3%
• Percent US citizen/permanent resident: 34.9%
• Percent with bachelor's degree in econ: 56.1%
• Median age at doctorate: 31
• Median time to doctorate (from grad school start): 6.9 years

Of the 954 who responded to the question on their postgraduation status, 81 had definite plans for postgraduate study, 680 had definite employment and 168 were seeking employment or study (and 25 were 'other').

Of those reporting definite employment, 59.3% were headed to academe, 12.5% to government, 18.1% to business, 5.7% to nonprofits and 4.4% to other. Most (74.3%) of the jobs were in the US.

That's all in table 38, "Statistical profile of doctorate recipients in science fields, by sex and field of study: 2008." Nice to know the NSF considers us scientists!

The report came to my attention via Bruce Bartlett, who has some of the overall numbers.

Meanwhile, the next crop of soon-to-be Econ PhDs are in the midst of job market season, staring at their phones, waiting for calls for interviews at the meetings in Atlanta in January. They should read Brad DeLong's summary of what those interviews will be like.

BLS Brings Some Holiday Cheer

Relatively good news from the BLS this morning: in November, the unemployment rate fell from 10.2% to 10%.The unemployment rate is calculated from the household survey, which reports 227,000 more people were employed and 325,000 fewer were unemployed - the difference is largely attributable to people leaving the labor force, possibly because they have given up on finding a new job (to be counted in the labor force, you must either be working or looking for work). Accordingly, the labor force participation rate ticked down again, to 65%.If the labor market is truly turning around (and it does seem to be) we may soon see people re-entering the labor force, which would actually cause the measured unemployment rate to rise in the short term.

The establishment survey - which has a larger sample - reported a decline of 11,000 jobs (red line in the first graph). Less dramatic than the household survey, but a much smaller decline than recent months, and much better than expected. Moreover, a revision to the October and November figures reduced the jobs lost in those months by 159,000.

Floyd Norris is optimistic about the speed of the recovery:

One reason is the sheer abruptness of the decline in employment during the recent recession. (Yes, I think it is over.) After Lehman Brothers failed, the unemployment rate rose at a faster clip than at any time since 1975. There was something approaching panic among employers. They feared sales would collapse and that credit would be unavailable. In that spirit, they cut every cost they could. Imports plunged because no one wanted to add inventory. Ad spending collapsed. And people were fired.

That has left many companies in a position where they may need to add workers quickly for even a small increase in business.

Not surprisingly, Paul Krugman plays the grinch:

Today’s unemployment report was good news. But in a real sense good news is bad news, because this month’s not-too-bad number deflates the sense of urgency.

The fact remains that realistic projections show unemployment staying disastrously high for many years.

More on the employment report from David Leonhardt, Justin Fox.

Note: The charts were created using the St. Louis Fed's wonderful FRED tool. They have provisionally removed the shading for the recession at July, 2009, but the NBER business cycle dating committee has not yet officially a declared a date for the trough of the recession that began after the Dec. 2007 peak.