notes may 29 2008

May 29, 2008 § Leave a comment

Most serious, the nations will not manage collectively energy and climate, but each seek advantage, rationalized by “there are too many people for a world wide single solution.”

It is amazing to see the emergence of Obama as a major personality.Let’s hpe that the heroic and clear projected onto him is accurate perception.

The McClelland book is the continuation of O’Neill’s book, which seems to be almost forgotten, but got the same themes. The idea that everyone agreeed that Iraq had WMD’s is just false. Me and most of those whom I know were opposed to the war and wanted to follow the German approach and let Blix continue, with more support.

Will a Democratic Congress act to change the carefully crafted opaque oil futures markets in an election year and risk bursting the bubble? On May 12, the House Energy and Commerce Committee stated it will look at this issue in June.

Pasted from <http://atimes.com/atimes/Global_Economy/JE24Dj03.html>

    The Fall of Conservatism

    Have the Republicans run out of ideas?

    by George Packer

    Pasted from <http://www.newyorker.com/reporting/2008/05/26/080526fa_fact_packer?printable=true>

    The era of American politics that has been dying before our eyes was born in 1966. That January, a twenty-seven-year-old editorial writer for the St. Louis Globe-Democrat named Patrick Buchanan went to work for Richard Nixon, who was just beginning the most improbable political comeback in American history. Having served as Vice-President in the Eisenhower Administration, Nixon had lost the Presidency by a whisker to John F. Kennedy, in 1960, and had been humiliated in a 1962 bid for the California governorship. But he saw that he could propel himself back to power on the strength of a new feeling among Americans who, appalled by the chaos of the cities, the moral heedlessness of the young, and the insults to national pride in Vietnam, were ready to blame it all on the liberalism of President Lyndon B. Johnson. Right-wing populism was bubbling up from below; it needed to be guided by a leader who understood its resentments because he felt them, too.

    Pasted from <http://www.newyorker.com/reporting/2008/05/26/080526fa_fact_packer?printable=true>

    I have an analysis of this article in some detail at

    http://doug.pbwiki.com/a12

    And, on write downs.

    clip_image001

    The source said the White House views the proposed air strike as a limited action to punish Iran for its involvement in Iraq. The source, an ambassador during the administration of president H W Bush, did not provide details on the types of weapons to be used in the attack, nor on the precise stage of planning at this time. It is not known whether the White House has already consulted with allies about the air strike, or if it plans to do so.

    And

    Sense in the senate

    Details provided by the administration raised alarm bells on Capitol Hill, the source said. After receiving secret briefings on the planned air strike, Senator Diane Feinstein, Democrat of California, and Senator Richard Lugar, Republican of Indiana, said they would write a New York Times op-ed piece “within days”, the source said last week, to express their opposition. Feinstein is a member of the Senate Intelligence Committee and Lugar is the ranking Republican on the Foreign Relations Committee.

    Senate offices were closed for the US Memorial Day holiday, so Feinstein and Lugar were not available for comment.

    Pasted from <http://atimes.com/atimes/Middle_East/JE28Ak01.html>

    And, oil

    This is far from an exhaustive examination of the global shifts caused by rising oil and grain prices. Our point is this: High oil prices can increase as well as decrease stability. In Iraq — but not in Afghanistan — the war has already been regionally overshadowed by high oil prices. Oil-exporting countries are in a moneymaking mode, and even the Iranians are trying to figure out how to get into the action; it’s hard to see how they can without the participation of the Western oil majors — and this requires burying the hatchet with the United States. Groups such as al Qaeda and Hezbollah are decidedly secondary to these considerations.

    We are very early in this process, and these are just our opening thoughts. But in our view, a wire has been tripped, and the world is refocusing on high commodity prices. As always in geopolitics, issues from the last generation linger, but they are no longer the focus. Last week there was talk of Strategic Arms Reduction Treaty (START) talks between the United States and Russia — a fossil from the Cold War. These things never go away. But history moves on. It seems to us that history is moving

    This article can be forwarded or reposted but must be attributed to Stratfor.

    linking to www.stratfor.com.

    And, important, Capital and its Complements

    J. Bradford DeLong

    U.C. Berkeley and NBER

    May 2008

    Dennis Meadows, one of the authors of “The Limits to Growth,” says the book was too optimistic in one respect. The authors assumed that if humans stopped harming the environment, it would recover slowly. Today, he says, some climate-change models suggest that once tipping points are passed, environmental catastrophe may be inevitable even “if you quit damaging the environment.”

    Resource constraints in fast-growing India are hitting farmers and city-dwellers alike. One danger is that governments, rather than searching for global solutions to resource constraints, will concentrate on grabbing share. China has been funding development in Africa, a move some U.S. officials see as a way for it to gain access to timber, oil and other resources. India, once a staunch supporter of the democracy movement in military-run Myanmar, has inked trade agreements with the natural-resource rich country. The U.S., European Union, Russia and China are all vying for the favor of natural-gas-abundant countries in politically unstable Central Asia.

    Historical patterns: what has been the relationship between capital and

    growth in the past, and what economists have thought about that

    relationship.

    The unexpected reversal: the fact that international capital mobility

    over the past two decades (a) has expanded much more rapidly than

    almost anybody had predicted, but (b) has expanded in the wrong

    direction—the poor have not been borrowing from the rich to finance

    their investment and industrialization, instead the rich have on net

    been borrowing from the poor to finance their own consumption.

    The critical reversal of fortune comes when the unblocking of the barriers to large net capital flows sees the flows proceed at an unexpectedly large intensity—but in a large and destructive way. The denouement—that has yet to be written; in fact, it will be our job over the next decades to write it.

    Instead, the keys to growth and development appeared to be other things than a rise in capital intensity as measured by the capital-output ratios: skills, education, technology broadly understood, and improvements in organizational management.

    DeLong and Summers (1991) found that the post-World War II crosscountry dataset contained an extraordinarily strong correlation between growth and private investment in machinery and equipment. Public investment by state-owned monopolies did not do it. Investment in structures did not do it. The correlation was very strong in OECD-class and middleincome economies. And it appeared to remain even when you looked far down at the very bottom of the cross-country income distribution— Their populations are growing rapidly because countries with low levels of prosperity and low levels of literacy are countries where people find it advantageous for private insurance reasons to have relatively large numbers of children The reason for this striking association is clear. Modern transportation via container ship makes the cost of transporting durable commodities across oceans essentially zero.

    http://www.regmonitor.com/blog/stetser>.

    It turned out that $20 billion to $30 billion of capital a year did flow from the United States to Mexico as American firms sought production platforms. But it also turned out that what looked to be $30 billion to $40 billion a year of capital flowed from Mexico to the United States. Relatively rich Mexicans took a look at the country’s monetary and political instability. They decided that in the event that something went really wrong from their perspective in Mexico and they had to flee across the Rio Grande in a rubber boat, it would be much better to get to Texas and have a large dollar-denominated asset account waiting for them in New York,

    It is indeed the case that U.S. labor productivity is now 35 percent higher than it was back in 2000, with, as best as we can see, real wages remaining exactly the same. That represents a huge shift of income in the direction of capital.

    But does this mean the low interest rate policies of the United States in the

    early 2000s were a policy mistake? Three locomotives have driven the world economy over the past 15 years. The first was heavy investment, centered in the United States, owing to the information technology revolution. The second was investment in buildings,

    once again centered in the United States, driven by the housing boom. The

    third was manufacturing investment elsewhere in the world, predominantly in Asia—as the United States became the world economy’s importer of last reso

    The first locomotive ran out of fuel seven years ago, and there is no clear

    technology-driven alternative leading sector, like biotechnology, that can

    inspire similar exuberance—rational or otherwise

    In the current issue of the “New Yorker,” George Packer has a useful article

    on the shambles that has befallen institutional conservatism. The subtitle

    of the article asks, “Have the Republicans run out of ideas?” Much the same

    kind of obituary is necessary for the DLC, which mirrored the Republican

    idea machine. Packer does not raise this issue. The DLC is equally marooned

    on ideas that are not so much anachronistic as failures (they were bad ten

    years ago as well). The Republicans have begun a period of rethinking, but

    most of their thinkers are allergic to revision. For them it is encore un

    effort! Much the same for the DLC, whose people are more interested, like

    Karl Rove, in winning elections than in the importance of governing (Mark

    Penn is Rove’s DLC doppelganger). Will there be new ideas and policies to

    befit the structural problems that bedevil the world population, or even

    just the US population? Will Barack Obama revive a mild version of the New

    Deal, a green capitalism, or will he too become entangled in yesterday’s bad

    ideas? This is not on the table. What we have is the enduring racism of the

    Clintons and their DLC legacy shaping the next Democratic presidency.

    Should Wall Street banks continue to be forced to write down mortgage-related losses, many firms are so undercapitalized even the sound parts of their businesses are at risk…

    clip_image002

    “Lehman’s equity (in yellow), for example,” explains Mr. Amoss, “supports just a tiny sliver of its towering liabilities. Lehman’s ‘leverage ratio’ amounts to about 32 times equity. That means Lehman’s assets can fall only about 3% in value before their equity is wiped out.”

    Yet shares of Lehman Brothers have shot up 30% from their 2008 lows.

    Pasted from <http://www.agorafinancial.com/5min/>

    J. Bradford DeLong (2008), “Capital and Its Complements: International Capital Mobility and Economic Growth in the Twenty-First Century” http://www.j-bradford-delong.net/2008_pdf/20080521_capital.pdf

    Pasted from <http://delong.typepad.com/sdj/2008/05/delong-capital.html>

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