Sunday, December 21, 2008

The Terrible Journalism of Alessandra Stanley

Alessandra Stanley should go back to writing about television. I gather she wasn’t very good at that, either, but her pieces – and I shudder to call them pieces – on politics and the economy that have appeared over the last month in the New York Time have been wretched. The first piece she wrote that caught my attention covered President-elect Obama’s press conference unveiling Sen. Clinton as Secretary of State-designate. It was a horrible, hack-job of a piece, widely reviled for Ms. Stanley projecting – and projecting enough to generate a thousand almost wholly fictional words. Now, she’s written a piece bemoaning the loss of the sex scandal due to the recession.

Most of us spent the last decade or more wishing that the news would begin covering, you know, news again. The endless drumbeat of non-stories and scandals pushed people away from politics and the political process. They also served as cover for perhaps the most disastrous Presidency this country has ever seen. Rather than covering the many, many sins of this administration, the media was, until late in 2006, mostly cowed by the administration. It seemed that no sin-not the bungling of an unnecessary war, not a war of choice, not the bungling of an arguable necessary war, not violating the principles that gave us our nation, not torture, not abuses of power, not intimidation, not politization of every facet of government-was sufficient to shine real scrutiny on this administration because at least there was no sex.

What a farce. Go away, Ms. Stanley. And take your nonsense journalism with you.

Wednesday, December 17, 2008

Can We Call It a Depression yet?

As the resident economist (a title my qualifications are dubious for at best) on this and other blogs Ben and I have been a part of I thought I’d answer a question Ben has posed to me and is being bandied about by the pundit class. Are we in a depression now or just another recession?

My short answer is we won’t know until we’re on the other side of this. Truth be told there isn’t a commonly accepted definition of what a depression is. This stands in marked contrast to the commonly accepted definition of a recession used by economists. The “textbook” definition of a recession is at least two consecutive quarters of negative economic growth, which is to say from a strictly definitional standpoint we weren’t in a recession until after the Commerce Dept revamped numbers for the past few quarters.

This is in no way intended to imply people out there aren’t hurting, just that the until such time as we string together two quarters of negative growth (an oxymoron, but stay with me) we weren’t technically in a recession. We are now and evidently have been for a little while now, but does that mean we’re in a depression?

Again, my answer revolves around the definitions of economic phenomena and in that regard we won’t know. Back in 1929 everyone knew something bad was coming and in 1933, the statistical height of what is now known as The Great Depression, there wasn’t a household in America unaffected but the dismal economic conditions. My reading of history is to sparse to know if people referred to the period from 1929 to approximately 1935 as a depression at the time, but if they had it would have probably been towards the back end of the period when the full extent of the economic wreckage was coming into focus. Also, that was six years of economic contraction or stagnation with the rate of unemployed reaching over 30%, if memory serves. From where we sit it seems far to soon to think that after 12 months or even 18 months of an economic downturn we could justifiably declare our current economic state a depression. Our unemployment rate is on November 6th sat at 6.5% and analysts at that time expected it to increase to 8% by the middle of next year. As awful as that is, it not even in the double digits yet. We could get there, but that would seem to be a long ways off. Also so far during our current recession the economic contraction rate has not exceed 1%,which puts us in comparatively better shape then those that lived through The Great Depression.

The bottom line is that we could find ourselves in a depression in a couple years, but we’re not there yet and we’ve for a long way to fall before we get there. I don’t think we’ll look back at this time and ever consider it a depression. I do think there will be a revolution in economic and business cycle thought because of our current experience and I’ll explain why.

The U.S. economy by and large no longer “makes” things. The percentage of GDP that is comprised of manufactures has continued to decline over the past decade. We are a service economy propelled forward by financial vehicles and the multiplier effect those profits send into the marketplace. Now this is unsupported by any one source and more my summation of the economy as I perceive it today, so slam me for being wrong if you can prove I am.

Because we don’t make things anymore the old Keynesian remedies will have a limited affect. There are droves of disaffected workers out there, but how many of them are blue collar? We should absolutely invest in infrastructure improvements, but how many people will there be to fill these jobs? And perhaps the most perplexing problem is what to do with all those laid off white collar workers? There are 30,000 people that used to work for Lehman Brothers and I would venture to say few would be inclined, or even qualified to lay brick or pave a road. This creates the real challenge for President-elect Obama. You can’t send them all back to school, and if you did what profession would they learn? No doubt a number of the folks who used to work in the financial sector are far better positioned to deal with a period of unemployment then many blue collar workers, but where will they find work?

I haven’t heard any good answers to this problem and I don’t have any to share.

So what does it all mean? Quite honestly the nature of our current recession is something wholly new to our economic experience and some time back the complexity of the finance involved transcended my ability to understand. That said there are two things I am fairly certain of:
1) It’s going to get worse before it gets better
2) It will get better

Obviously not comforting thoughts, but we are in uncharted waters here. The bottom could be a long way off or could be today. Time will tell if we are living in a severe recession or in a depression. What’s clear in the present is that we can’t call this a depression yet. Someday in a distant future (or near future) and call me an idiot, but for my thoughts on this day I’m unprepared to accept we are in a depression.

Crude in Brief

For two days Brent Crude has been trading above its sister figure on the New York Mercantile Exchange. Should it persist, it represents a return to the historical norm the two benchmarks have deviated from for months. This could indicate that crude has finally bottomed out and will begin trending upward for the first time since July. While some will attribute Brent’s new found strength to today’s announcement of an OPEC production cut, wise investors will recognize that the Cartel has demonstrated poor quota discipline – a trend whose reversal is unlikely.

Tuesday, December 16, 2008

Man Throws Shoe, Fails as Journalist

At a press conference in Baghdad on Sunday, President Bush nearly got knocked upside the head by a pair of size 10 dress shoes.
Journalist Muntadar Al-Zaidi was no more than 20 feet from the president when he shouted “This is a gift from the Iraqis; this is the farewell kiss, you dog!” He then hurled his shoes towards the podium. President Bush narrowly avoided getting hit and al-Zaidi was detained and carried off by security personnel. But rather than discuss the moral implications of hurling footwear at a visiting head of state, I’d like to examine how Al-Zaidi has failed as a journalist.

Officials at the Cairo based Al-Baghdadiya are calling for the immediate release of their colleague, citing that any actions taken against him would be a throwback to the oppression of Saddam Hussein. Clearly, the higher-ups at Al-Baghdadiya missed the memo about their duties as members of the Fourth Estate. The job of a journalist is not to engage in combat, but in discourse. Democracy means that the press has the right to criticize the government, not to commit assault. Furthermore, I believe that al-Zaidi has damaged the reputation of his news organization. What government official will grant a press pass to a news agency that hires such volatile reporters? What if they’re never allowed to enter Iraq? Has anybody really thought about the implications of this action?

I don’t care if he’s being feted by a hero by the Arab street. Even if he’s released without being charged, I would argue for his immediate suspension or termination from Al-Baghdadiya.

Sunday, December 7, 2008

re: Russia

The Economist’s editorial cartoon this week pretty well sums up NATO’s response to Russia – this pretty well describes the EU’s response to Russia during the war in Georgia, as well.

It jibes nicely with my bit from a few weeks ago, too.

Invasion of Zimbabwe?

A cholera epidemic in Zimbabwe’s capitol Harare that has killed at least 575 people is inspiring more paranoia from the insular Mugabe regime. Increasingly strident rhetoric from world leaders about the need for Mr. Mugabe to part-way s with the leadership of Zimbabwe has resulted in accusations coming from that government that Britain and other Western nations are plotting to invade Zimbabwe, according to a state-run newspaper via Reuters.

A British invasion seems unlikely, though, if a suitable replacement exists within the Zimbabwe general staff and has expressed an interest in taking over Zimbabwe, a coup might be forthcoming. Such a move would certainly be welcomed by the West and likely the long suffering people of Zimbabwe.

Thursday, December 4, 2008

Improve Our Image Abroad, While Working Off That Pesky Student Debt!

During the time of the British Empire, it was quite common for students from Oxford and Cambridge to go abroad for several years to do national service. Across Africa, Asia and the Middle East, it was quite common to find graduates with first class degrees teaching English, digging ditches or training the civil service. "For God and Country," these men and women left the comforts of Britain for the uncertainty.

For the better part of the decade, the United States has maintained an occupation of Afghanistan and Iraq. Unfortunately most young Americans are not serving alongside soldiers, contractors and federal employees in South and Central Asia. Despite all the continuing talk of patriotism, and serving ones country, there seem to be few easily accessible options for Americans to help efforts in Afghanistan and Iraq.

I propose the creation of an American equivalent to National Service, one that could probably attract a large number of graduates. In exchange for 2-5 years of service, students would receive some sort of federal relief towards their student debt as well as a living stipend. Not only would the cumbersome burden of student loans be lifted, young men and women would gain to the opportunity to see countries make the transition towards democracy. Furthermore, this would free up soldiers to do, you know, soldier stuff. (Not to say that it isn’t cute to see photos of GIs handing out bubble gum and chocolate to the little boys and girls).

While I’m not the biggest fan of British colonialism, I will admit that the National Service program had its merits. Some of those men and women helped people like my parents learned English. Others imported influential pieces of Western Culture, such as rock and roll and blue jeans. (Karl Bartos of the German electronic group Kraftwerk recently noted that because his sister dated an English serviceman, he came under the spell of British and American pop music). Besides, with the economy being in such a miserable state, something tells me that a lot of poly-sci and international affairs graduates would be happy to leave for Kabul, Baghdad or Mosul.

Tuesday, December 2, 2008

When there’s no story, why not just make up some Clinton-Obama drama?

This piece in the New York Times yesterday really perturbed me but I didn’t feel that I would be able to articulate clearly what’s so desperately wrong with it. Fortunately, Matt Browner Hamlin manages to do a bang up job.

Sunday, November 30, 2008

The Curious Hybrid of Mumbai

The attacks in Mumbai have been over for some twenty-four hours. Indian authorities have re-established order but we don’t yet know who perpetrated the attacks or why. And there is a disconcerting feeling that these attacks were different; they were somehow apart from the norm of modern terrorism. There is a curious sense that these attacks were a hybrid – but why? And is this feeling an accurate assessment?

One reason for this sense is that the domestic media here in the US – by which I mean CNN – has been repeating the notion that these were different for the duration of the attacks. Rumors that the attackers singled out Westerners colored the coverage.

Another reason for this sense of differentiation is that the rhetoric of the last seven years have hammered into us the wrongheaded notions that terrorism is an ideology (it is not); and terrorist acts perpetrated by Muslims can all be lumped together – Islamic Terrorists – and that those acts are necessary different than terrorist acts perpetrated by westerners.

But these reasons do not sufficiently explain the nagging sense that the Mumbai Attacks are different. First let us describe what we do know: (1) ten or (likely) more terrorists of-at this time-unknown nationality and religion (2) attacked 6 sites in Mumbai (3) using AK-series rifles, grenades and plastic explosive; (4) 10 of these men were carried into Mumbai by a zodiac-like craft; (5) at three sites the attackers took hostages, secured and defended the positions from security forces; (6) no known demands were made; (7) no credible claim of responsibility has been made; (8) one denial, by Lashkar-e-Taibi, has been issued. From these facts we can infer that the attack was well planned and highly organized, the attackers appear to have been well trained and have had good intelligence on the sites attacked – this attack was resource intensive.
Terrorism is a class of tactics used by many types of groups pursuing many different ends. Often it is used by groups engaged in struggles for ‘national liberation’. The specific tactics used by these groups have divided fairly neatly into two distinct groups: those designed to focus attention on the struggle – macabre theatre; and those designed to make an ‘occupation’ too costly to maintain by inflicting significant casualties on the occupier by attacking hard and soft targets. Sometimes a particular attack is used as leverage for some other end: taking hostages and demanding the release of political prisoners, for instance.

Part of what makes the attacks in Mumbai so unnerving is that they don’t appear to fit neatly into either group of tactics. While the duration of the attacks and media response fit the profile of macabre theatre, the real damage and casualties inflicted push the bounds of this definition (historically). More importantly, no warning was issued, no credible claim of responsibility has been made, and nothing was demanded – all are trademarks of attacks designed to spotlight a struggle.

Similarly, while the attacks caused terrible casualties, the terrorists inexplicably released hostages. Again, no claim of responsibility was issued – simply inflicting great damage without attribution does not advance the ‘cause’, whatever the ‘cause’ may be.

The most curious aspects of the attacks are that the terrorists attacked, held and defended fixed positions, and that the terrorists issued no claim or demands. A few modern examples of terrorists attacking and holding fixed positions have been perpetrated by Chechens: the take over of the Beslan school and the attack on the Moscow Theatre. Both of these attacks were against fixed positions and involved the taking of hostages. However, in both of these attacks, the terrorists issued specific demands.

To some extent this analysis assumes perfect execution on the part of the attackers. It may be that despite the apparent effectiveness with which the attacker took over the Taj and Oberoi, the operation was botched. It could be that the goal was to kill many more westerners than were actually killed and the enormous number of Indians killed was accidental. It could also be that the attack was disrupted by Indian security forces – perhaps, it will be revealed that the terrorist were attempting to plant explosives in the Taj and Oberoi and the release of hostages and defense of the buildings were attempts to delay security forces until the buildings could be destroyed, live on television. If this is the case then the comparatively superficial attacks elsewhere in Mumbai may be explainable as diversionary attacks. It is unlikely, however, given the duration the terrorists controlled the buildings that they were unable to plant explosives.

Tuesday, November 25, 2008

Oil Prediction (because that's a smart thing to do)

Bald face prediction: so long as Brent Crude is valued below Light Crude on NYMEX, oil will continue to trend down.

Monday, November 24, 2008

A MASH note from Hitchens to Sen. Clinton

Christopher Hitchens writes in Slate an article attacking the notion of Sen. Clinton becoming Secretary of State. He simultaneously reminds most of the world why they despise him, but might want to get drunk with the famous imbiber. Hitchens is a good writer-an entertaining and passionate scribe-but he is, above all, intellectually dishonest. He allows his personal biases, of which there are many, to color his thinking to the point of producing utter nonsense. His disdain-it may not be too much to call it hatred-for the Clintons leads him to write: “In matters of foreign policy, it has been proved time and again, the Clintons are devoted to no interest other than their own” – a statement so false its very utterance is an obscenity to truth, in an article rife with accusation by innuendo, most of which has patently nothing to do with whether or not Sen. Clinton would make a good Secretary of State.

It is too bad. Well, Hitch, I’d still like to have a drink with you, maybe at the next Vanity Fair party you throw in Adams Morgan, but lay off the rye before you hack out another piece on Sen. Clinton – she’d make a fine Secretary of State and her commitment to both human rights and the interests of the United States is beyond question.

Saturday, November 22, 2008

Life imitating Art

Incoming Freshman Congressman Jason Chaffetz (R-Ut) is taking a page from the West Wing. Rep. Chaffetz, much like the Junior Representative from Arkansas in West Wing episode “A Good Day,” will be living on a cot in his office.

Friday, November 21, 2008

A little Crude ...

Back on July 6, Atrios wrote that he didn’t expect to see oil drop below $100/bbl again. At the time it struck me as a pretty bold-and to my mind unfounded-statement. He made that prediction as oil peaked and has since dropped steadily save one bump in September (see chart below). It has been below $100/bl for as long as it remained above $100/bbl after his prediction.

In fairness, I didn’t think oil would drop below the $70-75/bbl price range and thought the natural price was probably in the $60-70/bbl range. So, its current price below $50/bbl is surprising to me. I don’t think that the current price is stable and I imagine oil will rebound strongly in the near term (6 months – 1 year) and begin to oscillate. This may not be optimal, but, as my physics friends remind me, sinusoidal oscillations are a steady-state solution.

(data from EIA, daily light sweet crude settlement on NYMEX in $/bbl)

To Russia with Love

Kristof wrote yesterday in the New York Times about Russia, Georgia and how Obama’s administration should approach the Caucasus. He thinks allowing Georgia into NATO is a bad idea, says we need a new approach to Russia to avoid a new Cold War.
Russia is flexing its muscles. That is beyond debate. A New Cold War, though? I’m not convinced. Moreover, I think analogizing our current relationship with Russia and the Cold War US-Soviet relationship is uninformative and likely obscures more than it enlightens. Much like the penchant for comparing negotiations to Munich, the Cold War comparison can lead to wrong impressions.

It is important for the United States to recognize that, regardless of what NATO countries may say about the eastward expansion of NATO, Russia views it as a threat. Not only has the expansion represented a weakening of Russia’s influence over its near-abroad-essentially Russia’s defensive buffer between Moscow and the rest of the world-but these states have, in Russia’s view, been turning away from Moscow and towards an organization that for fifty years was dedicated to defeating Russia. This is a difficult concept for those of us in the west, who viewed NATO as a benign entity, defending Europe and the World from the Soviet Empire. Nevertheless, Russia’s strongly negative reaction to NATO expansion is no way irrational and is eminently predictable.

The emerging difficulty for the United States and Europe is how to reconcile Russia’s legitimate security concerns, Russia’s apparent desire to project power-regionally, at least-and the strategic importance of the Caucasus. The governing principles for dealing with Russia, moving forward, should be based in Real Politik: 1) Russia’s assertiveness has increased as its revenues have increased and relative hard power has grown while the United States’ has diminished; 2) Russia has a long standing interest in dominating the Caucasus; the significance of the Caucasus to energy for both natural gas/oil extraction as well as pipeline transit has only exacerbated Russia’s interest in dominating the region; 3) re-read Kennan; drawing lines in the sand rhetorically and not backing them up will only encourage Russian aggression – also, take very seriously Russian statements about red lines, they tend to adhere to them.

The United States and Europe should not conflate power politics with the Cold War. Competition for resources and influence should not be an existential struggle. Injecting sensationalized rhetoric is the absolute wrong prescription for the United States. What the US needs now is cold, rational analysis about the state of the world as it is.