Now, what happens when the application goes through? Did we taxpayers realize that we'd be allowing our government to do things like this when we gave the 'o.k.' for our representative system? Maybe we should pay a little more attention to these folks we're delegating our decisionmaking to...

The keynote address to the China Update forum this year was given by Professor Jeffrey Sachs [see the video]. Sachs' speech raised major questions: firstly, how does the world go from ‘industrial development’ to ‘sustainable development’? Secondly, what should then be expected of China?

Industrial development to sustainable development
On the first point, Sachs' argument has two major tenets. The first is that global economic convergence will lead to Asia being central to global order. He thus envisages a highly multilateral world order. The reason for this shift is that the ‘keys to economic development have been solved’. Central to this premise is his belief in the ability of technology to achieve development. Development, he argues, in this sense was made possible through globalisation, growth and technology transfer. Our knowledge of this, and the adoption of this model by developing countries, means that the economic challenge of what has to be done to become rich has been addressed.

But, we are have yet failed to answer what we have to do about fixing the environment. Sachs believes that current economic models lack an integration of ‘nature’ with growth’. Our current models of development revolve around ‘using’ natural ‘resources’. Development has been industrial rather than sustainable. Rather than solving the Malthusian ' problem, we have postponed it and intensified it. Current high food and oil prices are thus a sign of structural problems rather than speculative behaviour.

Hence, we are now in a new geopolitical age. The world has developed a powerful economic engine, based on ever-improving communications, technology and convergent economic growth. But 3 major challenges remain for sustainable development:

• ending residual poverty in Sub-Saharan Africa, the Andean highlands and Central Asia
• controlling population growth
• inducing environmental sustainability

What should be expected of China?
China is critical to the process of sustainable development. Yet compared to more industrialised nations China is responsible for far less of the damage from industrial development. It appears that China may need to quell its growth for the global good.

Yet nature, Sachs argues, doesn't care about fairness. And that leaves 4 expectations of China:

• to be a global donor rather than recipient of aid--- China's engagement with Africa is a positive contemporary example
• a need to engage with the world and push forward on economic integration. The world doesn't have the ability to give China the time to concentrate on its own development problems
• a need to become a greater force for peace- the examples of North Korea (positive) and Zimbabwe (negative) were noted here
• the need to become an innovator in its own right.

Conclusions
Sachs' focus is on technology. He believes that the most pertinent question at present is that of what kind of technological transformations are necessary to allow both economic growth and sustainability. He sees technological improvements both affecting supply-- carbon sequestration, nuclear power and mass solar-- and quelling consumption needs-- more efficient cars and batteries. He argues that we should focus on talking about environmental technologies rather than systems of permits, caps and trades, which he sees as opaque and biased against developing countries. He believes that China will agree to join international programs should they be able to access technologies whilst avoiding ‘dependence’.

Questions
Professor Ross Garnaut observes that the problem is one of how creation of the incentives to invest in these technologies, and to apply them, can be provided while still avoiding the prisoner's dilemma. Sachs' belief in technology as creating the institutions to curb emissions may thus put the cart before the horse.

---

To see Professor Sachs's speech in full, find the video here.

The EPA released a Global Warming and Health report. I'll give you one guess who stymied its release. That's correct: the Bush "administration", which has worked hard to deny and delay such information from being relayed properly to Americans.

"Risk (to human health, society and the environment) increases with increases in both the rate and magnitude of climate change," scientists at the Environmental Protection Agency said. Global warming, they wrote, is "unequivocal" and humans are to blame.

Betsy Markey and Marilyn Musgrave debated recently. Betsy isn't letting Marilyn get away with any b.s. charges. It's probably part of the reason why Betsy is doing a better job of fundraising than Marilyn. That and Marilyn is a hate-monger who refuses to accomplish much for her district.

Xcel estimates that about 47,000 of its customers will have their power cut off due to missed payments. Let's see, the price of energy hasn't gone down in what, seven years. Our take home pay hasn't gone up in the same time-frame. And Republicans think folks like this are just a bunch of whiners. Being unable to pay for your electricity is a result of immoral conservative economic policies. Which is why they're losing elections these days.

Separately, the Labor Department reported that weekly first time jobless claims rose again last week to 366,000. This is an annualized rate of 19 million, or about 13% of the labor force. In other words, one out of ever 8.5 workers will file for unemployment in the coming year if this rate doesn't rise further. But it's been on the rise for a year now.

Finally, the Philadelphia Fed Survey of manufacturing shows that manufacturing activity in that region continues to decline, belying claims that manufacturing would rebound with the falling dollar as exports become cheaper and more attractive to foreign buyers. This runs counter to economists' predictions of a rebound because our trade deficit has nothing (or very little) to do with currency valuations. (See previous posts on this subject.)

Falling per capita consumption of dwelling space, rising unemployment and shrinking manufacturing - none of this is any surprise to someone who understands the theory presented in Five Short Blasts.

Harold Meyerson, The Washington Post, July 17, 2008

"Government is not the solution to our problem," Ronald Reagan told his fellow Americans in his first inaugural address. "Government is the problem."

For modern American conservatism, Reagan's words may as well have been inscribed on the tablets handed down at Mount Sinai. The market was god and Reagan was its Moses, and Republicans have sworn fealty to both for the past quarter-century. One invariable feature of the 2007-08 Republican primary debates was the effort of each candidate to cast himself as Reagan's one true heir. John McCain proudly recounted how he enlisted as a foot soldier in Reagan's revolution. How was he to know that government was about to become a solution again?

Over the past few months, George W. Bush's administration, which consciously modeled itself after Reagan's, has repeatedly been compelled to bail out private or semi-private financial institutions, re-regulate markets, and rescue beleaguered homeowners. Government, it turns out, is indeed a solution -- at times, the only solution -- for large-scale market failure, a problem not foreseen in the gospel according to Reagan.

Unfortunately for McCain and his fellow Republicans, it's the only gospel they've got. At the very moment when the economy looms larger in Americans' consciousness than it has in decades, McCain comes before the electorate doctrinally adrift.

By his own admission, McCain has never been a student of the economy -- but neither have any number of American presidents. When the economy is humming along, their economic illiteracy has been a problem they can elide. They take refuge in the economic bromides of the time. Their speeches are filled with reaffirmations of their party's economic doctrine.

Read More Here

There's been a lot of talk from government officials, attempting to prevent panic and a run on banks, assuring us not to worry, that our bank deposits are insured by the FDIC up to $100,000.  What no one has discussed is the fact that the FDIC is slowly being phased out by inflation.  Did you know that the $100,000 limit on insured savings has been in place for 28 years?  It was last increased in 1980, from $40,000 to $100,000. 

Depository Institutions Deregulation and Monetary Control Act of 1980
This act, which is passed as a response by Congress to get S&Ls out of interest- rate mismatch, is an effort to deregulate S&Ls.

This act:

• Increases THE FDIC deposit insurance coverage from $40,000 to $100,000.

Since 1980, the CPI (consumer price index) has risen by 257%.  Therefore, the value of deposits insured by the FDIC has declined by 257% since 1980.  If this isn't a gradual phase-out of the program, I don't know what is.

Also, did you know that the FDIC only had about $52 billion in assets at the beginning of this year?  How many bank failures would it take to wipe out that fund?  Very few.  Then what?  Then taxpayers are on the hook - you and I.  The government will simply pick up the tab and add it to the national debt for our kids and grandkids to pay.

Is politics in big democracies necessarily slow and messy?  I’ve found myself increasingly thinking so.  In the last couple of weeks I’ve been fortunate to have a series of up-close meetings inside the political engine rooms of the United States and India.  And for all the many and important differences between the world’s two largest democracies – from culture to constitutions – I have been struck by an underlying similarity.  Decision-making in both is fundamentally fragmented.

Forging the necessary agreement to achieve reform involves cutting deals among multiple and diverse players and is inherently difficult. Very occasionally rapid consensus is possible.  For instance, moments of great national emergency (as when US politicians united in response to 9/11), or when some powerful self-interest effecting all players is at stake (as when Indian politicians united in response to the threat of uncomfortably revealing campaign disclosure requirements).  But mostly the political process is grindingly slow as the numerous tactical deals needed to enact change get squared away, with marginal change or no-change being the default position in both places.

Usually we think of this as depressing.  We’re struck by all the opportunities for enhancing the provision of this or that public good that go begging for far too long.  But perhaps the price of a democracy that can hold big – and therefore, in all likelihood, socially and regionally diverse – countries together is indeed fragmented and slow politics.  Watching Manmohan Singh smash his parliamentary coalition over the proposed nuclear deal with the US and then scramble in search of a new one in India’s multiparty maze and wondering about how either Barak Obama or John McCain would go about constructing deals with Congress in a time of social division and partisan bitterness, I found myself starting to conclude as much.

One could debate the virtues of economies from political scale as opposed to more timely delivery of public goods.  But in these two big democracies that’s not where the action is.  For all their differences, in both cases it’s all about who can find ways of negotiating a saleable vision through in inescapably fragmented power structures to achieve some semblance of a coherent policy outcome.

Happy as I always am to make fun of my own state, and eager as I am to make fun of Mark Sanford, you've just gotta give the guy a break. It was an impossible question, after all. Roy Blunt couldn't think of any differences:

Lindsey Graham couldn't:

I can't think of anybody who has successfully named any differences. If somebody asked you to name any differences between McCain's policy and Bush's policy, could you do it? Could McCain? Mark Sanford may be the best governor South Carolina has had since Jim Hodges, but dammit, he's only human.

Digg it!   Stumble it!

What a piece of work is a man, how noble in reason, how
infinite in faculties, in form and moving how express and
admirable, in action how like an angel, in apprehension how like
a god! - Hamlet, Act 2, Scene 2

Shakespeare provides an incredibly deep and accurate summation of the varying faces of man in my favorite of his tradgedies. After recent outcry following Bear Sterns move regarding moral hazard from talking heads, pundits and the such (me too!), the Feds have provided a great example of one of humanity's many downfalls--our shortsightedness.

The "moral hazard" topic will start to appear even more cliche starting tomorrow morning, which is something that did not need to happen. People need to know that it is a real risk--not be suffering from message fatigue in its regard. Also, the markets will be off heavily pending that oil doesn't tank overnight.

Where do we go from here? Let's say that this was not unexpected. Not just last week, but with the constant--nare I sound like a liberal and call it criminal or treasonous--failings of our top leadership in government. In this case, specifically a number of Senators and Congressmen who have opened the door for this situation's moral hazard. The Washington Post has a few particularly damning accounts of Senator Chuck Schumer, Congressman William Clay Jr. and others.

These folks, acting with political shortsightedness, corruption, or whatever, helped build these companies into their present states. Our capitalist system is supposed to work best with limited, active regulation. Nothing like right now with the rubbery-spined Congress we've been so willing to elect/accept.

UPDATE, July 14 @ 4:00p:

Via Digg, the Provocateur has an interesting take on the whole Fannie/Freddie/Moral Hazard mess:

By turning these two giants into the only game in town when it comes to mortgage securitization for loans for good borrowers, and making them an extension of the government, they created their own terrible moral hazard. These companies can't fail, and thus, they take extra risks knowing this.

This bailout is no surprise, but furthermore, it is the equivalent of giving a crackhead more crack. These two engaged in terribly risky behavior. It was behavior they never would have engaged in if they didn't know they would be bailed out if that behavior didn't work out.

Certainly read the whole thing.

There has been a big shift in the structure of world power, away from the unipolar world, towards a world in which there are at least four major players including China.

This was the headline premise in the roundtable that launched the ANU’s China Update yesterday. What follows is a window on the main issues raised in the first round of discussion. There will be posts elaborating on these and other issues over the next week. Those wanting the full analysis should go straight to the famous book that traditionally accompanies the China Update each year.

The global economic system is going through a particularly complicated period of structural change.
The three major elements are:

•    the US financial crisis
•    the specific post-Bush domestic US challenges: trade imbalances and a weak dollar
•    rising worldwide energy and food prices.

The third point is contested-- largely due to an inability to pin down exactly what these high prices are driven by. Are they temporary supply and demand imbalances and speculative behaviour in markets or do they reflect emerging long term structural constraints?

The judgment is that while, the short term market behaviour interacts with longer term structural constraints, we now have to deal with fundamental changes in the structure of the world economy.

These changes are occurring in the context of other uncertainties. The need for energy security clashes with the need to deal with climate change. Economic growth in China (India and other developing countries) is a major factor in both. Complications arise from the interaction between domestic policy and international affairs, intertwined in a more open and globalised world.

The balance between economic growth and environmental degradation is undoubtedly the most pressing among these tensions. A shortage of water, China's worsening air quality (and whether, as per an environmental Kuznets curve, this would improve) and calculating the costs the difficulties of environmental protection are real and pressing issues for China and the world.

The steady shift in economic power from the US to China adds depth to the challenges of managing global security and resource security.

These structural shifts are affected by the US financial crisis and post-Bush era challenges. A long period of economic stability created a higher appetite for risk, excess demand, increased sophistication of financial deals and these elements have led to greater risk in the financial services markets.

The impact of these forces upon China is expected to be considerable. More foreign capital is expected to flow into China seeking a ‘safe haven’ as a result of a downturn in the investment climate in the United States and Europe, an expected appreciation in the RMB, and continued high returns on investment in China. The capital inflows are mostly ‘hot money’ and not investment in fixed capital which imposes on the Chinese policy makers some big challenges. There are significant risks of adverse inflationary and other macroeconomic effects.

A more fundamental problem is that China has lost an "economic role model", with the US in financial crisis, and this could lead to loss of confidence in liberalisation for example by Chinese policy makers.

What do these factors mean for US-China relations and global security in general? Is China a status quo power? China’s interest is in maintaining the current global system and structure but its rise means this is not possible however much it might wish. In the short term for US-China it will be "business as usual" regardless of the winner of the forthcoming election. In the long term there are big challenges for both partners.

One view is that the ‘complicated’ global economic situation and the steady shift in strategic power balances from a unipolar global order to a more multilateral one means that the ‘status quo’ is itself bound to change. Asia is clearly the greatest global challenge for a new ‘status quo within the international community and order. China's rise, rather than leading to a concert among powers in a new multilateral order, might lead to a less stable era in which there is a competition in seeking a new balance of power. The new political security environment might begin to impact on China's economic trajectory.

What is required is nothing less than a new paradigm in dealing with China (not only in the US but globally) and in China’s dealings with the rest of the world. Continuity might work over the next US presidential term but not over the next two.

There has to be deeper political and security engagement, not only between the United States and China but also the other major players. A Union European-style in Asia and the Pacific is unlikely for many years to come, and nobody has suggested otherwise, but Australian Prime Minister Rudd’s idea on direct dealings on political and security affairs in an Asia Pacific Community is relevant to managing dealings with China as an equal, despite the continuing transition in both economic and, more importantly, its political system.

How did it come to this? Blackouts are spreading across Java, and are increasingly common in the Outer Islands as well. But policy-makers in Indonesia have known for at least five years that a power shortage was looming. Why was so little done?

The short answer is that there has been an extended period (for over five years!) of foot-dragging in Jakarta over planning for new investment in power. It has been widely known that around 10,000 MW of new generating capacity is needed (compared to existing capacity of close to 30,000 MW). But there have been extended delays for all sorts of reasons – technical, financial, political – with different planners, financiers and officials all busy blaming each other. Strong ministerial intervention was needed to coordinate plans for new investments, but the required action was never taken.

This is all going to be very costly for Indonesia. The Philippines went through an electric power crisis in the early 1990s so we have a good idea from the experience in the Philippines of what is likely to happen. First, various “crash programs” will be announced (this has already occurred in Jakarta). Second, blackouts will become more and more common. In Manila, the “brownouts” (as they were euphemistically called) sometimes lasted for up to 10 hours across the capital. Third, the inconvenience and lost productivity caused will be great. Traffic lights, for example, will fail for long periods, and traffic jams will become worse. Food will go bad in restaurants and homes. Blood supplies in hospitals will warm up as refrigeration fails.

And there will lots of black humour as people try to cope. In the Philippines in 1993 one popular joke was to ask: “What did people use for lighting in the Philippines before they used candles?” Answer: “Electricity.”

If you've read Five Short Blasts or have been following this blog, you've heard me claim that the World Trade Organization (WTO), in a stunning repudiation of its basic free trade tenets, actually enforces protectionism for two thirds of its member states. You may have been skeptical. I offer this article as proof.

Just read through the list of provisions currently under consideration in the latest round of WTO negotiations. Especially pay attention to the last one:

* New members. The new text drops the proposed grace period for the implementation of tariff cuts for recent members such as China, and changes the extra time proposed for implementation of new members to 3-4 years from 2-5 years. Thus China would have up to 14 years to implement tariff cuts, compared with 10 for other developing countries and 5 for developed members. The text retains a footnote that such new members may be able to seek further favourable treatment than that available to other developing countries.

If the WTO truly believes that everyone benefits from free trade, why are they allowing so many countries to maintain tariffs, while insisting that the U.S. eliminate all trade barriers? The answer is that the WTO doesn't give a rat's behind about free trade. The WTO is simply the referee of parasites lining up to feed on the U.S. economy, sucking away its life blood. It's an organization that was set up to manage the redistribution of America's wealth to the rest of the world.

The U.S. had better wise up soon, show the WTO the door and return to the pre-GATT (Global Agreement on Tariffs and Trade, signed in 1947, forerunner of the WTO) trade policies that built the U.S. into the world's greatest industrial power, before we signed that asinine treaty and gave it all away.

In the song "A Little Help From My Friends," the Beatles asked the question:

"What would you do if I sang out of tune?                                                                                   Would you stand up and walk out on me?

(Although it's a Beatles tune, it's hard to think of it without hearing Joe Cocker's voice.)

Well, economists have clearly been singing out of tune as our economy crumbles around us. And now the audience is starting to walk out. This article appeared a few days ago and I thought I had lost it until it popped up in one of my Google Alerts. I was thrilled to find it again because it goes to the very heart of what I've been saying - that economists are totally missing the mark. Wolfgang Munchau doesn't come all the way around to a new economic theory as I did, but its significant that others are beginning to ask the same question: "If economists are so smart, why is our economy such a mess? Why is economics the one field where nothing is improving?"

In this Financial Times commentary, Wolfgang Münchau ... questions the very foundation of accepted economic theory and modern central banking.

As the Bank of International Settlements said in its latest annual report, subprime might have been the trigger for this crisis, but not the cause. We do not have a full understanding yet of what happened but the BIS suggested that fast expansion of money and credit must have played a role. I would go further and say this is not primarily a crisis of financial speculation, but one of economic policy. Its principal villains are therefore not bankers, but economists – not in their role as teachers and researchers, but as policy advisers and policymakers...

The problem with economists is that they have strayed too far from the simple math of a balance sheet and tried to turn economics into some far more complicated science or worse, a game played with their latest darling concept, "game theory." They would be much better served by focusing on the balance sheet and asking the question "why" when the numbers don't add up. They would be better off if they would get over their childish anger at Malthus for smearing the reputation of their "science" and start questioning what happens when we try to cram more and more people into the same amount of space. What happens to per capita consumption? What happens when productivity rises but per capita consumption falls? What happens when two nations, grossly disparate in population density, attempt to trade freely with each other? Why is it that their beloved "principle of comparative advantage" seems to failing the U.S. so disastrously? (For answers to these questions, read Five Short Blasts.)

Our next president would be much better served if he chose accountants for his key economic roles instead of these "economists" whose brains have been turned to mush through years of learning a bunch of irrelevant gibberish.

The Chinese reform effort over the last 30 years focused on establishing an effective socialist market economy. The general approach to reform to achieve this objective has been one of gradualism. China has adopted a ‘scientific approach’ by sticking to the facts and focusing on economic development through pragmatic policy innovation. For example the introduction of the household responsibility system, the liberalisation of rural entrepreneurship, the establishment of Special Economic Zones, and financial market deregulations were all implemented in a gradual and incremental fashion yet brought about large benefits for society. However, not all reforms have been gradual. Many have required bold policy experiment and strong political leadership.

The ‘incrementalist’ approach often led to the establishment of dual economic systems (for example in pricing structures). This approach gave China the flexibility it needed to make progress with gradual reform and manage the costs of reform effectively. It provided time to learn the lessons from previous reform efforts.

Economic reform has also occurred hand-in-hand with political reforms. The introduction of the household responsibility system for example involved a big political, and not just economic, reform. China recognised that economic reform cannot leave the political system behind. For example, agricultural reforms also involved giving power to the farmers to give them autonomy in their operations to seek economic development. This required significant changes to the administrative system. The initial stages of democratic principles have been incorporated into the Chinese political system. While political decision making still relies heavily on ‘big men’, the decisions which they make are increasingly on the basis of significant review and consideration across the party and across society, particularly with respect of promoting new leaders to the Party leadership. While the political system is not fully democratic, it manages to reward talent and gets the best and brightest candidates to top positions.

Reform successes brought with them some significant challenges including uneven levels of regional development. In addition, the gradualist approach to reform meant that China does not yet have a fully integrated economy as reforms have been occurring at a different pace across different regions. Rapid development has also placed significant environmental and resource constraints on the Chinese economy. These issues highlight the need for a continuation and deepening of Chinese reform efforts.

Managing the Chinese economy through traditional macroeconomic instruments such as monetary policy and exchange rate policy also poses challenges for the Chinese economy. To date, China has adopted a flexible approach to the conventional application of these policy instruments. For example the reserve ratio for credit-giving institutions has been kept low for financial organisations which provide financing to the rural sector. This has allowed the farming sector to maintain easier access to investment funds in an attempt to reduce the uneven levels of regional economic development.

The Chinese exchange rate system is also the subject of considerable international interest and pressure as many believe it is currently contributing to the rise in global imbalances. The need to liberalise foreign currency markets has to be balanced however against China’s domestic economic and political constraints. Labour intensive industries in China may be very negatively impacted by any significant re-valuation.

It is important that any reforms in these policy areas have the flexibility to balance the interests of China with the demands of the international community. The experience in the international economy of external sector liberalisation will be very useful in helping to shape an effective reform strategy for China in this area.

Improving China’s policy efficiency will be the central element in effectively managing these issues into the future and central to balancing domestic and international obligations. This will involve:

• Developing a deeper understanding of what institutions within the economy have been driving the reform and interpreting the reform process. These include those institutions through which policy decisions are made and digested at the very top level.

• Analysing and improving those policy processes and institutional structures which exist to manage the impact of the integration of the Chinese economy in the global economy.

• Understanding and improving the processes that serve to assess the complexities of impact of structural reform on ability to assess the consequences of reform beyond their immediate impact given that unexpected consequences of reforms are an inextricable part of the reform process.

Three decades of reform are only the first step in the long march of Chinese people to achieve the goals of economic development and modernisation envisaged by Deng when the process began. Many achievements have been made in both political and economic reforms but to overcome the challenges now facing the Chinese economy deeper structural reforms are required. Many important lessons can be learned from the experience of other countries in the international community to help meet these challenges.

---

This is exctracted from the conference summary from the EABER project on Institutional Strategies for Improving Micro Economic Policy Foundations.

The China Update is on Monday at the Australian National University with presentations by Jeffery Sachs (Columbia University), Jeffery Bader (Brookings Institution), Wing Thye Woo (Brookings Institution), Yiping Huang (Citigoup and Australian National University), Warwick McKibbin (Australian National University) and Ross Garnaut (Australian National University). Their chapters appear in the book China's Dilemma: Economic Growth, the Environment and Climate Change which will be luanched tomorrow.

John McCain would like to claim the legacy of the last popular Republican president, Ronald Reagan. He took a big step toward that goal on Monday when he explained his plans to balance the budget by 2013. Just like Reagan, Sen. McCain claims he can cut taxes, increase defense spending, and balance the budget. For his next trick, he will juggle 27 flaming bowling balls, while standing on one foot on the back of a charging bull, blindfolded.

Just thought I would share that imagery with you.  Go check out the rest of the Lowdown.

-Josh

The report also shows that one in every 501 U.S. households received a foreclosure filing during the month.

“June was the second straight month with more than a quarter million properties nationwide receiving foreclosure filings,” said James J. Saccacio, chief executive officer of RealtyTrac. “Foreclosure activity slipped 3 percent lower from the previous month, but the year-over-year increase of more than 50 percent indicates we have not yet reached the top of this foreclosure cycle. Bank repossessions, or REOs, continue to increase at a much faster pace than default notices or auction notices. REOs in June were up 171 percent from a year ago, while default notices were up 38 percent and auction notices were up 22 percent over the same time period.”

Nevada, California and Arizona continued to document the three highest state foreclosure rates in June.  Florida, Michigan, Ohio, Colorado, Georgia, Indiana and Utah were other states that made the top ten.

For the third month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report.

RealtyTrac noted that "Foreclosure filings were reported on 8,713 Nevada properties during the month, up nearly 85 percent from June 2007, and one in every 122 Nevada households received a foreclosure filing — more than four times the national average."

"One in every 192 California properties received a foreclosure filing in June, the nation’s second highest state foreclosure rate and 2.6 times the national average."

"One in every 201 Arizona properties received a foreclosure filing during the month, the nation’s third highest state foreclosure rate and nearly 2.5 times the national average. Foreclosure filings were reported on 12,950 Arizona properties, down less than 1 percent from the previous month but still up nearly 127 percent from June 2007."

"Foreclosure filings were reported on 68,666 California properties in June, down nearly 5 percent from the previous month but still up nearly 77 percent from June 2007. California’s total was highest among the states for the 18th consecutive month."

"Florida continued to register the nation’s second highest foreclosure total, with foreclosure filings reported on 40,351 properties in June — an increase of nearly 8 percent from the previous month and an increase of nearly 92 percent from June 2007. One in every 211 Florida properties received a foreclosure filing during the month, the nation’s fourth highest state foreclosure rate and 2.4 times the national average."

"Foreclosure filings were reported on 13,194 Ohio properties in June, the nation’s third highest state foreclosure total. Ohio’s foreclosure activity increased 7 percent from the previous month and 11 percent from June 2007. The state’s foreclosure rate ranked No. 6 among the 50 states. Other states in the top 10 for total properties with filings were Arizona, Michigan, Texas, Georgia, Nevada, Illinois and New York."

"Seven California metro areas were in the top 10, and the top three rates were in California: Stockton, with one in every 72 households receiving a foreclosure filing; Merced, withone in every 77 households receiving a foreclosure filing; and Modesto, with one in every 86 households receiving a foreclosure filing. Other California metro areas in the top 10 were Riverside-San Bernardino at No. 5; Vallejo-Fairfield at No. 7; Bakersfield at No. 8; and Salinas-Monterey at No. 10."

"The top metro foreclosure rate in Florida was once again posted by Cape Coral-Fort Myers, where one in every 91 households received a foreclosure filing — fourth highest among the nation’s metro foreclosure rates. The foreclosure rate in Fort Lauderdale, Fla., ranked No. 9. LasVegas continued to be the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 99 Las Vegas households received a foreclosure filing in June, more than five times the national average and No. 6 among the metro areas."

"Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 13, Miami at No. 15 and San Diego at No. 17"

RealtyTrac does not expect foreclosure activity to ease up until 2009.

Warwick McKibbin reckons that emissions targets are the wrong way to address the global warming problem. Does anyone agree? Certainly not Garnaut (see the review) who sees emissions targets and trading as central to efficient market-based achievement of reduced carbon emissions that might insure against the worst effects of climate change.

Auctioning carbon permits and trading them, as well as a carbon tax, both result in a price on emissions and no amount of mumbo-jumbo should disguise the fact. And the strategy favoured by Australia’s climate change adviser involves working towards a global carbon price through linking emissions trading schemes.

For a carbon tax to work, you can’t escape negotiating a global tax regime. Mckibbin confesses as much:

I agree that we need a world price for carbon. This can be achieved by picking arbitrary targets for each country and then having each country trade until a world price is reached. Problem with this is that if one major country pulls out the global market will be undermined – or in the European ETS analogy if one country over-allocates the system price will collapse.

Or, he might have said, it has to be achieved through negotiating a global tax (read price) regime?

So everyone seems agreed that we need a market-based policy instrument to reduce CO2 emissions. There is only a question about whether to implement carbon taxes, tradeable emissions permits or some hybrid of the two.

John Quiggin cites three reasons for preferring the tradeable emissions permits route:

First, while the natural starting point for both systems is one in which the government collects the entire implied value of emissions, either as tax revenue or as the proceeds from auctioning permits, the emissions trading system allows for (but doesn’t require) free allocation of some permits. Particularly in transitional stages when not all sources are covered, this can be used to offset unanticipated distributional consequences of the scheme, and thereby increase its political feasibility. Obviously, if you’re strongly opposed to any compensation of existing emitters and are prepared to risk total failure rather than concede this point, this is a disadvantage rather than an advantage. (It’s important not to issue too many free permits as was done with the first round in the EU, but some limited issue might be beneficial. I don’t want to overstress this point as much the same outcome can be achieved by paying cash compensation out of tax revenue.

Second, since we are uncertain about the elasticity of demand for emissions we are faced with a choice between allowing this uncertainty to be reflected in uncertainty about reaching the targeted level of reductions in emissions, uncertainty about the price, or some mixture of the two. Given the risk that we will fail altogether if individual countries fall short of their targets, I’d prefer some uncertainty about the price

Third, and most importantly, the ultimate solution has to be an international agreement to reduce emissions in the most cost-effective way possible. The obvious way to do this is through the creation of international markets for emissions permits. Although a full-scale global market might be some way off, regional or multiregional markets linked through something like the existing Clean Development Mechanism could be set up reasonably easily. By contrast, I can’t see how, in a world of sharply varying exchange rates, it would be possible to set up a co-ordinated global system of carbon taxes.

And in response McKibbin says to that:

a global carbon market is a theoretical construct that cannot in my view survive a change of major governments over the political cycle in major countries or given the shocks that we don’t know yet will occur.

But why, asks Ian Gould, does McKibbin believe that the hypothetical carbon market is fundamentally different to the CFC-regulation model set up under the Montreal Protocol?
As Gans observes, McKibbin has tried from before Kyoto to develop an argument that would secure political support for his scheme, but has not yet succeeded in that job anywhere in the world.

Those who advocate carbon taxes rather than emissions targets and tradeable permits schemes, have to put up or shut up on negotiating the price or tax. Anyone who advocates a carbon tax has to put up on three questions: 1) When it starts and at what rate 2) How it would change over time and 3) How it would be negotiated internationally, given where we are in global climate change negotiations. And when they do, they had better name a price that bites, not a mickey mouse Nordhaus price (A Question of Balance, p 15) that that will shift nothing, if they really mean it to have effects.

As Quiggin says, most of us would prefer uncertainty about the price not the impact, and that is why he goes for targets and an emissions trading scheme like that the Garnaut report proposes. That is what the choice is here.

The world has already gone a long way down the track towards an emissions trading system (with some modest hybrid elements) and this is the way we are going to go. At this point, it’s more important to push for urgent action (with the phase-in that Garnaut has proposed in developing an emissions trading scheme) than to get hung up in disputes about the details and who’s purer than whom.

Among the key findings of the latest report from Radar Logic:

• The broad housing slump continued as consumers showed persistent lack of confidence and difficulty in financing home purchases.
• April 2008 continued to exhibit price per square foot (PPSF) weakness compared to last year in almost all markets. One MSA showed net year-over-year PPSF appreciation, one was neutral, and 23 declined.
• The Manhattan Condo market showed a 3.6% increase in PPSF year-over-year coupled with an increase in recent transactions despite a modest decline of 0.7% in month-over-month prices.
• Charlotte’s increase of 1.5% in year-over-year PPSF moved its rank among the 25 MSAs to number 1. This represents an increase over the 0.1% year-over-year PPSF appreciation last month.
• Columbus showed year-over-year PPSF appreciation of 0.2% for April 2008, which is an increase from last month’s year-over-year decline of 4.3%.
• New York declined 3.0% year-over-year in April 2008, its second decline in Radar Logic’s published history (beginning in 2000).
• Sacramento, the lowest-ranking MSA, showed a 31.7% decline from April 2007, which is consistent with last month’s decline of 30.6%.

 The ten biggest declines in per-square-foot values from last year were in these markets:

Sacramento (-31.7%)

Las Vegas (-29.9%),

San Diego (-28.1%)

Phoenix (-25.6%).

Los Angeles/Orange County (-23.4%).

Miami (-22.4%).

St. Louis (-19.8%).

San Francisco (-19.7%).

Tampa (-16.6%).

Detroit (-16.1%).

You can read the full Radar Logic report here.

Social security is the closest thing the United States has to a universal, equitable entitlement program.  It's solvent, successful, and has worked extremely well - especially compared to other social policy programs - for 75 YEARS.

I guess McCain forgets that we can't all be married to heiress millionaires, run up hundreds of thousands of dollars on our credit cards each month, own so many properties we forget to pay taxes for four years on one of the seven, and enjoy a prominent career in public service as a third generation military leader (Navy Admirals).

I hope he remembers that we sure don't have to vote for such people either.

Before [...WHAT??? THE DAWN OF TIME? THE NEOLIBERAL ERA?  THE BUSH OLIGARCHY?], [the government's] more modest mission was to make more loans available at lower rates. Now it is to make sure loans are made at all. The government is setting the terms and the standards of Americans’ biggest loans.

On Sunday, that federal oversight and protection was made more explicit, as the Bush administration sought to mount a rescue of Fannie and Freddie, asking Congress to devote public money to buying the two companies’ flagging stocks.

The new reality is scorned by libertarians and conservatives, who fear state intrusions on the market, and by populists and progressives, who dislike the idea of education and housing increasingly resting upon the government’s willingness to finance it.

Bah.  I consider myself a progressive, but have always wondered if I'm really just an old school liberal.  What are labels anyway?  I personally think this is long overdue, and wouldn't have been necessary if our government had just sensibly regulated the markets to start.  Oh boo, suddenly we all have a "free market" hangover.  Aren't Mondays a bitch?

Block out the Repub complaints that these two entities are somehow enjoying "privileged" treatment.  Just like Bear Stearns and Wall Street, I suppose, and thank goodness.

It seems a strange coda to an era in which markets were sacred, and regulation heresy. [...]

...in the aftermath of a financial crisis brought on by what were once called American virtues — financial engineering and risk management — Washington may bail out Fannie and Freddie for the simple reason that they are too big to fail. If they go down, so do whole neighborhoods. So, perhaps, does the global financial system.

“The thing we have to do now is to make sure that Fannie and Freddie remain solvent and continue to make loans,” Mr. Baily said. “We just don’t have any choice.”

True dat.  Good luck next year, Sens. Obama or McCain.

Only by chance I have discovered, today,  that on February 1st this year, my Economic Policy professor at the University of Naples disappeared. I can say that my choice of attending his course was one of the best in my entire career; it wasn't an easy subject, I had to give the exam three times before taking it (I wasn't satisfied with the grade), but he made it possible for us to learn how to have a critical approach to economic policy and keep our own opinions as independent and free from any kind of external influence.

He was professor at both Siena's University and Naples'. In 1984 he was host at Harvard University to research on J. K. Galbraith economic thought. He mainly focussed his research on: macroeconomic theories, history of economic thought, theory of property rights and entrepreneurship, Italian economy, development problems in southern Italy. He was an amazing professor and a great man.

Goodbye Professor

So which of these guys has the correct answer?   Well, on the one hand there's this guy trying to get elected president, so what else is he going to say?  Then on the other hand, we're really not technically in a recession yet so Phil has a point.  They are both right and they are both wrong which is something only an economist could say and I couldn't resist living up to the old joke. Okay, I'll break it down into a few more  stylized facts.

Our growth rates is somewhere between 0 and 1, our unemployment rate is pretty much where it should be, and most of the economic indicators are mixed, at best.  We're in a very slugglish growth period, but there still some major economic indicators that are showing neutral or positive.  That doesn't mean that all of us are living the same reality, however.  The real answer to the question depends on WHO you are and WHERE you live.  The economy is stagnant at the moment, and we're in for a period of time where Americans are going to have to get use to making some tough choices and not seeing forward momentum.  We're basically all working and staying pretty much in the same place.  Our clothing is costing us a lot less. We've got electronic gadgets galore and they are all really cheap.  Have you priced computers, dvd players, or stereos recently?  They're all pretty cheap and just about any one can get to them.  However, health care, driving, and eating are going from cheap to pricey.

The question of high energy prices and the segments of America that aren't doing so well come mostly from globalization of the world economy that brings both good developments and bad. This is not going to reverse.   As the economy adjusts, all buyers will win from global trade but those whose jobs go abroad will loose, and some will loose big time. We buy cheap stuff from the Chinese, they turn around and buy cars and they want gas.  This increased demand for gas means higher gas prices.  The Chinese also take jobs away from the manufacturing sector because Chinese labor comes extremely cheap and doesn't require a pension or health plan.  Those folks working for those companies that are outsourcing to other countries are miserable.  While the USA has a relatively low unemployment rate of around 5%, places like Michigan and Pennsylvania have 10%  unemployment rates.  They are suffering.  So, if you're in the medical sector, you're going to be happy as a clam.  If you're in manufacturing, prepare for a new career. Also, the government has grants out there to retrain folks loosing jobs from NAFTA.  If you can prove it's from NAFTA, go get it now!

438,000 jobs have been lost bringing unemployment to 5.5 percent.  This is not a bad situation now, but if it continues, chances are we will be looking more like  recession.  Economists consider this rate to be close to the rate that represents what it should be if we are operating at capacity.  The big question is:  WILL IT GO UP?

So what about the financial crisis?  How widespread is the mortgage problem?  The housing crunch is wrecking the construction industry in places like Miami, Las Vegas, and Los Angeles.  However, down here in New Orleans, the construction industry can't find enough workers and is booming like never before.  So Housing Foreclosures are a major problem in places like California, Nevada, and Florida.  Many of these foreclosures are for house flippers.  These folks are speculators and can whine all they want but that's business and that's what you get when the market moves against you.   However, folks that were suckered into bad loans by mortgage brokers are a different matter.  These folks are loosing their homes for banks that were looking for high fee income and basically put people into mortgages they couldn't handle.  Government regulation and help is required here.  We're not likely to get that as long as Dubya is in office. He's threatening to veto the current bill.  (All of the sudden our prez (the BIG spender) goes fiscally responsible on us!)  I'm waiting for both McCain or Obama to come up with specific plans here.  Hillary Clinton was the only one who spoke to this situation and her answer was a moratorium on rates.  I think we're going to need some federal bonds to fund some of these folks.  It's something similiar to what we did during the Great Depression to keep families in their homes and off the street.

So there are several markets that are a huge mess.  The automobile industry and some sectors of manufacturing and  the financial industry which has spilled into the housing industry,  But again, most of the impact from these sectors is hitting some states hard and other states not so much at all.

Unfortunately, a lot of the higher prices are due to those high food and gas prices which are not a function of a bad U.S. economy, they are a function of problems in the global economy. There is also a continuing pattern since the 1980s that has left the rich getting richer and the poor and middle class getting poorer.  The income inequality problem is worsening in this country and it looks as though it will continue. This is why it is essential that everyone has access to quality education at all levels.  We should consider allowing more students attend university on the taxpayer's dollar.  Aid should definitely be mean income tested.  It is much cheaper to send a teenager to school than it is to house him in a jail for the rest of his life.

These are some steps we can take to solve some of these things.  First, as long as U.S. business has to pick up the tab for worker's health insurance, the U.S. worker will not be competitive.  We need universal health care paid for by individuals/taxpayers on an ability-to-pay basis.  Second, all agriculture price supports, set aside programs, and subsidies, especially to ethanol, should be halted.  Third,  we all need to conserve energy and switch to other fuels sources (with the exception of ethanol made from things that are food).  If we are making biofuels, then we need to use garbage or chicken fat or some byproduct, not food itself.

So, which of the candidates are up to the challenge?  I don't think either of them are, but I'm waiting.