Relevant and even prescient commentary on news, politics and the economy.

Greek Deal

I am trying to understand what, if anything, was agreed by Greece and the rest of the EU yesterday. I’m not sure they even agreed to kick the can down the road.

update 11:00 AM EST Tuesday 2/24/2015: It’s a deal. Greece has four more months without promising a 4.5% of GDP primary surplus.

I think Matt O’Brien wrote a very good explainer for wonkblog at the Washington Post (as usual — he is well worth following). His bottom line seems to be that, while the agreement presents itself as a Greek surrender, they haven’t conceded the key point.

Greece got Europe to concede that it “will, for the 2015 primary surplus target, take the economic circumstances of 2015 into account.” In other words, Greece won’t have to do the austerity it was supposed to this year.

However, the rest of Europe hasn’t conceded yet either, since they have not agreed to rollover any loans Liz Aderman and James Kanter report for the New York Times

On Monday, Greece must send its creditors a list of all the policy measures it plans to take over the next four months. If the measures are acceptable, European finance ministers could sign off on an extension of the bailout agreement on Tuesday.

So the result of the dramatic agreement is that Greece hasn’t promised further austerity in exchange for a bailout and the rest of Europe hasn’t promised a bailout. They have delayed for four more days deciding whether to delay for four more months the inevitable concession that Greece will not pay its foreign debts.

So all in all the best that could be hoped.

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Shocking incentive failure rate in North Carolina

@sandymaxey points me to a new report from the North Carolina Justice Center that is making my head spin. Picking Losers shows that the state’s flagship development program, the Job Development Investment Grant (JDIG), has seen 62 of its 102 projects fail in the period from its inception in 2002 until 2013. That is, 60% of the projects failed to meet either their job, investment, or wage goals, and had to have their awards canceled.

60%! This isn’t baseball, where a .400 batting average is outstanding, a feat that hasn’t been accomplished since Ted Williams in 1941. Let me tell you about a different failure rate: Investment Quebec takes equity stakes in a number of tech start-ups and other new companies. When I interviewed the director in Montreal in 2007, their failure rate was only 20%, a figure he considered needed to be reduced. In North Carolina, we are talking about a failure rate three times as high, despite giving the awards to firms that should not be nearly so risky.

One such firm was Dell Computers. In 2004, the company conducted a bidding war for a new computer manufacturing plant between Virginia and North Carolina. But North Carolina’s analysis of the project was so out of whack that in nominal dollars it offered almost $300 million ($174 million present value) compared to Virginia’s offer of $37 million. The plant shut down completely in 2010.

Here’s the paradox: North Carolina has some of the best taxpayer protections in the country; indeed, state and local governments lost only a few million dollars when Dell failed. The state is rigorous about canceling awards and clawing back monies already paid out. But the problem is that the state’s economic analysis of potential projects is simply atrocious. The 60% failure rate is one sign of this. The Dell fiasco, analyzed by the NC Justice Center and the Corporation for Enterprise Development in 2007, shows another aspect of fanciful economic modeling.

What can be done? I’ve written before about the weakness of economic development cost-benefit analysis. Even by that low standard, North Carolina’s performance is breathtaking. Report author Alan M. Freyer suggests that the Legislature needs to resist calls to expand JDIG or create another fund with the same purpose, maintain its jobs standards, focus on expanding industries, vastly improve its evaluation of potential projects, and focus help on rural counties. I would add that the state should reverse its cuts to education, one of North Carolina’s economic development crown jewels to date, and restrict its subsidies only to those types shown to have a positive national impact, primarily customized training for companies and generalized training for individual workers. Improving skills increases workers’ income, and it also strengthens the U.S. economy as a whole, as opposed to simply building up a company’s bottom line.

Cross-posted from Middle Class Political Economist.

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Researcher at San Francisco Fed warns of Excessive Easy Monetary Policy

Today we see an article, Betting the house: Monetary policy, mortgage booms and housing prices by Oscar Jorda, Moritz Schularick, Alan Taylor. They warn of excessive easy monetary policies.

Their research uses a large data set.

“In our new paper (Jordà et al. 2014), we analyse the link between monetary conditions, mortgage credit growth, and house prices using data spanning 140 years of modern economic history across 14 advanced economies. Such a long and broad historical analysis has become possible for the first time by bringing together two novel datasets, each of which is the result of an extensive multi-year data collection effort.”

Their research gives a warning that low interest rates will be detrimental to the stability of the economy.

“These historical insights suggest that the potentially destabilising by-products of easy money must be taken seriously and considered against the benefits of stimulating flagging economic activity… Resolving this dichotomy requires central banks to make greater use of macroprudential tools alongside conventional interest rate policy. “

The implication may be that conventional interest policy would suggest a higher Fed rate than we currently see.

Keynes also wrote that low interest rates used to stimulate an economy could eventually produce more waste than benefits. (Chapter 22 of General Theory)

“… it is, I think, arguable that a more advantageous average state of expectation might result from a banking policy which always nipped in the bud an incipient boom by a rate of interest high enough to deter even the most misguided optimists. The disappointment of expectation, characteristic of the slump, may lead to so much loss and waste that the average level of useful investment might be higher if a deterrent is applied.”

The Federal Reserve would like to get out of the Zero Low Bound business, if they can.

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Clinton-Becerra 2016

I am not going to say nobody ever thought of this pairing, but a quick trip around the Google-sphere got me a paucity of results. So I am going to stake my claim here.

Why Becerra? (Or for some Becerra who?)

Chicano. California. Ambitious. Young. CPC (Congressional Progressive Caucus). The guy ticks off so many boxes that it is ridiculous. Particularly the CPC piece. Clinton needs the support of the Warren Wing of the Democratic Party. And once you go down that list you just don’t find many leaders who can step up AND provide the needed electoral balance. Love me some Raul Grijalva (CPC co-chair). But he is not even going to deliver Arizona. Also admire Keith Ellison (CPC co-chair). But in the immediate wake of Obama the possibility of actual installing a person who is actually a Muslim as well as being black from a State that Hillary would win hands-down anyway (Minnesota) is not happening. And you can go down the list of CPC’ers and not find anyone who is enough opposite to Hillary to make for balance.

My second prediction would be Martin O’Malley. But face it, the guy is not about to whip up excitement in places where you need the votes. Of course I am not only probably wrong, I am almost certainly wrong, and for reasons AB readers will be happy to point out in Comments all of an idiot, a loon, and a fecklessly idiotic loon.

Okay. But you heard it here first. (Unless you are WAY deep in the fever swamps of the polit-Toobz)

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