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

Climate change, NY State bonds, and risk

The New York Times points us to a possible first in the state government bond market. My initial reaction was to wonder about flood insurance risk assessment by state, and wether our conversation might go beyond FEMA into more real areas of risk assessment. Mostly we seem to spend our time not avoiding risk but arguing about reactions to risks taken over time.

In the wake of Hurricane Sandy, the administration of Gov. Andrew M. Cuomo has started to caution investors that climate change poses a long-term risk to the state’s finances. .

The warning, which is now appearing in the state’s bond offerings, comes as Mr. Cuomo, a Democrat, continues to urge that public officials come to grips with the frequency of extreme weather and to declare that climate change is a reality.

A spokesman for Mr. Cuomo said he believed New York was the first state to caution investors about climate change. The caution, which cites Hurricane Sandy and Tropical Storms Irene and Lee, is included alongside warnings about other risks like potential cuts in federal spending, unresolved labor negotiations and litigation against the state.

But David Hitchcock, a senior director in the public finance practice at Standard & Poor’s, said climate change was not a criterion in evaluating state finances. “I have a hard time finding a direct relationship for climate change on New York State’s economy at this point,” he said, adding, “It’s not something that’s really on our radar screen right now.”

Emily Raimes, a vice president at Moody’s Investors Service, said “more disclosure is always a good thing.” But she added that most of the risk for local and state governments from powerful storms was mitigated by the presence of the Federal Emergency Management Agency, which provides disaster aid to assist states and local governments.

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Social Security payroll contribution not a problem

This item confirms that the Northwest Plan for Social Security would work rather well for Congress, Social Security, and beneficiaries. Beltway conventional wisdom thought otherwise. My own reaction was of puzzlement by the Beltway conventional wisdom.

Fiscal Times reports:

We’ve already seen evidence that consumers have largely shrugged off this year’s expiration of the payroll tax holiday. A new survey from Bankrate.com suggests one reason, beyond the housing rebound and stock market rally: many simply haven’t seen the hit to their paychecks. Tax hike? What tax hike?

The payroll tax rate reverted to 6.2 percent this year after two years at 4.2 percent. Yet nearly half of working Americans surveyed (48 percent) said they haven’t noticed the higher taxes. Another 7 percent said they haven’t been affected.

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Real wages decline; literally no one notices

Cross-posted from Middle Class Political Economist.

Your read it here first: Real wages fell 0.2% in 2012, down from $295.49 (1982-84 dollars) to $294.83 per week, according to the 2013 Economic Report of the President. Thus, a 1.9% increase in nominal wages was  more than wiped out by inflation, marking the 40th consecutive year that real wages have remained below their 1972 peak.

Yet no one in the media noticed, or at least none thought it newsworthy. I searched the web and the subscription-only Nexis news database, and there are literally 0 stories on this. So I meant it when I said you read it here first. In fact, there was little press coverage of the report at all, in sharp contrast to last year.

Below are the gory details. The data source is Appendix Table B-47, “Hours and Earnings in Private Non-Agricultural Industries, 1966-2012.” The table has been completely revised since last year’s edition of the report. The data is for production and non-supervisory workers in the private sector, about 80% of the private workforce, so we are able to focus on what’s happening to average workers rather than those with high incomes.. I use weekly wages rather than hourly because there has been substantial variation (with a long-term decline) in the number of hours worked per week, from 38.5 in 1966 to 33.7 in 2012. The table below takes selected years to reduce its size.

Year     Weekly Earnings (1982-84 dollars)

1972     $341.73 (peak)
1975     $314.77
1980     $290.80
1985     $284.96
1990     $271.10
1992     $266.46 (lowest point; 22% below peak)
1995     $267.17
2000     $285.00
2005     $285.05
2010     $297.79
2011     $295.49
2012     $294.83 (still 14% below peak)

This decline is especially amazing when we consider that private non-farm productivity has doubled in this period:

But, if you’ve been paying attention, you know the drill: higher productivity plus lower wages = greater inequality. The question is, why aren’t our media paying attention when real wages fall, yet again?

Update: Jon Talton at the Seattle Times has now taken note of this.

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Tom Goldstein of SCOTUSblog tweets, during the short break after the first hour of argument in the California Prop 8 case, that …

Breaking: 1st update- #prop8 unlikely to be upheld; either struck down or #scotus won’t decide case. More in 30 mins.
This is the more important of the two gay-marriage cases.  Tomorrow’s argument will be on the constitutionality of the federal Defense of Marriage Act (DOMA), but almost no one (best as I can tell), thinks the Court will uphold the constitutionality of that Act.  The real suspense* is in the Prop 8 case.  So ….

UPDATE: Here’s Tom Goldstein’s post-argument report.

SECOND UPDATE: This one’s from Reuters. It seems to me that the Roberts comment quoted in the article is very significant. In a good way.

THIRD (and final, for at least a few hours) UPDATE: Here’s SCOTUSblog’s Lyle Denniston’s take.  He’s my (and many, many others’) go-to guy on all things Supreme. He seems to think that they’ll simply dismiss the Supreme Court case, saying that the petition grant was “improvidently granted,” leaving the Ninth Circuit opinion intact.

That would leave intact the Ninth Circuit ruling–which was that, because California already had been allowing same-sex marriage before Prop. 8 was approved in 2006, in localities that approved it, the state could not suddenly render those marriages null and void.  Doing so would violate the Fourteenth Amendment’s Due Process clause.  And since some gays already were allowed to be married, and their marriages would continue to be recognized by the state, refusing to allow other gays to marry would violate the Fourteenth Amendment’s Equal Protection clause. That’s the ruling that would remain in effect if the Supreme Court rules that the Prop. 8 petitioners have no legal standing to be a party to the case.  

That now seems more likely to me than the other option that would allow them to avoid deciding on whether same-sex marriage is a constitutional right.  That other option would be to rule that “the petitioners”–the group that earlier asked the Ninth Circuit, and then asked the Supreme Court, to “vacate” the lower-court rulings and uphold the constitutionality of Prop. 8–don’t have “standing” to be a party to the lawsuit, because they would have no injury from a court ruling striking down Prop. 8 that is sufficiently direct and significant to meet the Article III standing requirement.  

If they go the “no standing” route, that would leave intact not the Ninth Circuit ruling based on narrow grounds but instead the lower, trial-court judge’s ruling, which was based on much broader grounds.  The effect would be somewhat, but not entirely the same, whichever of these two options they choose.

As I understand it, if they choose the option that leaves the Ninth Circuit opinion in place, that would mean that localities in California would have the option to allow same-sex marriage but would  not be required to allow it, although all government entities throughout the state would have to recognize any same-sex marriage as legal. If they instead choose the option that vacates the Ninth Circuit opinion and restores the lower, trial-court ruling, by ruling that the petitioners have, and had, no legal standing to appeal from the trial-court ruling either in the Ninth Circuit Court of Appeals or in the Supreme Court, that would mean that, for now, in central California, within the trial-court level federal court district where the case was filed and where the trial-court ruling was issued, Prop. 8 would be invalid and all localities within that court district would be required to allow same-sex marriage.

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*Originally, I used the word “action,” but changed it to “suspense” because, if the Court strikes down DOMA as unconstitutional, that would be big, important action. I really meant “suspense,” because I do think the striking of DOMA is highly likely; not much suspense on that. But tomorrow’s argument will give some hint about whether I’m right.

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Is ‘overbanked’ going to be a common household word?

Via The Big Picture and Ritholz comes Nervousness in over banked Europe

Go no further than the following two charts to understand why markets freaked out over Dijsselbloem’s comments.    Europe is way overbanked and vulnerable to financial sector shocks.
Even in the so-called “safe haven” Switzerland the banking system is outsized relative to the country’s GDP.  Compare the relative size of UBS, for example,  to the largest bank in the U.S.,  JP Morgan.  Nuff said.

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Nature bats last

David Zetland writes a well written nine page look at the limits of economics in at least the media and political level, and a look at the limits of what economic models have to offer most people. This will be a series of posts highlighting major points over time. The paper must be downloaded to read.

by David Zetland Wageningen UR – Environmental Economics and Natural Resources Group; PERC – Property and Environment Research Center

Economists Owe Ecology an Apology
March 9, 2013

Part 2 from the series Economists owe ecology an apology

Nature bats last

“When we try to pick out anything by itself, we find it hitched to everything else in the Universe.” —John Muir (1911)

“The economic problem of society is…a problem of the utilization of knowledge which is not given to anyone in its totality.” —F.A. Hayek (1945)

John Muir and fellow conservationists, environmentalists and ecologists understood the world not as a machine to bend to man’s will but as a life-supporting organism that reckless humans could damage. They worried about the conversion of wetlands to farm lands, of forests to timber, of rivers to ditches of industrial effluent. Their worries were not based on simple calculations of costs and benefits; they were based on endless observations of the delicate, surprising and endless connections among flora and fauna, rocks and rivers, air and light. They worried that we were harming the ecosystems supporting our prosperity under the dual influences of ignorance and hubris. Economists sympathetic to these views worried that complex human interactions could be mismanaged and damaged like ecosystems. F.A. Hayek, Ronald Coase, Elinor Ostrom and other institutional economists argued against oversimplifying complex systems into reduced-form models and suggested simple policies and limited actions when it came to managing society.

Their humility did not appeal to politicians who liked to direct, bureaucrats who liked to push and pull, or industrialists whose machines rested at the center of (calculated) national wealth—all of them active managers when it came to manipulating factors and adjusting accounts in a quest to achieve the optimal mix of visible costs and benefits. Machine managers disliked fuzzy, vast conceptualizations of biomes that evolved in chaotic directions; they preferred the mechanisms and flow diagrams of industrial consultants who bestrode the world delivering a future from logical minds uncluttered by doubt. Sure, they added columns and rows to “internalize the externalities” in their ledgers, but they could not add what they could not measure. Their optimal exploitation and discharge diagrams seemed complete, but they failed to include the wisdom of ages: don’t shit where you eat.

It was soon clear that the absence of evidence of problems does not equal the absence of problems; unexpected damages pulled expected outcomes off course. Although trouble could be blamed on techno-optimism, national security, consumerism, and other forces, economists deserve blame for promoting accounts, models and theories that promised to quantify life quality, optimize human action, and integrate the environment, but they failed. Not all economists should be blamed for these failures—we’ll hear from them below—but the mainstream majority can be. Their dominance and influence drove the process and created a reputation which only some of us deserve but all of us bear. Let’s review the charges.

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Where the Story Begins

We generally start this evening with the birth of Moses (Exodus 2:2-3; “And the woman conceived , and bare a son: and when she saw him that he was a goodly child, she hid him three months. 3 And when she could not longer hide him, she took for him an ark of bulrushes, and daubed it with slime and with pitch, and put the child therein; and she laid it in the flags by the river’s brink.”) or at the earliest the declaration of Pharaoh (1:22; “And Pharaoh charged all his people, saying, Every son that is born ye shall cast into the river, and every daughter ye shall save alive.”) But understanding only comes if you start a bit earlier, and realize the demographic dilemma, highlighted by Exodus 1:5-10:

And all the souls that came out of the loins of Jacob were seventy souls: for Joseph was in Egypt already. 6 And Joseph died, and all his brethren, and all that generation. 7 And the children of Israel were fruitful, and increased abundantly, and multiplied, and waxed exceeding mighty; and the land was filled with them. 8 Now there arose up a new king over Egypt, which knew not Joseph. 9 And he said unto his people, Behold, the people of the children of Israel are more and mightier than we: 10 Come on, let us deal wisely with them; lest they multiply , and it come to pass, that, when there falleth out any war, they join also unto our enemies , and fight against us, and so get them up out of the land.

which does not work out as planned (Exodus 1:11-14):

Therefore they did set over them taskmasters to afflict them with their burdens. And they built for Pharaoh treasure cities, Pithom and Raamses. 12 But the more they afflicted them, the more they multiplied and grew . And they were grieved because of the children of Israel. 13 And the Egyptians made the children of Israel to serve with rigour: 14 And they made their lives bitter with hard bondage, in mortar, and in brick, and in all manner of service in the field: all their service, wherein they made them serve, was with rigour.

And is only compounded by the actions of Shiphrah and Puah, in the first documented example of traison de clercs, Exodus 1:15-21:

And the king of Egypt spake to the Hebrew midwives , of which the name of the one was Shiphrah, and the name of the other Puah: 16 And he said , When ye do the office of a midwife to the Hebrew women, and see them upon the stools; if it be a son, then ye shall kill him: but if it be a daughter, then she shall live . 17 But the midwives feared God, and did not as the king of Egypt commanded them, but saved the men children alive . 18 And the king of Egypt called for the midwives , and said unto them, Why have ye done this thing, and have saved the men children alive ? 19 And the midwives said unto Pharaoh, Because the Hebrew women are not as the Egyptian women; for they are lively, and are delivered ere the midwives come in unto them. 20 Therefore God dealt well with the midwives : and the people multiplied , and waxed very mighty . 21 And it came to pass, because the midwives feared God, that he made them houses.

Given the choice between democracy and rule, Pharaoh opted for the latter. And so the story begins at the table–though not of the Exodus.

Happy Pesach!

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Due process rights

Lifted from Robert Waldmann’sStochastic Thoughts:

32. Note that the US constitution grants the same due process rights to citizens and non citizens.

This time I pick on Steve Benen who wrote

“The drones themselves are a fairly new tool, but the use of technology is tangential to the underlying point about the use of force, and in the case of U.S. citizens accused of terrorism abroad, due process rights.”

My comment

You seem to be of the impression that the due process rights of US citizens are different than the due process rights of non citizens ” in the case of U.S. citizens accused of terrorism abroad, due process rights.” There is no basis for this view in the constitution. The 5th amendment declares that there are due process rights (its framers certainly saw this as recognizing a fact not creating a right). It contains no reference at all to citizenship.

Here is the 5th Amendment

“No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

How do you imagine that an amendment which begins “no person” implies that due process rights are an issue only in the case of citizens ?

This isn’t just my reading of the text (which is not at all ambiguous). US courts have consistently held that non citizens have due process rights (note I didn’t say “all non citizens”).

Hmm it sure sounds like the 5th amendment bans war which involves killing people without giving them trials first. The many provisions for declaring war and such like are in the main body of the Constitution and might be considered repealed by the 5th (as the provision that states must return escaped slaves is not considered to be current constitutional law). Similarly the common law right to use deadly force in self defence might be considered to have been eliminated by the 5th amendment.

But I might not be crazy and I don’t imagine for a second that the 5th amendment banned war or self defence. I do insist that it allows no distinction between US citizens and non citizens. The Civil war was particularly horrible, but the legality of union troops killing confederate troops in battle was not (widely) contested.

It is clear that the 5th amendment concerns killing people who are in government custody, that is the death penalty. It does not refer to killing people who haven’t been captured and can’t feasibly be captured.

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The Great Recession captured in 1 minute of comedy

Just watch this.  It is 1 minute long.

Could it be anymore surreal?

HOW MANY TIMES DO WE HAVE TO DO THIS? HOW MANY FREAKIN’ TIMES DO WE HAVE TO LEARN THE LESSON?

Obviously, the lesson has not been relearned since at least sometime before 1992.  If it had been relearned, we would not be here still proposing solutions that sound just like, almost word for word like the 1920’s.  (start reading at 1920) I mean, it’s not like people haven’t been sounding the horn on what the results would be from the proposed solutions in 1992.   Nope, it’s the same proposals as in 1992, which will produce more of the same.

 

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