You can buy securities for $100!

Something more new for when I have to teach Monetary Policy.

The U.S. government lowered the minimum amount for buying Treasury securities to $100 from $1,000 in a plan to broaden the market to more individuals.

Treasury bills, notes, bonds and inflation-protected securities will be available to purchase in $100 increments beginning next month, the Treasury Department said yesterday in a statement.

“The new, lower minimum Treasury amount will put marketable securities within reach of more savers and investors in the United States and around the world,” Anthony Ryan, the assistant Treasury secretary for financial markets, said in the statement.

This is probably way too little, too late, but at least it is. One of the big, big differencees between Reagan’s debt and that of this government is that Reagan at least borrowed money from American households – meaning that, yes, American household wealth appreciated as budget deficits expanded.

Now? People eat their seed corn, tapping into home equity for cars and flat-screen TVs. No more govenrment savings, no more household savings. It will be interesting to see what sort of capacity ordinary households have to take advantage of this.

Bush not coexisting peacefully with fish after all

That would be one of the earlier foolish things he said (as President, anyway: “I know the human being and fish can coexist peacefully“). Who knew he could be insincere about the environment? That’s right – we did!

From the same paper that brought us the details of Cheney’s miserable hate-on for all things living, comes yet more critique of Bush directly:

With little-noticed procedural and policy moves over several years, Bush administration officials have made it substantially more difficult to designate domestic animals and plants for protection under the Endangered Species Act.

Presidents George H.W. Bush and Bill Clinton added an average of 58 and 62 species to the list each year, respectively.

One consequence is that the current administration has the most emergency listings, which are issued when a species is on the very brink of extinction.

That graph is a little skewed – there is no reason why the listings under Clinton are optimal, for example – but it paints a pretty stark picture about the priorities of this President.

Does anything so perfectly characterise this administration than not doing their job until the last possibly moment, wherein a shit job has to be done very quickly and, usually, ineffectively? I wonder where in the editorial machine of the Washington Post this environmentalist streak lies, too.

The article is a good read. The procedural, anti-scientific barriers to, well, science; the lawsuits, the open criticism of a department run by sycophantic political placements. Everything we’ve come to expect over the last 8 years, basically.

These are the reasons why arguments that Government should not be given charge of more things are so wildly off the mark – this administration is not evidence of the fallability of (big G) Government – it’s merely an embarrassment for the American voter, and a damn good reason to pay more attention to whom we elect.

By all means, wander about with asinine debates over 3am phone calls, but why not run with that idea across the board? How soon with the EPA be restored under each candidate? How soon will the judicial system be re-centred? Which candidate will actually install a government, rather than a set of politcal excuse-making and maneuvering?

Sadly, there is an Economics of all of this. Do Bush or Cheney actually believe that a lizard is a lizard is a lizard? That the exctinction of a weird type of condor is irrelevant if there are still pigeons in every city? To some extent, yeah. All Bush does is clear brush on a fake farm. Cheney hunts birds raised in cages that can barely fly. This isn’t the Sierra Club.

The reasons why this administration seems not to care about the environment are the same as applied to the energy sector; to roads; to schools. It isn’t the environment, the clean water, the good schools: they’re your environment; your clean water; your New Orleans.

The US is ruled by an aristocracy (and this includes many Democrats) whether the people admit to it or not. We are “governed” by a class of people who can purchase their own environment, their own water, their own roads and schools. They simply do not ever have to conceive of needing the things that we consider to be public goods, because they are not the public: they are the private.

It is just another form of tribalism, really. Why would most Americans really not care all that much about improving the roads in Dhaka, for example? Because we’ll never have to use them, and we’re not Bangladeshi. They’re just not our people, not our concern. Sadly, this attitude is not far beneath the surface of most of the politicians here in the last 10 years or so. Hence my argument that the best candidate is the one least interested in politics and most interested in government: Government benefits everyone; Politics is a zero-sum game.

And I have to teach Monetary Policy, this semester…

Two observations from the blog of (the liberal, the shameless, the Clintonite…and stuff) Paul Krugman:

Treasury rates have plunged close to zero, even though Fed funds is still 2.25%. Since open-market operations take place in Treasuries, I take this to mean that the Fed may not actually be able to reduce short-term rates much from current levels — which means, in turn, that conventional monetary policy has been taken off the table.

… right now Treasury interest rates are much, much lower than the Fed funds rate — around half a percent on both 1-month and 3-month bills. Weirdness like negative rates on repos aside (I’m still trying to wrap my mind around that one), basically the Fed can only drive Treasury rates down by about another half-point — which would still seem to leave Fed funds well above 1%.

How is it possible for the Fed funds rate to be higher than the Treasury rates? Well, one interpretation is that banks don’t trust each other — not even for overnight loans. Fed fund loans, after all, are unsecured.

In other words, the Fed funds rate may be more like LIBOR than the Treasury rate — and it may be being held up by a premium similar to the TED spread.

Am I being really stupid here? Or is it possible that the fear factor will soon make it impossible for the Fed even to achieve its target on the interest rate it supposedly controls?

I have been moaning about this for a while, now (in meat-space). Last semester’s Macro was a hoot – all manner of interesting things were going on. The semester before that was fun, because I was telling students all about how bad things would get.

This semester? It’s like teaching physics after a black hole shows up in the Kuiper belt and the laws of physics have just plain stopped working.

Between the Fed coming up with new and wonderful ways to give money away, and the traditional policy actions just not doing anything, what is there to teach? That there’s a difference between giving money to commercial banks while the waste-laying bad paper is mostly in investment banks? That Monetary Policy goes off the table when all official rates are pushing negative (because who really cares about the exchange of near-zero-return instruments for other near-zero-return instruments. Or even cash?)?

I think I might just shelve those chapters entirely, and teach the Austrian school this semester. Makes as much sense as anything else and a few Austrians in the Fed over the last couple of years or more certainly would have done wonders.

Numbers, numbers: the Fed has committed half its money so far

An answer, an answer! To my question about just how much “money” has been handed out at the altar of M3. From Krugman’s blog:

If Steve Waldman has his math right — that is, if we’re interpreting the Fed’s statements correctly — Bernanke and co. have now committed $400 billion to TAF, repos, TSLF. That’s almost half the Fed’s balance sheet effectively placed in non-standard assets. Wow.

That’s Steve Waldman of Interfluidity, whose extensive posts on the matter are most satisfying.

Krugman also mentions the latest foray (the quite daft Term Securities Lending Facility):

So basically the Fed is going to be swapping Treasuries for dubious securities, in an attempt to give the market a REALLY BIG slap in the face.

Similarly panned at the blog the Big Picture, who also advises going “crazy short” if the market’s spiv rally starts to fade (I would say “when”, but I’m a pessimist. “Spiv”, by the way, is an Australian term – actually it’s from all over, but used still in Australia to describe something that looks good on the surface, but whose sheen will soon fade as it falls to bits around you).

“Spiv” economy is, for me, a pretty decent catch-all for this government, its economy and all of its economic credentials (their orchestra isn’t too too bad). Good on the surface, talked-up like all good games but, faced with the famous question of Donald Sutherland:

Pinkley: [impersonating a general] Very pretty, General. Very pretty. But, can they fight?

No – it/they cannot fight. Oh, for a body of government that hadn’t eaten Fukuyama for bloody breakfast every morning for a decade!

The water thing

Speaking of not getting along so well when water is an issue:

Lawyers for Georgia, Florida and Alabama are gearing up again for battle, now that tri-state water negotiations have collapsed and the federal government says it will decide how to dole out water rights.

…

At the same time, the Army Corps of Engineers and the U.S. Fish and Wildlife Service will soon issue a short-term water operations plan — a move that could set off a fresh wave of legal maneuvering.

So the Federal Government is moving in. Ah: reminds me of home.

The dispute, by the by, is over things like this:

Free trade: I heard ’em say it was all about the Benjamins

I have a wobbly relationship with Cafe Hayek. Specifically, I’m a screaming leftie tit, and they’re a mite too free trade for my tastes. I’m Austrian only to the extent that governments should be no bigger than they must be to get things done – but we part company on the matter of exactly how much a government should be doing.

That out of the way. They have been discussing the protectionist rhetoric of Presidential candidate-candidates (that seems right) so far. We talked about this in class, back when we looked at comparative advantage and international trade. Having run through the basics of tariffs, quotas, etc., and how protectionism is about restoring Producer Surplus, we consider how much Consumer Surplus is lost in the process. The question is, what price a job saved? Our textbook has a few figures:

Is it worth the loss in Consumer Surplus of this scale? Bear in mind that the cost is spread across the many consumers, but one is hard-pressed to defend USD50-odd million per job in the rice industry.

In class we discussed “dog whistle” politics – the use of coded language that is meaningless to most of us, but appeals directly to a specific sub-set of the electorate. Going to Michigan and talking about bringing back jobs is an example. “We” hear that, laughingly, while poor bastards in Detroit hear it and, not caring at all the cost to the economy as a whole, like what they hear. And so ad infinitum.

Edwards and Kerry caught my attention in 2004, in this regard, as do Obama and Clinton, now – basically all NAFTA-hassling is dog-whistle protectionism: the only way to come good on the rhetoric is to restrict trade; not for the benefit of all (or for the benefit of under-represented workers in our partner-countries in trade), but for the benefit of a few. Remember the quirk of globalisation/outsourcing/etc.: the benefits are spread very broadly, but the costs are felt very acutely. We respond only to the costs at our peril.

Ultimately I do not like Boudreaux’s “letters” – meaning his responses to the issue. I do think they’re worth reading, though: it’s a dialogue not seen elsewhere. Add Cafe Hayek to your bookmarks for the duration of the election campaign.

The NEJM discusses why the government can’t do …anything?

Quite a cool editorial in this week’s New England Journal of Medicine:

The conflagration over the reauthorization of the State Children’s Health Insurance Program (SCHIP) offers a compelling example of Washington’s current inability to address even seemingly uncontroversial matters such as improved health care coverage for children.

…

Why would the President veto bipartisan legislation that does precisely what he insisted on — namely, aggressively enroll the poorest children? One might blame the poisonous atmosphere that pervades Washington these days, but other important social policy reforms have managed to get through.

One answer lies in a far larger dimension of SCHIP that is basic to any health insurance legislation — namely, the legislative architecture of the reform plan, its structural and operational approach. Viewed from this vantage point, the SCHIP battle turns out not to have been about family-income assistance levels or the mechanism for financing coverage subsidies (although both the Medicare managed-care industry and the tobacco companies weighed in noisily on the latter question).

Instead, the issue became the role of government in organizing and overseeing the health care marketplace (see graphs). SCHIP uses the power of government to form insured groups, select qualified plans, oversee plan operations, and measure results. It is this architecture to which the President was referring when he said that the legislation would move the health care system in the wrong direction.

The graphs in question are quite useful:

So enrollment (the number of children being helped) is capped out and declining, while the cost is increasing. The problem? Not health insurance at all, but health care costs themselves.

So the identification that the architecture of government intervention/support, ideologically, is the sticking point, is quite correct. The real problem, in terms practical – meaning actually helping poor kids – isn’t insurance, but costs. As previously discussed, SCHIP is the wrong method by which to achieve this outcome, when it is unnecessarily cost-increasing.

Of course, this runs into the problem of letting the government manage such a thing as hospitals. Given how well they performed on something like the mere legislation towards such an end, how much do we trust them to do anything competently at all?

Post-script: a colleague and I had been discussing an interesting piece of analysis, which neither of us will ever find the time to undertake. It is this:

1. How much money/resources were employed by the US government in pursuing this legislation? This means paper, ink, admin support, debating/voting hours – costing in entirety the politics played to get this legislation up and down the monkey-bars of “government”
2. How much health-care-for-children could actually have been provided for that money?

The idea is that actually doing something was the opportunity cost of governmenting the thing into being. We believe the numbers would – very, entirely, rightly – thoroughly embarass this or any other body of politicians.

So much for the “short-term” Term Auction Facility

Like households with tax cuts, we internalise government concessions, and immediately integrate into our set of perceived entitlements. So this is really not a surprise:

US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch.

The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.

… the move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.

“The TAF … allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take … [this] suggests a perilous condition for America’s banking system.”

I would remind you that this is public money. As well as all the attendant moral hazard problems, this devalues your money – either your stake in the public purse, or your own purse. More money means that money is of less value. More money means increasing inflationary pressure, meaning your income and wealth are of less value.

Do we get compensated for the risk? We do not. Invest in a risky stock and you demand a higher return. Here we get only the word of our government that it’s for the best – a decision made at a table at which no ordinary person is allowed a seat.

I want a bloody tax cut that explicitly represents the depreciation of my income and purchasing power caused by the Federal Non-Reserved Bank.

The clean-ness of nuclear energy

Nuclear power always wins the argument of what is most “green” by ignoring things like the cost of cleaning up afterwards (and wins economically by ignoring things like just how little Uranium there really is, in the world). Monbiot wrote an excellent article about this, a while ago now.

And today? Today:

Each circle entombs a nuclear waste canister near Aiken, S.C.

Forgotten but not gone, the waste from more than 100 nuclear reactors that the federal government was supposed to start accepting for burial 10 years ago is still at the reactor sites, at least 20 years behind schedule. But it is making itself felt in the federal budget.

With court orders and settlements, the federal government has already paid the utilities $342 million, but is virtually certain to pay a total of at least $7 billion in the next few years and probably over $11 billion, government officials said. The industry said the total could reach $35 billion.

The payments come from an obscure and poorly understood government account that requires no new Congressional appropriations, and will balloon in size, experts said.

The payments are due because the reactor owners were all required to sign contracts with the Energy Department in the early 1980s, with the government promising to dispose of the waste for a fee of a 10th of a cent per kilowatt-hour. It was supposed to begin taking away the fuel in the then far-off year of 1998.

Since then, the utilities have filed 60 lawsuits. The main argument — employing legions of lawyers on both sides — is when the government would have picked up the fuel if it had adhered to the original commitment, and thus how much of the storage expense would have fallen on the utilities anyway.

But the damage number is rising. If the repository that the government is trying to develop at Yucca Mountain, near Las Vegas, could start accepting waste at the date now officially projected, in 2017, the damages would run about $7 billion, according to Edward F. Sproat III, director of the Office of Civilian Radioactive Waste Management.

…

Each reactor typically creates about 20 tons of waste a year, which is approximately two new casks, at roughly $1 million each. If a repository or interim site opened, clearing the backlog would take decades, experts say. At present, waste is in temporary storage at 122 sites in 39 states.

Emphasis added.

Why are people still ganging up on President Bush?

People just won’t leave him alone about the fact that he couldn’t manage an economy’s way out of a paper bag (into a few trillions dollars of debt, sure).

Mayor Michael Bloomberg has unleashed another flurry of jabs on Washington, ridiculing the federal government’s rebate checks as being “like giving a drink to an alcoholic” on Thursday, and said the presidential candidates are looking for easy solutions to complex economic problems.

The billionaire and potential independent presidential candidate also said the nation “has a balance sheet that’s starting to look more and more like a third-world country.”

…

His tirade against the candidates and the economic stimulus package on Thursday began when he was asked how that experiment is going.

In his answer, he praised Democrat Barack Obama for the plan the Illinois senator outlined on Wednesday that would create a National Infrastructure Reinvestment Bank to rebuild highways, bridges, airports and other public projects. Obama projects it could generate nearly 2 million jobs.

Last month, Bloomberg and Govs. Arnold Schwarzenegger of California and Ed Rendell of Pennsylvania announced a coalition that would urge more investment in infrastructure.

“I don’t know whether Senator Obama looked to see what I’ve been advocating, or not — you’ll have to ask him — but he’s doing the right thing,” Bloomberg said.

But then the mayor went on to say that while the presidential candidates appear to be talking more about the economy now, they are looking for quick fixes to please voters instead of focusing on the roots of the problem.

“Nobody wants to sit there and say, ‘Well there’s no easy solution,”‘ Bloomberg said. “They want to send out a check to everybody to stimulate the economy. I suppose it won’t hurt the economy but it’s in many senses like giving a drink to an alcoholic.”

I agree, certainly – although we should bear in mind that Bloomberg was, and could well still be, considering a Presidential run himself. Good thing he hangs out with Governor Schwarzenegger (“President of 12 percent of us” – none too subtle, but good luck with the constitution-change. If it succeeds it means I might be President, some day!).

To continue:

The mayor last month said the economic stimulus package was shortsighted, and presented his own views on where the federal government should be focusing its attention. Specifically, he said the government should adopt a capital budget to oversee long-term infrastructure spending, instead of the current year-to-year spending.

It should also offer financial counseling, modified loans, and in some cases, subsidized loans to homeowners who find themselves unable to afford their mortgages.

He says that the government should also think differently about immigration, and that bringing more workers in rather than keeping them out is the key to long term economic stability.

Funnily enough, he is the mayor of New York – whose rent control policies are a disaster for precisely the reason that they don’t over subsidies to people (as opposed to offering subsidies to property, which is far and away an inferior approach – see, for example, here, here and here). However that’s another issue (and it certainly does not prevent me liking him as a prospective President).