Links for 2009-01-07

  • Stimulus arithmetic (wonkish but important) – Paul Krugman Blog – – «I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.” Let’s hope I’ve got this wrong»;
  • | Willem Buiter’s Maverecon | Can the US economy afford a Keynesian stimulus? – «Beggars can’t be choosers. The US has been able to get away with decades of private sector improvidence because of two unique and time-limited factors. The first is a sequence of capital gains on household assets (stocks and real estate) that provided a lovely substitute for saving to provide for retirement, old age and a rainy day. The second was the excess returns earned by the US on its net foreign investment (its ability to borrow at an unbelievably low rate of interest/rate of return) because of the unique position of the US as the ultimate source of liquidity and security. Both rational drivers of a low US saving rate are gone»;
  • Ed Glaeser: Who should get the federal stimulus funds – The Boston Globe – «The country needs to invest steadily and wisely on infrastructure, not rush hundreds of billions of dollars out the door. Really expensive projects, like the Big Dig, can take many years to plan, permit, and build. Our roads require ongoing maintenance, not a big push. Moreover, fairness and economic efficiency dictate that infrastructure should generally be paid for by users, not general tax revenue. It is appropriate that gas taxes pay for federal highway aid. Using general revenues to build highways means more subsidies for carbon-emitting cars. The country should take infrastructure investment seriously, but infrastructure spending is unlikely to be sound stimulus»;
  • Risk Management for Beginners | The Baseline Scenario – «The outcome of a coin flip is dictated by physical processes, governed by the laws of mechanics, that we know are going to operate the same way time after time. Asset prices, by contrast, are the product of individual decisions by thousands, millions, or even billions of people (when it comes to, say, wheat futures), and are affected as well by random shocks such as the weather. We have little idea what underlying mechanisms produce those prices, and all the simplifying assumptions we make (like rational profit-maximizing agents) are pure fiction. Whatever the underlying function for price changes is, if it winds up distributed in a manner similar to some mathematical function, it’s by accident; and more importantly, no one tells us when the function changes»;
  • Samuel Huntington, “Clash of Civilizations” Author | Newsweek Voices – Fareed Zakaria – «Huntington noticed a troubling trend. Sometimes, progress American style—more political participation or faster economic growth—actually created more problems than it solved. If a country had more people who were economically, politically and socially active and yet lacked effective political institutions, such as political parties, civic organizations or credible courts, the result was greater instability. That has been the story of parts of the Third World over the past three decades»

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