Wednesday, February 25, 2009

Obama's speech

President Obama gave an interesting speech yesterday. However, as the Washington Post points out, it had a number of errors, some hyperbole, some exaggeration and some plain wrong.

Overall, his speech set a good tone, albeit it overreached in the scope of its claim. Those who aim high, often miss their mark. Hopefully, what he hits will suffice.

Tum itna kyun kudkuda rahe ho ...

Apparently Jagjit Singh is more than a little perturbed by the attention lavished on Rahman. More here.

The summary of his claim is that Rahman's music isn't "real music" and that Rahman should try and compose a ghazal.

Firstly, I don't believe it's practical to compare diverse music genres to each other. Part of the reason I stopped watching the Grammy's was that it became a collection of too many different styles. And then to pick out one "Best Female Artist" seems to hinge on some assumptions. By the way, this fallacy of comparing apples and oranges, is (was?) even more blatantly on stage in the recent world dancing competition program (NBC?). How in blazes are you going to rank Russian folk dance, Hip-hop and Bharatnatyam on the same 1 to 10 scale?

Secondly, even if we grant some superiority to one artist over another (say based on vocal skills, complexity of composition, etc.) why would one gripe over an award that one wasn't even in contention for. The Oscars, Filmfare awards, etc. are geared towards Films. They don't go looking for a Pavarotti rendition, unless it was done in the context of a film.

Thirdly, there's a bit of a fallacy in attempting to define "real" when it comes to matters of taste, subjectivity, aesthetics. Most of the arts fall in that bucket. Styles arise every time someone figures out a way to appeal to and capture a new audience. Yes some forms of art, music clearly take longer to master, require more riyaaz. But if art is about beauty, and the latter is in the eye of the beholder, does the work that went into producing something, necessarily outweigh the impact or connection felt by a particular type of audience?

And coming back to the specific kirdars - Jagjit and Rahman. I would agree this isn't necessarily Rahman's best work ever. Neither was it Danny Boyle's. In my opinion Trainspotting was probably his best. Recognition, even outside of award ceremonies, often is about when you get noticed, not necessarily when you hit your peak. And IMHO, Jagjit isn't exactly my pick of the pack for the ghazals award either. To my untrained ear, I would say he has probably 10 honestly different melodies on which he has probably sung 50 different ghazals. I kid a little. I appreciate his vocal skills, but as a composer, he's been a little predictable.

Of course all that is opinion. I remember, correctly being taken to task, by a friend in undergrad for not being able to appreciate the differences between Mozart and Bach just in listening to their pieces. So may be Jagjit has 50 different melodies after all.

What made the reaction unwarranted in my opinion, is that this was not a case of Jagjit being the poorer for Rahman being richer. It wasn't zero sum, subsequent to the choices made by each man on what type of music they'd pursue. If you want to debate whether life itself is zero sum, that's another topic, another day.

Pancham - apparently Gulzar had other reasons for not making it to the Oscars. The bloke still plays tennis apparently!

Sunday, February 22, 2009

Slumdog wins Eight

Slumdog Millionaire just picked up eight Oscars, including Best Picture and Best Director for Danny Boyle. The Curious Case of Benjamin Button appears to have picked up at least three, while both Milk and The Dark Knight picked up two each.

Oscar winners include: Penelope Cruz (supporting actress), Heath Ledger (supporting actor), Sean Penn (actor) and Kate Winslet (actress).

The night included two Oscars for A. R. Rahman, who, became one of three Indians to win an Oscar, the others being Gulzar (who shared one with Rahman for Original song) and Resul Pookutty (who shared one with Ian Tapp and Richard Pryke for sound mixing).

Wall-E won best animated feature, as expected.

Here's a partial list of winners:

— Best Picture: "Slumdog Millionaire."

— Best Director: Danny Boyle, "Slumdog Millionaire."

— Best Actor: Sean Penn, "Milk."

— Best Actress: Kate Winslet, "The Reader."

— Supporting Actor: Heath Ledger, "The Dark Knight."

— Supporting Actress: Penelope Cruz, "Vicky Cristina Barcelona."

— Foreign Film: "Departures," Japan.

— Adapted Screenplay: Simon Beaufoy, "Slumdog Millionaire."

— Original Screenplay: Dustin Lance Black, "Milk."

— Animated Feature Film: "WALL-E."

— Art Direction: Donald Graham Burt; set decoration: Victor J. Zolfo, "The Curious Case of Benjamin Button."

— Cinematography: Anthony Dod Mantle, "Slumdog Millionaire."

— Sound Mixing: Ian Tapp, Richard Pryke and Resul Pookutty, "Slumdog Millionaire."

— Sound Editing: Richard King, "The Dark Knight."

— Original Score: "Slumdog Millionaire," A.R. Rahman.

— Original Song: "Jai Ho" from "Slumdog Millionaire," A.R. Rahman and Gulzar.

— Costume: Michael O'Connor, "The Duchess."

— Documentary Feature: "Man on Wire."

— Documentary (short subject): "Smile Pinki."

— Film Editing: Chris Dickens, "Slumdog Millionaire."

— Makeup: Greg Cannom, "The Curious Case of Benjamin Button."

— Animated Short Film: "La Maison en Petits Cubes."

— Live Action Short Film: "Spielzeugland (Toyland)."

— Visual Effects: "The Curious Case of Benjamin Button."

PS: "Smile Pinki" is a documentary about an Indian girl with a cleft lip. The director who won the award though is American.

Here's a clip of the best original song:

The irrational ape

While we lament the collapse of the economy, at least one group is probably feeling mildly amused at being spectacularly vindicated - behavioral economists. With Nobel prizes having been awarded to such proponents as Daniel Kahneman, it isn't exactly like behavioral economists are living in obscurity. However, the current economics woes add tremendous weight to their view of an irrational world, and perhaps conclusively shifts the winds in favor of less idealistic world views.

Behavioral economics postulates that people are not rational, as assumed by most classical economics. Instead, that people have a lot of quirks. I happened to read a couple of interesting books recently that cover some of these quirks.

The first of these tomes is Predictably Irrational by Dan Ariely. Dan Ariely's book does a good job of covering some fascinating human quirks. Here's a summary of some of the key ones:
  • The first one covered is fascinating for marketers. It turns out that people have no absolute assessment of value and only understand value in relative terms. In fact, so much so, we favor options where we have something to compare the option to, even when there is no absolute reason for doing so.
  • The second is the principle of anchoring. When determining values we tend to anchor to numbers, even random numbers, as a starting point, and once we anchor the effect persists. So, values are not really driven just by supply and demand, but what we anchor to. And once we anchor, we start indulging in arbitrary coherence - i.e. we want everything else to be relatively coherent to the anchored value.
  • The third phenomenon discussed is that we don't treat zero or free as just another value, but suddenly suspend all rationality when something is offered for "free". In fact say something is offered for 1c and then is offered for free, our reaction to the latter is irrationally different from the former.
  • One of my favorite chapters dealt with how we react differently when we use social norms vs. market norms. It's the difference between buying your mother-in-law a gift vs. giving her the cash. We are often happier doing things on a social basis, which we would be unhappy to do if money entered the equation. The insights in this chapter have significant implications for the trend towards socially conscious management. For one, it raises questions about the efficacy of social marketing and some of the moves towards developing better employee relationships through social rewards.
  • One of the fairly obvious chapters was his description of experiments that people actually take very different decisions when aroused than when not. I was amused that anyone ever thought that they wouldn't. It suggests that avoiding situations where you could aroused is usually better than trying to exercise self control once in the situation. It also suggests that it may be better to arm teenagers with protection, than to rely on the better angels of their nature. Duh!
  • Another chapter that made me wonder how old researchers were, was the chapter on procrastination and choice. Essentially, Dan Ariely shows that a certain amount of control and discipline is better for us than complete choice and anarchy. Huh? Most students know that, in fact, we deal better with more structured courses than ones with complete freedom to choose. I was surprised that he found it so surprising.
  • He also shows that we irrationally over value what we already have, and that the more effort we put into it, the more we value it. Again, something we should already be aware of, but in this case, it's worth a look at some of the irrational decisions we may take about what we consider our own.
  • His discussion about people's irrational reluctance to close options was disturbing. It reinforces my view that options thinking and understanding how to evaluate opportunity costs should be made required reading at a much earlier age. Our desire to keep options open makes us irrational and drives us to give up a bird in hand for the prospect of one in the bush.
  • One of the more fascinating chapters in the book was one dealing with expectations. He discusses how our physiological experience can be fundamentally altered by our expectations. A corollary was a discussion of the "placebo effect". Our belief that something is better may actually make it work better. For instance, we may believe a 50c aspirin is better than a 5c aspirin, and so a 50c aspirin may actually work better. It suggests that something has a placebo effect is not really the same as saying no effect.
  • My favorite bit though was his discussion of why people are honest or dishonest. He essentially shows that most people try to be honest, and tend to be more honest if reminded about social norms; that people's tendency to be dishonest is not related to a cost-benefit analysis of how easy or tough it is to get away with the crime. What seems to be a bigger measure is how clearly the cost of the crime on the victim is apparent. Very interesting, particularly the example of how airline companies don't equate repricing of rewards points with theft - which is exactly what an arbitrary cash deduction of equal value might have been called.

While I have listed some of the insights in a very dry list, the book uses highly entertaining experiments in a marvellously accessible way to illustrate these and other points. All in all, a very good read.

My issue with the book is that Dan Ariely clearly has a view of the world and seems to be looking for confirming evidence. In a few of the cases, he uses analogies, which appear to be predicated on his view of the world, than conclusive evidence of the opinion he is postulating. The other issue was that the book does not tie these ideas together into any coherent world view. In the end, you come away with some very interesting but disjointed quirks, but it isn't immediately apparent how these are usable.

The other book I read is Sway by Ori and Rom Brafman. Now, unlike Predictably Irrational this is not as peppered with experiments. It is significantly shorter and at least tries to tie the points together using the device of a plane crash in which over 500 people died. Here are some of the key insights:

  • People do not react to equal magnitudes of upswings and downswings in the same way. We are ridiculously averse to the idea of a loss, and take irrational decisions trying to avoid losses. In fact, once we commit to a strategy of avoiding loss, we tend to double and redouble, rather than admit a loss and calling it quits, leading to utter ruin.
  • Perhaps the most disturbing section in the book was its discussion on how we tend to let our preconceptions and labels drive our assessment of value, to a point where even the most rational of us seem to be physically incapable of seeing and accepting even the most compelling evidence that contradict our apriori preconception. In some cases, this label occurs through first impressions or some label assigned by someone else. Once we have a label, its almost impossible for us to be objective. What's even more interesting is that in many cases, the labels not only affect the judgment of the labeller but also the labellee, often affecting the person being labelled in a way that makes it a self fulfilling prophecy.
  • In another section, they discuss how people's deep rooted belief in fairness makes us resent and act irrationally when we perceive a process as being unfair, no matter how fair the final outcome, and vice versa. In fact, they go onto show that our evaluation of many situations depends more on the process than the outcome, and that our evaluation of the process depends on our familiarity with it. Essentially, one of the corollaries is that managers who create more visibility are going to get rewarded more, because they create more clarity about their process. Logically though, it's better to focus a lot more on the outcome than the process, as we might otherwise take incorrect decisions.
  • Again, like Predictably Irrational, the authors in Sway discuss social norms vs. market norms, and again, they show that people react very differently to the two and that in some situations, social norms are better motivators than financial rewards. Personally, I preferred the discussion of the implications in Sway more than the Predictably Irrational, although the latter described some fascinating experiments on this subject.
  • Another phenomenon that was fairly intuitive was the idea of group think. Essentially, people don't like to disagree with the group and don't disagree unless they feel they have permission to do so. It's a bit like the Emperor's New Clothes. Dissenters keep quiet, until someone, even a little boy, points out the obvious.

The good news about Sway is that it is very accessible and very short. The bad news is that its attempt to tie everything to the plane crash is extremely tenuous, and many of their examples really stretch the analogy. I commend the authors for their laudable attempt to tie research to practical aspects of management, and while their advice is generally good, in many cases, they seem to be generalizing the point more than warranted by the evidence that they present. So, I would be cautious in its application.

Both books are fun though, and definitely worth a read - although, I still like Daniel Gilbert's Stumbling on Happiness a good deal more.

It isn't clear how representative of the field of behavioral economics, popular books such as these are. Assuming that they are a fairly good sample, it strikes me that though behavioral economists have successfully poked holes in classical economics, they don't necessarily have a compelling alternate view that can adequately replace current models. Until they do, these ideas, while interesting, will ultimately not define the practical application of economic theory.

Should I sell my stocks?

OK. If you are like the vast majority of investors, you are sitting on a much diminished portfolio. The question you may be facing is whether you should hold or sell. Of course, there is no simple answer to this question. You should look at your own portfolio and evaluate the question against your portfolio objectives. However, here are some thoughts to ponder.

In general, most of us are averse to booking losses. So, we don't sell. But, there are reasons to consider selling. Why?

Firstly, if you believed that the price is likely to settle at a value that is much lower for the foreseeable future or if you believe you have better investment opportunities, then selling makes sense. A hundred dollar stock is better sold at $5 than not sold and reduced to zero.

Another view is the tax relief view. Imagine you have a portfolio whose cost was $100. Now the market price of the portfolio has dropped to $20. And, you are subject to a tax rate 15% on your gains and losses on your portfolio. If you sell, provided you have gains to offset your losses, or are permitted to carry forward the losses, you essentially get a tax benefit equal to $12. What does this mean?
  • Well, if the value of the portfolio drops further you have capped your losses at $68.
  • If the value of the portfolio starts rising, we can buy it back at a price less than $20 which would yield a net gain on the transaction, but even otherwise, as long as we buy it buy before the price touches $32, we would essentially protect some of the upside.

Now these calculations don't factor in transaction costs or volatility. All said though, you should consider selling if:

  • The decline in the stock is not part of normal volatility, but part of a prolonged downturn or a permanent decline in value, and
  • There are better investment opportunities, or there is a real risk of the value of the portfolio settling at a level that is much lower than it is currently, or there is a possibility of getting tax relief.

Saturday, February 21, 2009

Worse than the Great Depression?

How bad are things? Well, in some ways its not quite as bad as the Great Depression. Unemployment now is officially around 7%, although including hidden unemployment its probably more like 14%. In the Great Depression, unemployment had touched 25%.

However, in other ways, economists are beginning to point out that it's much worse. Why? Well, for one things are moving faster than anyone imagined possible. Volcker points out that the global fall in industrial production is unprecedented and breaks even the worst doomsday predictions. George Soros points out that there is no end in sight to the financial crisis. The market capitalization of the banking sector now hovers at about what the government has pumped in.

The trouble is that admit that they don't really know what will work. At this point, everyone is trying their best and hoping a lot.

Friday, February 20, 2009

Oscars and more ...

Nate Smith of http://www.fivethirtyeight.com/ recently posted his predictions for the Oscars:
  • Best Supporting Actor: Heath Ledger, The Dark Knight (86% chance of victory)
  • Best Supporting Actress: Taraji P. Henson, The Curious Case of Benjamin Button (51% chance of victory)
  • Best Actor: Mickey Rourke, The Wrestler (71% chance of victory)
  • Best Actress: Kate Winslet, The Reader (68% chance of victory)
  • Best Director: Danny Boyle, Slumdog Millionaire (99.7% chance of victory)
  • Best Picture: Slumdog Millionaire (99.0% chance of victory)

That Slumdog Millionaire ranks so high is interesting. Clearly it is a well made movie, with a very engaging plot and offers Western audiences an opportunity to indulge in a bit of schadenfreude at the level of poverty depicted. However, I suspect that much of it's success may have to do with it being the right story at the right time. This year, hope sells. Slumdog's rags to riches story is just the ticket.

I wonder, though, where Slumdog Millionaire will rank when the current hoopla is over. It will probably not rank with romantic classics such as "Roman Holiday", "When Harry Met Sally", "Breakfast at Tiffany's", "Casablanca", "It Happened One Night", "Love Story", etc. It isn't clear whether it is artistically good enough to compare to classics such as "Pan's Labyrinth" and "Shawshank Redemption", or even Boyle's earlier work, "Trainspotting". It may join the ranks of the hundreds of topical Oscar winners, which seem overrated in hindsight. Still it's a good movie.

On a different note, I recently saw Hayao Miyazaki's film, Ponyo on the Cliff by the Sea. It isn't up to his usual standards. The central relationship is between two little kids whose love seems a bit too tenuous to be the cause of such an uproar. However, it is an fascinating take on the Little Mermaid, particularly in its depiction of the sea. For those who haven't seen a Miyazaki movie, you might want to try "Spirited Away" or "My Neighbor Totoro". Most of Miyazaki's movies are great, but these two stand out in a class by themselves for their sheer imaginative brilliance.

Finally, while on the subject of Studio Ghibli's movies (Hayao Miyazaki's studio), I should perhaps mention that if you do go farther afield than Miyazaki, you may want to try "Grave of the Fireflies" by Isao Takahata. In terms of the sheer sense of poignancy evoked, it ranks right up there with Vittorio De Sica's "The Bicycle Thief" (Ladri di biciclette) and Satyajit Ray's "Pather Panchali." It is a fascinating window on WWII from the point of civilians.

The stimulus package is too small

OK, I've said it before, and I'll say it again - the stimulus package passed by Congress is too small. President Obama should consider a second stimulus, and consider it fast. Don't believe me, here is the assessment buried in the minutes of Federal Reserve's most recent meeting of its open market committee:

“All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment and by an appropriate rate of inflation.” [emphasis added]

Paul Krugman, who admittedly is not a fan of the scaled down plan, points out that with the package in place, the closest parallel is the Panic of 1873 which was a 5 year recession. That would mean we could be in a slump till 2012.

Even otherwise, this makes it seem as if what the administration is shooting for is not recovery but stabilization. Not very inspiring!

Wednesday, February 18, 2009

Mortgage relief plan

Here is the executive summary of the plan announced by Obama today for mortgage holders. The plan could save a lot og homeowners a lot of money. Here is some very useful Q&A that explains how.

Friday, February 13, 2009

Difference in perspective

As I listened to the debate on the stimulus and the different sides of the story, it struck me as surprisingly reminiscent, in an interesting way, to the debate before the Iraq war. Let me explain.

During the run up to the Iraq war many had felt the war was justified and others had felt it was not. If one looks dispassionately at their debate, it becomes clear that their difference arose not so much because of differences in information or facts, but in differences in their perspective and assumptions about the nature of the underlying problem of terrorism, which consequently affected their subsequent evaluation of all data.

Those for the war genuinely believed that 9/11 was a game changing event. That an evil group of highly organized people had declared war on them, a group they called "terrorists" and consequently it justified a counter "war on terrorism." Moreover, this war was different and the old rules no longer applied. Driven by a fear of imminent attack, the people who subscribe to this view advocated and still advocate no rules, no surrender, and a relentless fight against the enemy. Consequently, the suspension of compliance with rules of engagement and treaties such as the Geneva convention, rules that had been inviolable against foes as formidable as the USSR, seem to be justified. Is the cost of a few civil liberties really worth a collossal loss of life?

On the other side were people who believed that 9/11 represent the act of a bunch of criminals who had taken advantage of some laxities in the system to conduct a spectacular but ultimately futile attack. These people look at 9/11 as the same as the attacks in UK, Spain, India, Indonesia, Egypt, Yemen, etc. To these people, terrorism is a law and order problem, not a military problem. The fight is against a relatively sparse minority of disenchanted and highly dangerous mercenaries, not governments. They saw and still see no threat to the American way of life, no need for rethinking the structures of government or treaties. The solution they advocate is coordinated police action, removing safe havens, and beefing security. Ultimately though, these people see terrorists as being in the same category as drug czars and not USSR.

Note, those in favor of the war believed the rules had changed and it was war, those on the other side believed nothing substantive had changed and that it was a law and order problem. This difference in perspective has defined the debate ever since.

I remember listening to a commentator on TV who talked about the merits of competition of ideas, about how this really is the strength of democracy. The assumption was that there was an objective way of evaluating the data and rationally resolving the dispute. Yet, when one has such different perspectives, it isn't a data problem, it is a measurement or scale problem. The two sides value the benfits and costs in fundamentally different ways. So, it is nearly impossible to reconcile the problem with data alone.

There is a similar dissonance today in the economic debate. One group genuinely believes that this recession is like most others, just a bit deeper. That nothing really has changed. On the other side is a group that believes that there are fundamental structural issues that make this recession unlike any other since the Great Depression. What your view of the problem is colors the view of the solution.

Now, the bad news is that there are historical precedents to back both sides.

Backing the "everything is normal" camp is a bunch of historical data that essentially suggests that whether you do Keynisian intervention or monetary intervention, ultimately the market will find its own order, and that most recesssions are technical corrections that would probably revert to mean no matter what steps you take.

On the "the sky is falling" side, there are dramatic historical precedents of economies like Japan, where things were eerily similar to the conditions in the US today, and whose ravages are still being felt 15+ years after the fact. Add to that the fact that we have unprecedented monetary intervention, with interest rates no longer working and the Fed resorting to quantitative easing. We have massive fiscal deficits as far as the eye can see adding to the already burgeoning national debt. All of which calls into question how much wiggle room the government will have after the current suite of programs.

At the end of the day though, no one can truly claim to "know" with any degree of certainty which view is correct.

However, we can consider the pay-offs of different courses of action.
  • If the government intervenes massively, and the "everything is normal" camp is right, then we will, at the the end, land up with an overheated economy and sharply rising taxes and interest rates at the other end which could stunt the pace of growth for over a decade. On the other hand, it would expedite recovery in the short run and potentially improve infrastructure in a way which wouldn't have happened without the intervention.
  • If the government intervenes massively, and the "the sky is falling" camp is right, then we avoid a acalamity and recover from this recession in a way that makes it look like a just a slightly deeper version of a normal recession.

  • If the government doesn't intervene, and the "everything is normal" camp is right, then we just have a slightly deeper recession but we come out of it structurally more sound and we would see slightly higher long term growth due to lower long term taxes and interest rates.

  • If the government does nothing, and the "the sky is falling" is right, then the US and the world could experience a long depression, unemployment could rise to 20%+, and we would almost undoubtedly see massive wars and widespread famines. The end result could be a severe dent to the US domination of the world. Even otherwise, deep recessions have often been followed by periods of war, and we may yet see another one.
The GOP, it would appear believes "everything is normal". But here's the thing, the downside of going along with the "sky is falling" bunch isn't quite as bad as the downside of being wrong in your convictions. So, the GOP is taking a calculated gamble, assuming that Obama will win this round so they won't be held accountable for their convictions, but ensuring they have ammunition to attack Obama at the other end.

The more interesting thing is that Obama has opted for a middle road. As Paul Krugman (who is firmly in the "sky is falling" camp) explains, the current stimulus doesn't do much to plug the $2.9 trillion gap in the GDP projected by the CBO. For the roughly $600BN that will actually injected into the economy as part of the current stimulus package to actually be effective in plugging this gap, you need to assume that the velocity of money will be retained at current levels, i.e. it assumes that savings rates won't rise by too much. If you look at depressions, then that seems like a ridiculously optimistic presumption.

So, Obama is hedging his bets. This seems like a lose-lose proposition to me. If the "sky is falling" camp is right, then this won't be enough. If the "everything is normal" camp is right, it'll be too much. Net net, this will neither guarantee a rescue nor guarantee that we avoid the ills of overspending. Now, Obama may believe that the truth lies in the center and that a cautious incremental approach is better. And he may well be right. But he is banking on being able to get more legislation through Congress if and when the need arises. Let's hope he is right!

Thursday, February 12, 2009

The stimulus bill

Whew, so we have a stimulus bill, and Obama has discovered why so few have governed from the center. He has managed to dissatisfy everyone - the lefties are upset about the giveaways to the wealthy, the righties are upset about the huge spending. Anyway, here's what they are proposing:

Aggregate spending proposal totaling $311 BN, to be allocated as follows:
  • Investments in Infrastructure and Science - $120 billion
  • Investments in Health - $14.2 billion
  • Investments in Education and Training - $105.9 billion
  • Investments in Energy, including over $30 billion in infrastructure - $37.5 billion
  • Helping Americans Hit Hardest by the Economic Crisis - $24.3 billion
  • Law Enforcement, Oversight, Other Programs - $7.8 billion

Let's put this in perspective. According the Federal budget estimates, the aggregate outlay by the US government projected for 2009 was $3.107 BN. This spending represents about a 10% increase in the US budget, or roughly 2% of the US GDP. This is through spending alone. While the exact numbers are hard to come by, new agencies are reporting on TV that almost 80% of this amount is likely to be spent in the next 18 months.

Meanwhile, there is a lot of discussion about the remaining part of the stimulus, reportedly $477 BN, a large part of which is in tax cuts. Haven't found the details on the web yet. Will post it when I do.

Is this package big enough? Probably not. At last not big enough to be sure it will work. But, if enough people start feeling good enough, it would stall the downward slide, and that might be a good start.

Monday, February 9, 2009

The conundrum of spending

The stimulus package being discussed is probably too small too work say some. This assessment is probably right, or at least, as Galbraith says, faced with the hurricane that is the current economic woes, it would be better to err on the side of excess than moderation. However, the alarming thing is that as people have tried to rack their brains to find ways to spend the extra money required, and they've mostly failed. The fact is, the marginal programs in the spending bill are mostly pork and mostly things that will occur over years, not months. It is unclear whether the President could in fact find an effective way to make the additional spending happen quickly, even if he wanted to. It is almost reminiscent of Brewster's Millions. I suspect Obama will need a separate social program to fill the gap, if he wanted to.

Sunday, February 8, 2009

Senate version of the economic rescue plan

OK, here's the full text of the Senate's compromise bill. It is several hundred pages long, so it'll take me some time to condense it.

Meanwhile, here's an interesting provision:

"SEC. 1610. HIRING AMERICAN WORKERS IN COMPANIES RECEIVING TARP FUNDING.
(a) SHORT TITLE.—This section may be cited as the ‘‘Employ American Workers Act’’.
(b) PROHIBITION.—
(1) IN GENERAL.—Notwithstanding any other provision of law, it shall be unlawful for any recipient of funding under title I of the Emergency Economic Stabilization Act of 2008 (Public Law 110–343) or section 13 of the Federal Reserve Act (12 U.S.C. 342 et seq.) to hire any nonimmigrant described in section 101(a)(15)(h)(i)(b) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(15)(h)(i)(b)) unless the recipient is in compliance with the requirements for an H–1B dependent employer (as defined in section 212(n)(3) of such Act (8 U.S.C. 1182(n)(3))), except that the second sentence of section 212(n)(1)(E)(ii) of such Act shall not apply.
(2) DEFINED TERM.—In this subsection, the term ‘‘hire’’ means to permit a new employee to commence a period of employment.
(c) SUNSET PROVISION.—This section shall be effective during the 2-year period beginning on the date of the enactment of this Act."

If I am reading this correctly, this implies that companies that are taking TARP funds are not permitted to hire new employees on H-1B visas, unless they are entirely in compliance with all the provisions of the Immigration and Nationality Act. Not sure if this has any material impact on anything, or am I missing something?

UPDATE: This is a much more thorough analysis of the H-1B clause.

Saturday, February 7, 2009

Crash course

If you would like a quick and interesting view of the economy, particularly how extraordinary today is in the historical context, then this might make interesting viewing.

Essentially, what Chris Martenson is showing is that our current economy is based on growth, and due to the large base, it requires larger and larger absolute increments to sustain. In fact, though, our use of resources is now reaching proportions that are entirely unsustainable. Something has got to give.

It makes interesting viewing. The historical context is absolutely fascinating.

Friday, February 6, 2009

Putting things in perspective

This article puts some of the issues into perspective. This chart compares the job loss trend in this recession with the trend in the last two US recessions. Horrific!