Update on what's going on the world

It's been a while since I've posted, so I thought I'd give a brief overview of what's been happening around the world.

1. The US primaries continue. The media loves a foot race, and there is enough happening for them to be able to spend a lot of ink looking into who raised money when. Still, unless Romney drops below 60% it probably isn't worth paying much attention to the details. The details, including tonight's debate, is entertainment masquerading as something relatively important. 

2. There is a Greece deal! For everyone (holding Grek debt)!  Well, the collective action clause won't apply to the ECB who swapped their bonds for a version that won't be impacted by the change in Greek law, but they will give up their profits on the debt they acquired below notional value.  It's too bad no one really thinks this will work out well for Greece or those who are dedicated to funding Greece in the long run, but the can has been kicked! Let's see how far it will roll this time. As long as inflation expectations remain low and the LTRO's continue the can should continue to roll.

3. The nuclear Iran issue seems to be heating up. One way to measure this is to look at news stories. Another way is to look at crude markets, the WTI - BRENT spread is driven by both the glut of oil around Cushing and the geopolitical risks pushing Brent oil up.

 When both the Israeli defense minister and US defense secretary are talking to the Economist about an Israeli strike on Iran and sanctions are currently being tried then it isn't just a lot of hot air. With Iran not cooperating with IAEA inspectors it seems like something is going to happen there soon.

There is also a lot of talk about austerity given the situation that many Western countries find themselves in, but when they don't take into account monetary policy's reaction to fiscal stimulus it feels like I'm reading one side of the debate. 

Betting on facts - Showing confidence

Everyone is very focused on Romney's offer of a $10,000 bet. I'm wondering why if he was so certain that he was right he didn't offer Rick Perry odds at (let's say) 2 to 1 up to $10,000. It probably still wouldn't be that good a move politically, but making someone put their money where their mouth is better done a way that doesn't emphasize how that person has lot less money when one is running for office in a country with a significant unemployment problem. Either he did actually lose control and wanted to assert dominance or he forgot that his peers in this presidential race aren't going to act like his peers in the business world. Someone worth $2.8 million should be able to afford a $10,000 bet if they are confident enough about their facts, but Rick Perry either knew he was wrong or knew that this was an opportunity to outmaneuver Romney politically. 

Tight Money and Ron Paul

One of the worst things for Libertarians about the Bush presidency was that the public associated Bush's failed economic policies with free market economics. This is despite Bush's policies being at most only rhetorically free market. The tax cuts were supposedly part of a "starve the beast" philosophy but throughout Bush's presidency government spending did not decrease and he actually increased future entitlements when it came to Medicare Part D. It was a "Have your cake and eat it too" policy, or as the Italians say "You want your barrel full (of wine) and your wife drunk." And rather than decreasing regulation he increased it by signing laws such as Sarbanes-Oxley, a bill that makes it very expensive for small businesses to raise money in the public markets. 

If Ron Paul were elected, he would do a lot of good. He'd be able to stop prosecuting the ridiculous drug war and would work to reduce a lot of the ridiculous regulatory red tape in our economy.  However, he would also do what he could to enforce a very tight monetary policy.  It's unclear how much he could sway the Fed, but the explicit threat of losing their independence could prevent them from easing when needed in the future. In fact, it might be a large part of what is currently holding them back from easing more now even though nominal GDP is so far below trend.

As much as Ron Paul would do a lot of good it would be unfortunate if the public came to associate libertarian policies with low economic growth due to an excessively tight monetary policy.  

However, with Ron Paul only in second place in Iowa and without a broader base of support this is still a very unlikely event (7% on intrade). And if this ever became a real issue I would categorize it as a high class problem.

99% Leftist

When Mr Hayes says that "very powerful interests will brand this as 'left' rather than 99%", he is right, if by "very powerful interests" he means "all the Americans who recognise that the 99%-er message is coming almost entirely from the left". This is certainly a large and powerful group, commonly knows as "Republicans".

While on the topic of the 1%, it is interesting to know that the level of wealth (as opposed to income) controlled by the 1% is actually still significantly below levels in the 1920's and early 1930's.


Assorted links

1. Well, maybe this will help the unemployment problem among some lawyers... (HT: MR)

2. Fisher explains his dissent in the recent FOMC vote. He starts with a joke tying a sign at a Norwegian military base to monetary policy...

“Theory is when you understand everything, but nothing works.”

“Practice is when everything works, but nobody understands why.”

“At this station, theory and practice are united, so nothing works and nobody understands why.”

3. Should utilitarians promote utilitarianism? 

"They found a strong link between utilitarian answers to moral dilemmas (push the fat guy off the bridge) and personalities that were psychopathic, Machiavellian or tended to view life as meaningless."

4. Eurozone timeline. What could possibly go wrong?

Assorted Links - Europe and nukes

1. A 1998 economist article on German Unions. They seem to have acted rationally in the face of globalization. Can anyone imagine labor unions in the United States being this cooperative?

2. The shaky relationship that European leaders have with the truth, from the mouth of the Euro Group President himself:

"SPIEGEL: Are you familiar with the Eighth Commandment?

Juncker: Of course. Thou shalt not bear false witness against thy neighbour.

SPIEGEL: Apparently you don't take it very seriously. More than two weeks ago, you denied a report

 by SPIEGEL ONLINE about a secret meeting of several European Union finance ministers to discuss the situation in Greece, even though the official limousines were already pulling up in Luxembourg.
Juncker: The most important commandment is not to inflict harm on others. Although it isn't stated quite that way in the Ten Commandments, it follows from them. The finance ministers of several Euro Group nations had agreed to meet on Friday with the president of the European Central Bank (ECB), Jean-Claude Trichet. Because the financial markets in Europe were still open and trading was still underway on Wall Street, we had to deny the existence of the meeting. Otherwise the course of the euro against the dollar, which had already fallen as a result of your report, would have plunged disastrously."

The key takeaway here is that there is a subset of people running Europe who are dedicated to preventing harm and are unlikely to tell the truth.

3. Thomas Schelling on the lack of nuclear terrorism. (HT: MR) Other evidence might be inferred from the lack of a real coordinated terrorist attack in recent years since Sept 11. Perhaps there are very few people intelligent enough to pull off an operation on a large scale in the developed world who become terrorists, or maybe the people with the necessary human capital and the desire to cause harm to innocents are very wary of working with anyone else (think of lone terrorists like the Unabomber), suspecting that their potential allies are more likely to be undercover operatives.

Strange promises

Apparently Michele Bachmann is promising that she'll send the world economy into a massive depression if she is elected president.  That's the only way that I can interpret this promise to get gas back to $2 a gallon.

Patents no longer measure innovation

A lot of studies have used patents as a proxy for innovation. In a lot of ways that makes sense, because the basic idea of patents is to give the inventor intellectual property for an invention.

However, patents are no longer a measure of advanced technology. When Google tried to buy Nortel's patent portfolio for pi billion dollars it wasn't interested in the new ideas. They wanted weapons to use against Apple in a legal patent war. Apple isn't going directly after Google, but is indirectly attacking them by suing Android based mobile phone manufacturers such as HTC.

Unfortunately for Google, those patents were won by a coalition of Apple, EMC, Ericsson, Microsoft, Research In Motion and Sony which spent over $4.5 billion dollars on them. In the 1990's, Microsoft was the top tech company and its competitors used anti-trust laws because they weren't able to compete against them in the market place. Today, Google is the top tech company* and its competitors are using intellectual property laws to contain its growth. 

Microsoft become much more involved with D.C. after it had to deal with anti-trust issues. If Google decides to put some of that pi-billion towards stepping up its lobbying spending then maybe it can help reform a broken system while protecting itself from businesses who are abusing the patent system because they are being beaten in the marketplace. 

Regardless of what happens, now that the role of patents have changed people should stop pointing to increasing patent issuance as evidence of innovation.  It is evidence that more roadblocks are being put up against innovation. Economists looking to do studies should think about alternative metrics. Tyler Cowen likes to use studies about how the first invention (patent - there is difference, now more than ever) is happening at older ages and it means that the low hanging technological fruit has been picked. But it doesn't mean that it is harder for young people to think up new ideas, it is more likely that it means that patent generation has become a more bureaucratic aspect of business which is undertaken by older non-inventors. 

*Apple may have over 160 billion dollars more market cap than Google, but they are still running scared.