Introduction (Via Robert Shiller @ Project Syndicate)
Few economists predicted the current economic crisis, and there is little agreement among them about its ultimate causes. So, not surprisingly, economists are not in a good position to forecast how quickly it will end, either.
Of course, we all know the proximate causes of an economic crisis: people are not spending, because their incomes have fallen, their jobs are insecure, or both. But we can take it a step further back: people’s income is lower and their jobs are insecure because they were not spending a short time ago – and so on, backwards in time, in a repeating feedback loop.
It is a vicious circle, but where and why did it start? Why did it worsen? What will reverse it? It is to these questions that economists have been unable to offer clear answers.
The state of economic knowledge was just as bad in the Great Depression that followed the 1929 stock market crash. Economists did not predict that event, either. In the 1920’s, some warned about an overpriced stock market, but they did not predict a decade-long depression affecting the entire economy.
Late in the Great Depression, in August 1938, an article by Ralph M. Blagden in The Christian Science Monitor reported an informal set of interviews with US “professors, banking experts, union leaders, and representatives of business associations and political factions,” all of whom were given the same question: “What causes recessions?” The multiplicity of answers seemed bewildering, and did not inspire confidence that anyone knew what was causing the deepest crisis of capitalism.
The causes given were “distributed widely among government, labor, industry, international politics and policies.” They included misguided government interference with markets, high income and capital gains taxes, mistaken monetary policy, pressures towards high wages, monopoly, overstocked inventories, uncertainty caused by the reorganization plan for the Supreme Court, rearmament in Europe and fear of war, government encouragement of labor disputes, a savings glut because of population shrinkage, the passing of the frontier, and easy credit before the depression.
Although economic theory today is much improved, if we ask people about the cause of the current crisis, we will mostly get the same answers. We would certainly hear some new ones, too: unprecedented real-estate bubbles, a global savings glut, international trade imbalances, exotic financial contracts, sub-prime mortgages, unregulated over-the-counter markets, rating agencies’ errors, compromised real-estate appraisals, and complacency about counterparty risk.
Twenty years ago this week, two men dressed as police officers duped the guards at the Isabella Stewart Gardner Museum and took off with three Rembrandts, a Vermeer, and a handful of other works. It remains the largest theft in the history of the art world, and the daring midnight heist still captures our imagination: Who stole them? Was it for money, or to trade for an IRA prisoner? What kind of black market netherworld did the stolen paintings vanish into?
Charles Hill, a former Scotland Yard detective who has followed the world of art theft closely for decades, says that world doesn’t deserve the air of glamour and mystery that books or movies give it. To steal great works like the Gardner paintings, he says, is less a daring act than a sign of an unimaginative thief, since it’s nearly impossible to sell a stolen iconic work for anywhere near its true value. A far bigger problem for the art world is the peddling of fakes, or the outright destruction of art.
Hill, who has helped recover a museum’s worth of stolen art over the years — including paintings by Vermeer, Goya, and the iconic “The Scream” by Munch — says he expects the Gardner paintings to turn up again someday. But he’s skeptical about the newfangled, CSI-inspired techniques that are being pitched as the ultimate art crime solver. When art vanishes, it doesn’t leave helpful hairs or bloodstains. And to track it down, he said, there’s no match for the old-style work of the traditional gumshoe.
“What I do is I talk to people,” says Hill. “I seek out criminals in a one-to-one manner. Just talk to them straight.”
Hill spoke to Ideas by phone from his home office in southwest London.
IDEAS: How is the psychological makeup of an art thief different from, say, that of a bank robber?
HILL: You’ve got to distinguish what I think are three categories of art thief. The first is the one who makes the money. That’s the thief who steals by deception, frauds, and fake forgeries. The people who do that, and there are a lot of them, make money. They’re also reasonably highly sophisticated and exceptionally bright.
Then there’s the trophy-hunting art thieves. They don’t make much money at all and cause themselves endless aggravation. But they enjoy doing it. It gives them a buzz.
There’s a third category now. These are thieves with purpose. Roughly six months before 9/11, in Afghanistan, Mullah Omar ordered the destruction of the Bamyan statues. A few years ago, his chief acolyte in Pakistan destroyed others. Again, he just destroyed it for the sake of destroying it. They’re prepared to steal by destroying art. The problem with this war on terror we’re fighting is that people look at the fighting. They don’t realize that underneath it is destructiveness of anybody else’ s way of thinking. That theft by destruction is a serious problem and will grow.
Interview Excerpt (from the Transcript)
CHARLIE ROSE: Elizabeth Warren is here. She is the chair of the
Congressional Oversight Panel. That committee has a broad mandate the
monitor the federal bank bailout and review measures created to prevent a
future economic crisis.
Its latest report focused on the threat from losses in the commercial
real estate market. Legislation circulating in Congress this week suggests
that financial reform could be coming. At the center of those discussions,
the debate on the powers of a new consumer protection agency and where it
might be located.
I’m pleased to have Elizabeth Warren back at this table. Welcome.
ELIZABETH WARREN: Thank you.
CHARLIE ROSE: Tell me what you think about this debate about a
consumer protection agency. You have a House bill which made an
independent agency, came out of the House Financial Services Committee.
Now you have Dodd and Corker, the two, Democrat and Republican, suggesting
some compromise they may have reached which would put it inside the Federal
Reserve. What says Professor Warren?
ELIZABETH WARREN: Here’s the deal. Right now, the Fed has the power
actually to do a lot of this. The Office of the Controller of the
Currency, which is the federal bank regulator, has the power to do a lot of
what this agency would do. But the truth is they don’t want to do it.
They’re not interested in it. It’s not what they do.
CHARLIE ROSE: Someone said monetary policy was in the penthouse and
consumer protection was in the basement.
ELIZABETH WARREN: In the basement when it’s lucky.
It’s the stepchild. It’s the one nobody wants, because — why do you
go to the Fed? Because you want to do monetary policy, right? Why do you
go to the Office on the Controller of the Currency? Because you love those
banks and want to take care of their profits.
For decades, the federal government has subsidized housing — particularly owner-occupied housing. This has been especially true during the continuing financial crisis, with Fannie Mae, Freddie Mac and the Federal Housing Administration propping up the housing market by issuing guarantees for investors on most new mortgages.
But what is the long-term justification for putting taxpayers on the line to subsidize homeownership? Is this nothing more than a sacred cow in American society — a political necessity because so many voters own homes and are mindful of their resale value?
In fact, there is much more to the history of subsidizing housing. While the crisis in the housing market shows that our current approach is far from perfect, there is a certain wisdom behind it, related not only to economic stimulus but also to the preservation of a sense of national identity. It’s important to remember this as we consider re-engineering our institutions as the crisis ebbs.
Additional Excerpts (via NYT)
But consider what will happen once the economy is again operating at full capacity. Basic economics tells us that when Americans, over all, spend more on housing, they must ultimately spend less on something else. Why should housing consumption be better than other consumption, or investments that people might choose?
This time, the best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord.
Most Important Lessons (via NYT)
American mortgage institutions encourage people to take a leveraged position in the real estate market, which is quite risky because home prices can and do decline, as we have learned so painfully. Leverage a risky investment 10 to 1 and you can expect trouble — and we have plenty of it today. More than 16 million homeowners owe more on their mortgages than their homes are worth, according to Mark Zandi of Economy.com.
If we choose to keep subsidizing individual homeownership, we must also commit to adding safeguards so that homeowners are less financially vulnerable. Of course, that will require some creative finance.
But first, we should rethink the idea of renting, which could be a viable option for many more Americans and needn’t endanger the traditional values of individual liberty and good citizenship.
Long Finance is an initiative begun in 2007 to establish a World Centre Of Thinking On Long-Term Finance. The initiative began with a question – ”When would we know our financial system is working?” – which challenges a system that can’t provide today’s 20-year-olds with a reliable financial retirement structure. The aim of the Long Finance Institute is “to improve society’s understanding and use of finance over the long-term.”
The research project proposals range from theory versus practice or fiscal versus monetary to sustainability versus robustness. The iconic project for Long Finance is the Eternal Coin, with the objective of starting a global debate about society’s values over the long-term. Click Here For Our Subscribers
As mentioned last week, the next two posts will be broken into two sections. This post will discuss how government structure, culture and social differences muddy the reform waters. These challenges must be strongly considered and overcome throughout the process, because theory and empirical evidence simply isn’t enough to get an effective, efficient and equitable health system implemented.
Successful reform is often a long process – nations rarely pass comprehensive policies that tackle financing, organization, regulation and payment systems simultaneously. Such periods of major health reform, though, generally occur during political and or economic crises. Politically, a nation may experience regime change where power and cultural momentum drastically shift and allow health reform to pass. Bangladesh, for example, experienced a military takeover of government in 1979 and was able to quickly implement pharmaceutical reform. After a similar military coup in 1983, Chile pushed through comprehensive health reform. In the late 1980’s, Taiwan began setting up a democracy after breaking away from China’s authoritarian rule; this political and social transformation resulted in systematic health reform by 1995 that now provides efficient, effective and universal health care. Economic crises, such as major recessions and depressions, may also create momentum for health reform. Governments and citizens, despite numerous setbacks, occasionally seek to expand coverage and improve the efficiency of their health systems. We see this happen most often in developed nations (US, UK, etc) where GDP per capita is much higher and governments can run temporary deficits without severe repercussion. However, even during instances of extreme change governments still encounter resistance. In the aforementioned cases, Bangladesh ultimately failed to overhaul the entire health system almost a decade later due to interest group opposition; likewise, Chile required 5-10 years to successfully implement new policies due to poor resource capacity and political resistance. The United States has encountered severe resistance due to high deficits and an economy that has yet to rebound.
For the majority of cases where less expansive health reform occurs, government structure and culture present the greatest obstacles in developed societies. Evidence indicates that it is rarely possible to use a “cookie cutter” approach to transferring health policies from one nation to the next — every country is unique, and reform must be tailored to meet its individual needs and characteristics. Thus, even though two nations share similar health care markets, their political and cultural differences may prove too disparate to conveniently swap health reform solutions. That is not to say that such differences are impossible to overcome; political obstacles can be conquered with enough support and intellect, and evidence shows that changes in culture are actually quite elastic. Nonetheless, these are critical issues that must be strongly considered.
Often politicians and policy experts in country A will choose certain aspects of nation B’s health system to adopt while ignoring others. They fail to recognize that successful health reform in country B required all pieces of the puzzle to be implemented simultaneously; consequently, reform efforts in country A will not achieve the intended goals – whether to cut costs, improve efficiency or increase access to health care. The adopting country, A, must then analyze which programs will be culturally and political acceptable yet attain similar outcomes. The American public, for instance, may not tolerate strictly non-profit health insurance companies or strong state and federal governments’ regulation of the market. If they refuse to pay higher taxes, how else could the United States fund universal coverage? Will citizens agree to pre-determined health insurance packages for the entire population? Evidence from Oregon indicates no, so what other methods might feasibly accomplish the same goals?
Take Switzerland and the U.S., for example. These two nations share uncanny similarities, such as decentralized, state involvement in health care, demand for a privatized market with consumer choice and a desire for limited government control. However, Switzerland hosts an 8 million citizen, direct democracy unlike our 300 million plus representative system. In the former governmental structure, citizens vote directly on bills and politicians have far less influence. Unlike in representative democracies (U.S.), experience shows that all parties have more incentive to vote, be informed, work towards consensus, support public goods, pay higher taxes and better control government spending, among others. Moreover, the Swiss may be more free market and conservative than other Europeans, but they steer much further left than most Americans. Polls indicate Swiss citizens enjoy a strong balance of subsidiary (free market) and solidarity (community welfare). They believe that when the market fails, people should take care of others. These engrained values heavily influenced their successful health reform effort in 1996. Most policy experts and polls indicate that Americans lack concrete, shared values towards health care. They want everyone to have some coverage but are unwilling to pay more for it. This uncertainty allows ideological debate to occur and enables politicians, media and interest groups to drive a wedge through citizens’ beliefs, ultimately influencing their thought process and behavior.
Next week I’ll dive into the second set of factors influencing health reform; notably human and administrative resource capacity, corruption and other bureaucratic obstacles. These occur mainly in developing nations yet do play significant roles in developed societies.
Introduction (via Fast Company)
You’re probably among the millions who have experienced it: driving in a car, listening to the radio, and suddenly this song comes on. It is not just any song–this was your favorite song when you were a teenager. As the first few notes strike up, you’re transported back in time. Everything is so vivid, and your mind wanders to parties, first kisses and sweaty palms. It’s as if time stands still and you suddenly realize that for the entire duration of the song, you haven’t seen a single thing on the road.
There’s no doubt about it, sound is immensely powerful. And yet 83% of all the advertising communication we’re exposed to daily (bearing in mind that we will see two million TV commercials in a single lifetime) focuses, almost exclusively, on the sense of sight. That leaves just 17% for the remaining four senses. Think about how much we rely on sound. It confirms a connection when dialing or texting on cell phones and alerts us to emergencies. When the sound was removed from slot machines in Las Vegas, revenue fell by 24%. Experiments undertaken in restaurants show that when slow music (slower than the rhythm of a heartbeat) is played, we eat slower–and we eat more!
Is this just coincidence, or does sound make us buy more, want more, dream more and eat more? Any 50-year-old American can sing a whole range of television jingles from the 1970s–they are all well stored in the recesses of our brain. Yet if you were to ask the same of those who have come of age recently, you will find them stumped. Has the magic of a television tune disappeared, or has the advertising world lost sight of the fact that people do indeed have speakers at home? I decided to put these questions to the test.
Buyology Inc. and Elias Arts, a sound identity company in New York, wired up 50 volunteers and measured their galvanic, pupil and brainwave responses to sounds using the latest neuroscience-based research methods. We learned that sound has remarkable power. This may not be surprising for many, but it was certainly surprising to realize just how many commercial brands over the past 20 years have made their way into the world’s 10 most powerful and addictive sounds–beating some of the most familiar and comforting sounds of nature.
THE MOST ADDICTIVE SOUNDS IN THE WORLD
Non-branded and branded sounds:
1. Baby giggle
2. Intel
3. Vibrating phone
4. ATM / cash register
5. National Geographic
6. MTV
7. T-Mobile Ringtone
8. McDonald’s
9. ‘Star Spangled Banner’
10. State Farm
Top 10 Branded sounds:
1. Intel
2. National Geographic
3. MTV
4. T-Mobile
5. McDonald’s
7. State Farm
8. AT&T Ringtone
9. Home Depot
10 Palm Treo Ringtone
HERE’S a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit.
Now, suppose that there were a way to deal effectively with all of those things at once, without hurting anyone. And suppose that it would make everyone’s smartphone work better, too. (I’ll explain that benefit shortly.)
I know that this sounds like the second coming of voodoo economics, but bear with me. This proposal involves no magical thinking, just good common sense: By simply reallocating the way we use the radio spectrum now devoted to over-the-air television broadcasting, we can create a bonanza for the government, stimulate the economy and advance all of the other goals listed above. Really.
Key Insights (Via NYT)
The reason for this golden opportunity may be in your purse or pocket: that smartphone to which you could well be addicted. The iPhone, the BlackBerry and competing devices are already amazing technologies. But precisely because of the nifty features they offer, like the ability to text photos, stream video and provide GPS directions, the radio spectrum is looking as crowded as Times Square on New Year’s Eve. Demand for spectrum is growing rapidly — a trend that will surely continue.
The problem is that the usable radio spectrum is limited and used inefficiently. Think of it as a 100-lane highway with various lanes set aside for particular uses, including AM and FM radio, TV and wireless computer technology. The government — specifically, the Federal Communications Commission — is in charge of deciding which devices use which lanes.
Because we can’t create additional spectrum, we must make better use of the existing space. And the target that looks most promising in this regard is the spectrum used for over-the-air television broadcasts.
Summary (via NYT)
I KNOW that this proposal sounds too good to be true, but I think the opportunity is real. And unlike some gimmicks from state and local governments, like selling off proceeds from the state lottery to a private company, this doesn’t solve current problems simply by borrowing from future generations. Instead, by allowing scarce resources to be devoted to more productive uses, we can create real value for the economy.
Economists are fond of saying that there is no such thing as a free lunch. Here we have an idea that is even better than a free lunch: being paid to eat lunch. More paid-lunch ideas will be coming in future columns.
Deep geologic repositories are difficult spaces to imagine. They exist below us, hundreds of feet into the earth. Their spaces are not easily accessed by the public, if at all. The most challenging thing to imagine about a deep geologic repository is invisible to human eyes: its relationship to geologic time.
Geologic repositories are mandated to secure their contents for monumental lengths of time. Depending on the nation, this can be between 100,000 and 1 million years. Humans evolved into modern homo sapiens (Latin: “wise man” or “knowing man”) within the last 200,000 years. This means humans are suddenly faced with having to design a space that, at it’s minimum, will last for a time equal to half our evolutionary history.
In an installation entitled Containing Uncertainty, we (Jamie Kruse and Elizabeth Ellsworth, the co-founders of FOP) take up one geologic repository and the “infinite” quarantine that it is designed to attempt.
More than 17 percent of households in American central cities live in poverty; in American suburbs, just 7.4 percent of households live in poverty. The income elasticity of demand for land is too low for urban poverty to be the result of wealthy individuals’ wanting to live where land is cheap (the traditional urban economics explanation of urban poverty). Instead, the urbanization of poverty appears to be the result of better access to public transportation in central cities, and central city governments favoring the poor (relative to suburban governments).
