On the radio

In case you’re interested in listening, I’ll be on the Jerry Hughes show at 4 PM EST today, unfortunately minus Mr. Hughes this time. I’m hoping we can spend most of the time taking questions while discussing the economy; the call-in number is 866-222-2368.

On two unrelated notes, does anyone have a PDF of Keynes’s General Theory? There’s no shortage of HTML versions available, but I’d prefer a good PDF with footnotes. And if there is good Windows install app programmer among the Ilk who is interested in a small contract job, email me for details along with short descriptions of your two best projects. Educational history not needed but some ability with layouts and 2D graphics is a plus.

Drain those brains

Remember that bit about how Obama appeared to have a bit of populist in him? I think I wrote too fast:

President Obama is aiming to water down Democratic proposals on pay caps for banking executives because he fears a “brain drain” on Wall Street. In a move that has angered leaders of his own party, the President has indicated his concern that new caps on compensation — inserted into his $787 billion stimulus Bill, which he signs into law today – are too draconian and could limit banks’ co-operation with his plan to stabilise the stricken financial sector.

Draining Wall Street of its brains would be a positive step for the economy. Actually, shutting down Wall Street, allowing entrepeneurs to sell shares directly to interested investors over the Internet, and getting the government out of the capital business entirely would probably be one of the proactive measures that might actually end this contraction sooner rather than later.

UPDATE: The tide continues to ebb and we see who else has been walking around naked:

Stopping what it called a “massive ongoing fraud,” the Securities and Exchange Commission on Tuesday accused Robert Allen Stanford, the chief of the Stanford Financial Group, of fraud in the sale of about $8 billion of high-yielding certificates of deposit held in the firm’s bank in Antigua.

What, there was something fishy about high-yield Antiguan CDs? Really? What will shock us next, the discovery that the import/export firm with the branch office in Medellin is selling coke?

Mailvox: electro-heist

A Dog Named Op queries:

I didn’t hear much from the folks here about that electronic bank heist back in September,.. where billions of dollars suddenly got sucked out of the banking system and gov’t had to drop billions to keep the economy from collapsing. What was up with that? Was it Soros? the Chinese? the Saudi’s? Or all of the above?

According to my secret sources, it was an exploit by Goonswarm concocted by The Mittani.

Mailvox: Neokeynery

For some reason, yesterday’s column drew more positive email than the last 10 combined. This one, from a fellow Mensan, was pretty par for the course:

You make more sense in a few paragraphs than all of the establishment wizards…. You should be teaching Economics!

I rather doubt that; I don’t have the patience for those who don’t grasp things the first time that a good teacher requires. Anyhow, speaking of the establishment wizards, I was perusing one of Paul Krugman’s books in order to dig up what I remembered was a very untimely prognostication favoring newfangled equity investments over the barbarous relic. I didn’t find it there, as it turns out the advice was given in a different publication, but I did find something even more useful; the policy prescription that is very likely to succeed fiscal stimulus once it becomes apparent that the stimulus attempts have failed.

The standard response to recession is to cut interest rates…. Japan was a bit slow about cutting interest rates after the bubble burst, but it eventually cut them all the way to zero, and it still wasn’t enough. Now what? The calssic answer, the one that has been associated with the name of John Maynard Keynes, is that if the private sector won’t spend enough to maintain full employment, the public sector must take up the slack….

And in fact Japan tried. Since the early 1990s the government has produced a series of stimulus packages, borrowing money to build roads and bridges whether the country needed them or not. These packages created jobs directly; they also clearly did provide the economy with some boost every time they were tried. The trouble was that the programs didn’t seem to get enough bang for the yen…. In short, the attempt to jump-start the economy with deficit spending has reached its limits. So now what?…

The answer is that an economy which is in a liquidity trap needs expected inflation – that is, it needs to convince people that the yen they are tempted to hoard will buy less a month or a year from now than they do today.
The Return of Depression Economics, pp 78-79

Krugman talks openly about how those who support this idea of “quantitative easing” are biding their time and waiting for when further bad news finally makes “the time ripe for radical action”. What he’s really talking about here is the introduction of negative interest rates, of money with an expiration date. I think this may partly explain why the hyperinflation/deflation debate is so difficult to settle, because the switch from monetary policy to fiscal policy has largely taken inflation off the table for the time being while the stimulus programs are enacted. Only once they fail will the economic leeches return to trying to treat the patient by further bleeding him.

There will almost surely be at least three rounds of stimulus attempted before the neokeyns finally despair of fiscal policy, which means that quantitative easing/negative interest that Krugman is prescribing here probably won’t be seriously discussed until mid-2010 and won’t be enacted any sooner than late 2011.