nanfeng oranges

Playing around with my Sigma 24-70 f/2.8 EX DG Macro.

 

Just closed the deal on a Sigma 24-70mm lens I found on Craigslist. One thing I did not fully appreciate before I saw the lens was just how big it is. Maybe I’ll need to get a new bag to carry this thing around in.

 

Nonetheless, it is an welcome addition to the Canon 50mm prime I’ve been using up to this point.

 

Created with flickr slideshow.

Joe Stiglitz’s new book ‘Freefall’ has a pretty simple message: the next challenge policy makers face is not to decide whether an economy should be market driven or centrally planned; the challenge is to find distinguish what should be left up to markets what what should be regulated. Since of any potential adversaries is easy to guess, the book usually is trying to persuade the reader that markets don’t always deliver the optimal results in a reasonable amount of time.

 

The empirical evidence that points to market failures is easy to find and fresh in everyone’s memory. How did this happen? Step 1: inflate an asset bubble by keeping interest rates too low (Greenspan). Step 2: Allow financial wizards to come up with new crazy new financial products.

 

What happens next? Major institutions fail or almost fail (Lehman Brothers, Fannie Mai/Freddie Mac, AIG). The government doesn’t help and people get upset (Lehman Brothers). The government does help and people get upset (AIG, TARP). The economy goes into recession. GM and Chrysler get into trouble, too.

 

Obama to the rescue. If you think Obama is going to get through this telling unscathed, think again. The stimulus plan, although the right idea, was too small, according to Stiglitz.

 

Now that we’ve had an overview of just what happened, Stiglitz digs in a little deeper. First he examines the real estate failures. Then he details how financial titans committed something tantamount to robbery when their too-big-to-fail institutions were rescued.

 

In chapter six Stiglitz examines what he sees as the root causes of the crisis and how they can be addressed. Banks can’t address systemic risks. Regulate them. Incentives in corporate governance and banking are out of whack. Social and private incentives should be realigned.

 

A few interesting themes emerge throughout this discourse. First, how critical “agency” and externalities are in understanding why markets fail. (21st century capitalism does not equal 19th century capitalism.) Second, understanding when profit seeking ultimately helps society and when it doesn’t. (Fees for electronic payments such as those levied by Visa and Mastercard are presented as emblematic of when profit seeking hinders innovation.)

 

In the chapter ‘A New Capitalist Order’ Stiglitz tackles some bigger questions. What is the role of government? How do we strike a balance between markets and the state?

 

Next, he examines the international response to the crisis. One of the most interesting parts of this chapter is the idea of a global currency. Stiglitz doesn’t go into too great depth about the merits and demerits of an international reserve currency. Perhaps that’d be out of the scope of this book.

 

Towards the end he confronts the entire discipline of economics, running quickly through the highlights of economic thinking over the past couple hundred years, from Smith to Milton Friedman. This is probably the single most interesting chapter of the book.

 

Finally he addresses what all this means for society. Stiglitz reflected on an observation Keynes made. The observation that in Keynes’ time, people were coming to the point where they didn’t really have to struggle to fulfill their basic requirements of food, shelter, and water. What would that mean for the future? Would people work less?

 

Perhaps, but not necessarily. Just compare France and the U.S. Moreover, even though they’ve taken markedly different paths, neither Americans or French would trade places with each other.

In a surprisingly penetrable post on the recent news that China’s holdings of US government bonds dropped in December, Michael Pettis addresses a number of fallacies related to the respective current account surplus and current accunt deficit of China and the United States.

 

It all comes down to something like this: When you devalue your currency, you incur a real loss immediately. That real loss is only realized when you revalue your currency. The decision about when to revalue doesn’t impact net gains or losses, but it does impact the distrubtion of those gains or losses.

 

The specific fallacies he addresses include:

• The decline in Chinese holdings of USG bonds might signal a revaluation of the RMB.
• The U.S. wants China to revalue because it would amount to a transfer of wealth from China to the U.S.
• China was a net seller of dollar assets in December.
• China is diversifying away from the dollar.
• The exchange rate represents a lending decision.
• Foreign currency reserves could be used to recapitalize banks.
• Foreign currency reserves mitigate domestic crises.
• China can’t afford to revalue the RMB.
• Revaluation will balance global trade.

Changing the faith of our politicians with Aperture 3.