London calling...

The G-20 is set to meet this week in London. Amid all the protests, world leaders will be, in theory, working towards a plan to address the global recession. One of the primary areas of concern should be the decline in global demand, ergo a rise in protectionism and decline in trade.

Trade is contracting again, at a rate unmatched in the post-war period. This week the World Trade Organisation (WTO) predicted that the volume of global merchandise trade would shrink by 9% this year. This will be the first fall in trade flows since 1982.

Not only is this the first drop in trade since 1982, it is percentage wise, the biggest drop since WWII. So, what's a politico or bureaucrat to do? Stimulus, I dare say. Leonhardt points out that of all the economic lessons we've learned, and often had to unlearn or relearn, one that seems to hold water is:

Does stimulus work? Fortunately, this is one economic question that’s been answered pretty clearly in the last century.

Yes, stimulus works.

When governments have taken aggressive steps to soften an economic decline, they have succeeded. The Germans did it in the 1930s. Franklin D. Roosevelt did so more haltingly, and had more halting results. Even the limp Japanese recovery plan of the 1990s makes the case. Although dithering over a bank rescue kept Japan in a slump, government spending on roads and bridges made things better than they otherwise would have been.

The primary impediments to additional stimuli likely has less to do with the costs or benefits, but with politics and nationalism. The politics portion of the argument against a bigger, more coordinated worldwide stimulus can be noted by looking at the Republicans in Congress being dead set against the stimulus. Finding little pieces of pork here and there, they parade around the media circus as if they were saving all America's future babies from sure fire death by debt. So, is this stance predicated on a truly ideological purity against bigger government spending, or more likely is it a political game? I'm going with the latter, because if it were a truly a conviction of such deep GOP significance, I would expect to see more GOP governor's joining in with Mr. Sanford in turning down cash. (I duly note that there are rumblings that some other GOP guvs will follow suit, at least in part.)

The second, and perhaps more problematic, antagonistic force is that of economic nationalism, or protectionism. From the earlier linked Economist article:

Some countries (notably Western European ones) have been reluctant to work the budgetary pump for fear that their extra demand will leak abroad to the benefit of foreigners. To stop the seepage, some governments have inserted discriminatory conditions into their fiscal programmes, the prime example being the “Buy American” procurement rules.

It seems highly irrational (which, may be more real in economics that we like to admit) for a nation to not pursue what is in its best interest, based upon a fear that action may have positive effects on other nations. I thought this was the basis for the entire argument for globalization. The G20 leaders need to realize that even if some "leakage" occurs, the preponderance of the benefits will remain in the country that activates the stimulus. With this confluence of short-sighted partisanship and chauvinistic politics from the so called friends of globalization, I'm not sure free trade needs the anti-capitalists protesters to bring it down. Just let the people running it keep making decisions defunct of logical coherence.

I'm a member of the elite monied class, or a libertarian...

Or, so I must deduce from the my favorite lefty, Mel-Anon's post today, based upon my subscription and weekly cover to cover reading of the Economist. I have spent most of my morning trying to figure out where this money may be found. I'm also enjoying the thought of my new found elite status.

Nichols at the Nation is using this endorsement to show the McCain/Palin socialist smear doesn't hold water. In making this point, he describes the Economist as "the journal of monied elites who prefer not to be lied to." I completely agree with the not being lied to portion, though once again I'm still trying to find my money and my elite status.

A newsmagazine that supports universal health care, gay marriage, significant investment in education, good governance and democracy... yeah, totally sounds like an elitist corporate shill to me...

Letter to the President on Food Policy...

I am becoming increasingly interested in the web of food-agriculture-health-climate change policy, and found Michael Pollan's interview on NPR's Fresh Air to be quite enlightening. The original source of this interview is an open letter to the next president authored by Pollan, which appeared in the NYT magazine earlier this month.

Our agenda puts the interests of America’s farmers, families and communities ahead of the fast-food industry’s. For that industry and its apologists to imply that it is somehow more “populist” or egalitarian to hand our food dollars to Burger King or General Mills than to support a struggling local farmer is absurd. Yes, sun food costs more, but the reasons why it does only undercut the charge of elitism: cheap food is only cheap because of government handouts and regulatory indulgence (both of which we will end), not to mention the exploitation of workers, animals and the environment on which its putative “economies” depend. Cheap food is food dishonestly priced — it is in fact unconscionably expensive.

It is time to stop accepting the premise that food grown sustainably using the sun's power is more expensive. It is imperative that the negative externalities and implicit subsidies be considered when evaluating the true cost of this "food."

Lots more interesting stuff from Pollan can be found on his site. I would strongly recommend both The Omnivore's Dilemma and In Defense of Food. I love the title for In Defense of Food, as it echoes one of the best books ever written, Crick's In Defence of Politics...

Inequality and lack of social mobility...

A couple of my more recent posts have focused on inequality comparisions between America and other developed nations in Western Europe. As part of my posts, I discoursed that it was somewhat absurd to make a statement along the lines of "Social mobility is at a more developed level in Germany than the United States." I thought I should, in all fairness, offer a rejoinder to myself after reading this article in this week's Economist. The article focuses on Britain, but many of the same statements can be made about America.

Income is distributed more unequally than in most OECD countries, as measured by the widely used Gini coefficient (see chart)—and more unequally than in any rich one except America and Italy. Nor is equality of opportunity much in evidence: a son’s income depends more strongly on his father’s in Britain than in any other country for which the OECD has data.

I am still not totally convinced that this single factor (correlation of father to son's wages) is adequate in measuring social mobility, but it is an interesting little article, and I deserve to have to eat some of it.

Also interesting from this week's print edition, is an article on the "axis of diesel; Iran, Venezuala and Russia.

In sum, Iran, Russia and Venezuela are all likely to be left short of cash—and facing a diminution in their international clout. “Never confuse brilliance with a bull market,” goes a Wall Street saying. The leaders of the oily trio may have thought high oil prices were an adequate substitute for good governance. In many quarters, the difference is now painfully clear.

I'm interested to see how these three respond to this rather sudden reduction in monetary power, especially Iran - given the looming elections next summer.

Gini coefficients...

To follow up on my last post, where I may have gotten a little ruffled by Michaels' piece in the NLR, I wanted to point readers to a data source for international economic data. The OECD is an international organization, based in Paris, that offers lots of access to data and literature on many economic topics. The OECD just posted a report on income inequality in developed countries, which I look forward to reading. While quickly perusing the report, I did a spot check on the OECD's Gini estimates, and what did I find? Estimated Gini's for selected countries (mid-2000's):
Before Taxes and Transfers:
Germany - .507
France - .482
United States - .457
Denmark - .417
United Kingdom - .460
Italy - .557

After Taxes and Transfers:
Germany - .298
France - .281
United States - .381
Denmark - .232
United Kingdom - .335
Italy - .352

The different values here show that, in nearly all developed countries, tax policy redistributes income and thus, increases parity. Of course, the amount to which this redistribution occurs does vary significantly. Same direction, different degree.

Recall, from Michaels (linked above) --

A standard measure of economic inequality is through the Gini coefficient, where 0 represents perfect equality (everybody makes the same), and 1 perfect inequality (one person makes everything). The Gini coefficient for the us in 2006 was 0.470 (back in 1968 it was 0.386). That of Germany today is 0.283, that of France, 0.327.

Obviously he was pulling his data from a different source, but doesn't it seem like just maybe he was being selectively misleading by reporting what is likely the US's Gini prior to taxes and transfers and France's and Germany's almost positively after? I don't doubt that there is a truly important point in criticizing America's policies that have allowed for an acceleration of income disparity, but I don't think the "cause" is helped by misleading statistics and inciting rhetoric (i.e. Move to Germany for the American dream).

Equality and neoliberalism...

Ken at Mel-Anon had an interesting post this morning on the relationship between identity politics and inequality. I am sympathetic to many of the arguments made by leftists that we must reduce our focus on identity traits and focus more on socioeconomic status. I am, however, not willing to go with Walter Benn Michaels to this level:

"It is neoliberalism, not racism or sexism (or homophobia or ageism) that creates the inequalities that matter most in American society; racism and sexism are just sorting devices."

I will be the first to admit that neoliberalism has an array of faults, not the least of which is instinctively moving to the muddled middle on many policy issues without much forethought. I don't believe, however, that it is wise to claim that racism and sexism are "sorting devices" and are not part of a real social issue. It is my belief that we can combat sexism, racism, bigotry and inequality all at the same time. The key is education. Both access and equality. Through whatever means work... be it vouchers, more public funds, higher taxes, etc. One area that I definitely feel is critical is access to university education. This means reinvigorating the Pell grant system, upping the ante on programs like Teach for America and such. A key part to a successful change in our educational system is for entrenched ideologues to rethink if their position is really advancing access and quality of education, or merely toeing the party line (and there are lots of party lines in this field).

More from Michaels:

A standard measure of economic inequality is through the Gini coefficient, where 0 represents perfect equality (everybody makes the same), and 1 perfect inequality (one person makes everything). The Gini coefficient for the us in 2006 was 0.470 (back in 1968 it was 0.386). That of Germany today is 0.283, that of France, 0.327. Americans still love to talk about the American Dream—as, in fact, do Europeans. But the Dream has never been less of a reality than it is today. Not just because inequality is so high, but also because social mobility is so low; indeed, lower than in both France and Germany. Anyone born poor in Chicago has a better chance of achieving the American Dream by learning German and moving to Berlin than by staying at home.

This paragraph bothers me, quite a lot. I think it bothers me so because I tend to agree with most of the basic premise of the argument - that socioeconomic inequality in the United States is a major issue - but this paragraph does little to enlighten this point. Let us deconstruct a bit: First, the Gini coefficient is not really a standard measure of inequality. It is a measure of income dispersion, but - as with most single stats - a failure to understand the underlying data makes its value fall significantly. I actually believe a review of the underlying data relating population percentages to income percentages in a ratio analysis based on the Lorenz curve quintiles would be interesting, and likely aide the point being made. Additionally, the Gini coefficient should only be compared across data that uses the same premises. The primary example here is that in the US benefits (health care) are not normally included in gross income computations, while in many European nations they are. What is the effect? Well, the cost for health insurance coverage offered by a single employer is likely the same for each employee (no matter how much that employee makes unless they had a progressive co-payment, novel?). How big of a difference this makes is debatable, but to use the Gini with no qualifications as a clear numerical comparison between nations is a bit overzealous.

Now to the part that is crazy -- Of course Americans and others love to talk of the American Dream, because it is real and a motivating factor for lots of people. To say that the dream is less of a reality today than... EVER, is completely bunk. Tell that to the generations of, yes, women and minorities that had NO chance to live the dream. To make such an inflammatory and patently untrue statement in what was already a fairly strongly opined piece is to, in my opinion, beg for criticism. As to the social mobility, I would point to the paragraph below, which highlights that Germany still makes decisions that greatly effect a child's ability to be mobile at age ten. Additionally, both France and Germany have very significant issues with immigration and reconciling their societies to the influx of Islamic immigrants. (I have little doubt that there is a lot of xenophobia here in the US.) To say that anyone born poor in Chicago has a better chance of achieving the American Dream in Germany is, to say the least, a big stretch. I have little doubt that they would receive a much better social safety net (which is good, and something the US must work on.), but there are lots of costs that come with that trade-off. I remind you, there is a reason the term is "American Dream." America is by no means perfect, and the growing inequality underlying the piece by Mr. Michaels is a real subject for discussion, but to devolve into a "America is the bastion of evil" mentality is, perhaps, a bit premature.

Before going to far with the Germany is a bastion of equality, one may wish to review this week's Economist, which has an interesting article on Germany's attempt at education reform.

Germany is one of the few European countries that still divides children up at the age of ten. The cleverest go to Gymnasien, the main route to university; the ordinary are sent to Realschulen; and the dullards attend Hauptschulen, often breeding-grounds for disaffection.

The global economy...

The Economist offered an interesting and fairly detailed special report on the world economy in the October 9th edition. Not everyone will agree with all of their conclusions, but it is at a great disservice to yourself if you chose to not read the report.

Perhaps most enlightening for me was the section on commodities and speculators...

Contrary to what the critics of speculation suppose, the main task of futures markets has been to signal these fundamentals to firms and households, speeding up their adjustment to the changing balance of supply and demand for physical commodities. In the absence of such signals, it would have taken even bigger and more extended swings in the prices of physical commodities to bring supply and demand into balance.

In the end, the report recognizes that there is a need for additional regulation in certain areas of the economy (mostly the finance portion). It points out, however, that we should not get caught up in a nationalistic protectionist mindset, whereby many of the big net positives that have come to fruition under globalization are lost, as we retreat to an era of big tariffs and neo-mercantilism blended with government interventionism. Long, but good....

A successful multilateral strategy to staunch the crisis would also make it more likely that the world will rise to the second challenge: learning the right lessons. Too many people ascribe today’s mess solely to the excesses of American finance. Putting the blame on speculators and greed has a powerful appeal but, as this special report has argued, it is too simplistic. The bubble—and the bust—had many causes, including cheap money, outdated regulation, government distortions and poor supervision. Many of these failures were as evident outside America as within it.

New-fangled finance has its flaws, from the procyclicality of its leverage to its fiendish complexity. But the crisis is as much the result of policy mistakes in a fast-changing and unbalanced world economy as of Wall Street’s greedy innovations. The rapid build-up of reserves in the emerging world fuelled the asset and credit bubbles, and rich-world central bankers failed to counter it. Misguided monetary rigidity caused financial instability. Much though people now blame deregulation, flawed regulation was more of a problem. Banks set up their off-balance sheet vehicles in response to capital rules.

It is the same story with the spike in food and fuel prices over the past year. To be sure, commodities markets can overshoot—but rather than pointing the finger at speculators, governments should look in the mirror. Rich countries’ biofuel policies pushed up the cost of food. Poor countries’ food-export bans and fuel subsidies compounded the problems. In many ways today’s mess is a consequence of policymakers’ misguided reactions to globalisation and the increasing economic heft of the emerging world.

If markets are not always dangerous and governments not always wise, what policy lessons follow? In the aftermath of the crisis the battle will be to ensure that finance is reformed—and in the right way. The pitfalls are numerous. Banning the short-selling of stocks, for instance, makes for a good headline; but it deprives markets of liquidity and information, the very things that they have lacked in this crisis. Even if the easy mistakes are avoided, improving supervision and regulation is hard. Financial regulators must look beyond the leverage within individual institutions to the stability of complex financial systems as a whole. Wherever the state has extended its guarantee, as it did with money-market funds, it will now have to extend its oversight too. As a rule, though, governments would do better to harness the power of markets to boost stability, by demanding transparency, promoting standardisation and exchange-based trading.

Over-reaction is a bigger risk than inaction. Even if economic catastrophe is avoided, the financial crisis will impose great costs on consumers, workers and businesses. Anger and resentment directed at modern finance is sure to grow. The danger is that policymakers will add to the damage, not only by over-regulating finance but by attacking markets right across the economy.

That would be a bitter reverse after a generation in which markets have been freed, economies have opened up—and prospered. Hundreds of millions have escaped poverty and hundreds of millions more have joined the middle class. As the world reconsiders the balance between markets and government, it would be tragic if the ingredients of that prosperity were lost along the way.

Krugman wins the Nobel Prize...

Congratulations to Paul Krugman for winning the Nobel Prize in Economics. I try to read all of Krugman's columns, and have to say he has enlightened and enlivened a number of issues for me. Perhaps more than any other, he has consistently reminded us that health care must be fixed.

So congrats Paul, and keep up the good work.

Greenspan's reckoning...

A very interesting article on Greenspan's legacy is in today's NYT. Maybe we should have known better than to trust a hardcore follower of Rand's objectivism, especially one who gets praise from Phil "ya'll a bunch of whiners" Gramm.

“You will go down as the greatest chairman in the history of the Federal Reserve Bank,” declared Senator Phil Gramm, the Texas Republican who was chairman of the Senate Banking Committee when Mr. Greenspan appeared there in February 1999.

I'm admittedly (and proudly) no expert on Rand, but I thought there was something about the selfishness-without-a-self mindset, whereby individuals don't act in a rational way to make themselves better humans, but effectively just rape and pillage... Of course, noone would have ever thought that a bunch of nice guys in suits and ties could act like a hedonistic mob.


Quote of the Day, which is also the leader to the article:

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

Them pinko farmers...

Hardwick, Vermont is uniting around food to save the town. It is an interesting read on how collaboration between farmers is growing the local ecoonomy. I'm especially interested in the concept of pooled capital. I think this may catch on... well maybe.

“Across the country a lot of people are doing it individually but it’s rare when you see the kind of collective they are pursuing,” said Mr. Fried, whose firm considers social and environmental issues when investing. “The bottom line is they are providing jobs and making it possible for others to have their own business.”

Uh oh! He just said collective, in reference to farms... this will likely not help the local food movement.

Economic reality...

Leonhardt has a solid column in the Business section of today's NYT regarding the perils of ignoring economic reality. He points out that the impact of the all the bailout (or rescue, if you are JM) plans on the federal budget will likely be in the hundreds of billions over the next few years. This obviously doesn't help the federal budget deficit or debt load. So, what do we do to fix it?

The short answer is that the budget problems the country seemed to have a year ago are now even worse. Next year’s deficit (relative to the economy’s size) will probably be the biggest since 1992, and maybe since 1983. Taxes will have to rise or government spending will have to fall, if not both.

This significant increase in the deficit is importnat, but maybe isn't the area we should be focused on to avert the next big problem. There are a myriad of areas that could be seen as the next big issue for the feds, but it seems to me (and Leonhardt) that it starts with health care.

Despite everything, the biggest fiscal problem remains, far and away, health care. Based on the rate that medical spending has been rising, the Congressional Budget Office forecasts that Medicare and Medicaid will take up 10 percent of G.D.P. within two decades, up from about 4 percent now. In today’s terms, that would be the equivalent of adding at least $900 billion to the deficit every single year, in perpetuity. It makes the cost of the bailouts look like a rounding error.

When it comes to health care, we have a situation that is blatantly unsustainable. With the right choices, we can prevent that. But so far, we instead seem to be hoping that the situation will magically resolve itself, which is a recipe for big problems and perhaps even a crisis.

Let’s see. That doesn’t sound familiar, does it?

Also in today's Business section, is an article on the effect of the credit crunch on states and municipalities, which is an area of personal interest that you just don't normally see much coverage of in the NYT. The ability of less than perfectly rated municipalities, states and school districts to raise short term revenue is a huge deal, as a few failures to make payroll and a lot of stuff stops getting done. Who will bailout the government? Uh... the government?

Buffett braves the crisis...

An interesting article in today's NYT compares Warren Buffet's current actions with those taken by JP Morgan in the early 20th century. I wasn't around for JP's insights and work, but I have to admit there are few people who seem to get business better than Buffett. I've read a couple of bios on the Sage of Omaha (a new one just released is the first authorized one, so I'll have to pick that up), and it seems clear to me that the guy just gets it. You can hate on him all you want for being extremely rich and appreciating the profit motive, but it is important to recognize he isn't what you might envision when you think of the personality of the world's richest man. An example of his mindset and values can be gleaned in the final few paragraphs of the article:

As far back as 2003, Mr. Buffett had warned that the complex securities at the center of today’s troubles — once so profitable, but now toxic — were “financial weapons of mass destruction.” These securities were engineered by the math quants on Wall Street, and in the interview Mr. Buffett expressed his disdain: “Beware of geeks bearing formulas.”

To help pay for the rescue, the government should raise taxes on the wealthy, Mr. Buffett suggested. “I’m paying the lowest tax rate that I’ve ever paid in my life,” he said. “Now, that’s crazy.”

A rich guy who recognizes he isn't paying his far share and that he could pay more without the world ending? Can't be. I've been convinced that if you raise taxes on the wealthy then they will stop investing in anything, sit on their asses, and we will all suffer. Or, maybe Warren is right and the right wing pundits are wrong?

A blue economy...

The Dow Jones is off a few hundred points this morning, dropping it below 10K for the first time in almost four years. I vividly remember when the Dow crossed 10K for the first time in 1999, as I was required to track the market in high school History/Econ classes. (Ah those high school history classes, a wonderful memory. Especially when I recall a particularly astute conservative young man always pushing back against my evil liberal ideals.) It is hard to believe that in March that will have been ten years ago, and we seem to be spinning in place, at best. It is also difficult to understand how the market could have been at an all-time high of 14.1K just one year ago. Now we are down 30% from that peak, and it is entirely possible more losses are ahead.

Right Wing Orthodox...

Say what he will about the need to change Washington and how "greed" is causing the problems on Wall Street, McCain hasn't in the past and doesn't seem interested now in breaking with the right wing orthodoxy, who hold that derregulation is the answer to pretty well any economic question. Despite their resistance to government regulation, they don't seem to mind a government bailout now and again. Something like socializing the costs, while privatizing the profits.

But his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party’s embrace of deregulation and relying more on market forces than on the government to exert discipline.

While Mr. McCain has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms.

He has often taken his lead on financial issues from two outspoken advocates of free market approaches, former Senator Phil Gramm and Alan Greenspan, the former Federal Reserve chairman. Individuals associated with Merrill Lynch, which sold itself to Bank of America in the market upheaval of the past weekend, have given his presidential campaign nearly $300,000, making them Mr. McCain’s largest contributor, collectively.

History of supporting deregulation; takes advice from a key architect of the mortgage bubble (Greenspan); significant campaign donations from a failing financial firm; now that my friends is obviously setting the table for some REAL CHANGE.

I've always wondered...

how inflation effects "dollar" stores. NPR had the Last Word in Business on this topic this morning. Interesting... At some point, won't they have to go to the two dollar store? or the buck fifty?

Lost in exceptionalism...

It is not often that a book review makes me immediately place an order, but the Economist on Bacevich's new work, The Limits of Power: The End of American Exceptionalism sent me to Amazon straightaway.

He claims that the constitution has been perverted by the expansion of the presidency and by national security, at the expense of Congress. Concluding that America’s military power “turns out to be quite limited”, he argues that the country “doesn’t need a bigger army. It needs a smaller—that is, more modest—foreign policy, one that assigns soldiers on missions that are consistent with their capabilities..."

He expresses his judgments, some grumpy, some anguished, in sharp, epigrammatic language. “A grand bazaar”, he writes, “provides an inadequate basis upon which to erect a vast empire.” Americans have recast the Jeffersonian trinity—life, liberty and the pursuit of happiness—to read: “Whoever dies with the most toys wins”; “Shop till you drop”; and “If it feels good, do it.”

This could be very interesting. Maybe even enough so to get me to write a review?

The new world order cometh...

In case you thought globalization and the new world order were on the wane, you may wish to take note of this proposed change in Accounting standards. If you want a sure fire way to know how global integration is going, check out how we count the money... Generally, this is probably a good idea, as it will allow more comprability across nations.

The adoption of international accounting standards by the United States would move the world toward one set of standards, which should make it easier for investors to compare companies operating in differing regions, and make it easier for firms to raise capital in whatever market seems most attractive.

My primary concern, as mentioned in the article, is that the International Standards place a premium on Auditor independence and judgment.

In a world with more professional judgment, the auditors would be expected to tell companies that a given accounting treatment violates a standard because it produces a misleading result. Whether they would be willing to do that, and whether all would be equally willing, could become an issue.

This is not necessarily a bad thing, but when the American accounting industry lays claim to a number of scandals invovling auditors covering or tacitly allowing shady corporate activity, you may end up with unintended consequences...

Infrastructure leases....

Today's NYT Business section features an article on the increasing use of private investment in public infrastructure, such as roads and bridges. This method of financing public infrastructure, which often are in a severe state of disrepair, is becoming more prevalent as state and local governments have become the lead agencies of maintaining and improving these assets. These governments are facing declining or stagnating revenues, growing debt burdens, and a significant reduction in federal aide, leaving the option of going to the private market a much more desirable option than in the past. There are tons of questions that come with such a change, the most salient of which should be recognized by those in Indiana as the lack of popular support for such a deal. (My Man Mitch got hammered when he "sold" the toll road.)

I have a number of concerns about this type of leasing of public assets to private companies, but the primary issues are accountability and social equity in fees. The private sector, of course, assures the governemnts through "concession agreements" that tolls will only be raised by X amount and that service will meet a certain level. Despite these agreements, the reality is that once a toll road becomes managed by the private sector there is a very real loss of accountability on its operation. Additionally, once the government ceases to budget for improving that road, it is exceedingly difficult to work it back into already tight public budgets.

I will say that the rise of pension funds investing in these infrastructure assets, is less disturbing than private firms -- but then again, how will these pension funds respond if the project isn't allowing them to meet their target return rate?

What is rich?

In today's NYT, Krugman asks the question of what is rich and what is middle class? Of course, the cynics answer is "rich = those who make more than me, middle class = what I make," but this is a serious question that doesn't seem to get much play. There are tons of factors that could be weighed in making a determination couched on a numerical cusp, but at the end of the day, it is more of a "feel" than a number. Krugman highlights just how each of the two candidates for president "feel" on this, by going back to the way each answered the question of "at what income do you move from middle class to rich?," posed by Rick Warren.

Mr. Obama answered the question seriously, defining middle class as meaning an income below $150,000. Mr. McCain, at first, made it into a joke, saying “how about $5 million?” Then he declared that it didn’t matter because he wouldn’t raise anyone’s taxes. That wasn’t just an evasion, it was a falsehood: Mr. McCain’s health care plan, by limiting the deductibility of employer-paid insurance premiums, would effectively raise taxes on a number of people.

I really do have to pick up the book "Richistan" by Robert Frank mentioned in this op-ed, as I've seen it cited quite often recently.

The Debtor Society...

It isn't everyday, but occasionally Utilityman columnist David Brooks comes up with a big hit, like his column on our culture of debt in today's NYT. I quote at length below, but take the time to read this column,

Each time an avid lender struck a deal with an avid borrower, it reinforced a new definition of acceptable behavior for neighbors, family and friends. In a community, behavior sets off ripples. Every decision is a public contribution or a destructive act.

And now the reckoning has come. The turn in the market punishes many of those seduced by financial temptations. (Sometimes capitalism undermines the Puritan virtues, but sometimes it reinforces them.)

Meanwhile, social institutions are trying to re-right the norms. The government is sending some messages. The Treasury and the Fed are trying to stabilize the system while still ensuring that those who made mistakes feel the pain.

But the important shifts will be private, as people and communities learn and adopt different social standards. After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.

The expectation of the average American citizen to be able to consume more than they produce has gone on too long. We must face the reality that is we are spending too much on too many unneeded things and services. One of the first steps is to start weening the younger generation away from the "I deserve it" attitude perpetuated by the Boomers. I know many Boomers would disagree, but they may be the lost cohort with regard to fixing themselves, so I propose getting proactive with the young folks that still have a much better chance of understanding how to positively impact society through adding more than you take.