Tuesday, November 08, 2011

The market's saying: borrow and invest

There are macroeconomic reasons for the federal government to run a deficit right now: slow growth, high unemployment, interest rates near zero. In the current environment fiscal policy is needed to stimulate the economy, as argued by Paul Krugman, Brad de Long, Mark Zandi, and others. Note that Zandi is chief economist at Moody's, and people pay good money for his forecasts. Among prominent pundits, Krugman has the highest accuracy rate in economic predictions.

There is also a microeconomic argument, as Ezra Klein explains today. The real interest rate on ten-year treasury bonds is negative. We have more than a trillion dollars in identified infrastructure needs. State and local governments have limited borrowing capacity, but the federal government doesn't. Not only are borrowing costs low, so are construction costs. For example, the highway construction cost index was about one-third higher in 2007 than it is now. The low borrowing cost says government investment now will not crowd out private investment. The low prices for construction indicate there are few alternative uses for construction companies, construction equipment, and construction workers right now.

Any public sector construction that's on the planning agenda for the next ten years should be shifted forward. Any roads that would need to be repaved next year or the year after - repave them now. Any major school renovations planned for two or three years from now - move them forward. Any bridges that are planned for replacement in the next three or four years - get going now. Any expansion of transit service or any replacement of rolling stock scheduled for the next two or three years - bring it forward.

Monday, August 29, 2011

Things that kill birds, other than wind turbines

An article in the Washington Post today discusses estimates of the number of birds killed by wind turbines. This article is interesting for putting the bird kill in some context. The article presents estimates from the American Bird Conservancy on the number of birds killed by different human-related causes, with house cats (several hundred million per year) and window glass (100 million per year) the leading ones. The estimates for wind turbine deaths are three orders of magnitude smaller (150 thousand to 500 thousand estimated by different parties.) An estimate of the total North American bird population would allow a mortality estimate. A quick scan of this table suggests that the total bird population in North America is several billion. The mortality rate attributable to wind turbines, even using the high estimate, would be less than one tenth of one percent. And habitat destruction may be the leading threat to species survival.

Of course, not all birds are created equal. Turbines killing off urban pigeons or European starlings* might be considered an environmental benefit. A turbine with high mortality for an endangered species would be a concern. The article is presenting the context at the behest of an industry association after six golden eagles were killed, most likely by wind turbines.

In the end, no energy source is free, and all the costs and benefits of alternative sources must be compared. If additional wind turbines displace a new natural gas electricity plant, those options can be compared. If additional wind turbines can displace an existing coal plant, then a different set of costs can be compared. Accurate pricing of the environmental harms from coal and natural gas via fuel-specific taxes would help to make the decision easier. I suppose a bird mortality tax could even be developed for wind turbines.

*Full disclosure: several years ago a bamboo thicket by my townhouse was infested by several hundred European starlings (a non-native, invasive species) that roosted every night around sunset. They made noise all night long and their droppings produced an odor even worse than that of the nearby Dumpster. We did not benefit from their consumption of insects, because they spent the active day elsewhere. We finally chased them away by making lots of noise every evening as they came in to roost. After several days of our annoyance the entire colony relocated as one.

Friday, July 08, 2011

The Secret Flagellants of Thuringia

If ever I have my own Goth band, I want to call it The Secret Flagellants of Thuringia. Until this morning, I had never thought of connecting the name to CNBC.

I made the mistake of watching CNBC with breakfast, waiting for the employment report, which shows job growth alarmingly weak, including a rise in the unemployment rate from 9.1% to 9.2%, and downward revisions to job growth estimates for prior months. Simultaneously, stock prices were falling. Joe Kiernan, one who can always be counted on to appreciate the suffering of the masses, said "I hope not too many people were too long," i.e., long on stocks. Over 14 million people are unemployed in the US (more if you count discouraged workers) and wages are falling. But Joe was quick to realize that people who are big on stocks, after making big gains the past twelve months, might suffer a little bit today.

Kiernan and Santelli then excoriated Mark Zandi (whose company is paid lots of money for his economic forecasts and who was an economic advisor to the John McCain presidential campaign) for mentioning that the potential for default on US debt is adding to uncertainty in the economy, and could harm the employment outlook, along with lack of consumer demand. No, they yelled at Zandi, it's regulatory uncertainty that's causing businesses to sit on hoards of cash. The other three economists in the segment, Diane Swonk, Steve Liesman, and someone whose name I didn't catch all agreed that lack of consumer demand is a problem and more short-term fiscal stimulus is needed.

It was too ugly to watch, so I tuned in the History Channel while finishing my oatmeal, where a documentary about the Black Plague was on. A cult of flagellants wandered Europe whipping themselves bloody, believing that the plague was God's punishment for their sins and they needed to suffer to end the plague. At least they were inflicting pain upon themselves. Today's superstitious cult - the Pain Caucus, as Krugman calls them - want to inflict more pain on the unemployed and underemployed, but not on themselves.

Thank you, Mr. Kiernan, for reminding me of the suffering of the rentier class. It's easy to forget them when unemployment is at 9.2%.


Monday, July 04, 2011

Happy Defeat of Napoleon Day

Tonight all over the USA fireworks will burst (except in towns that have cancelled them to reduce budget deficits caused by the recession.) As the pyrotechnics explode overhead, the oohs and ahs will be accompanied by music that celebrates the defeat of Napoleon by Tsarist Russia and a pop song about the poor treatment of Vietnam Veterans.

Of course I'm talking about the 1812 Overture and Born in the USA. I like both pieces of music a lot. Both are catchy. Both have melodies with a palpable sense of triumph.

The cathchiest bits of the 1812 Overture quote the Marseillaise, France's national anthem. Tchaikovsky also quotes Russian folk melodies and God Save the Tsar. The music commemorates Napoleon's retreat from Russia in 1812 after having defeated the Russian army. Upon his arrival in Moscow, he discovered the city deserted and all the provisions gone with the remains of the Russian army or burned. He suffered casualty rates of 90% fleeing to Poland as winter came on.

So 1812 could symbolize Pyrrhic victory or the Romanovs or just a fun piece of music. We still have Born in the USA. This one has lyrics we've heard on the radio dozens of times:

I had a brother at Khe Sahn
Fighting off the Viet Cong
They're still there, he's all gone


People might not know the back story to the 1812 Overture. It has no lyrics, just that inspirational music. But people can hear the lyrics to Born in the USA. I've even heard people singing along as orchestras played the music. People know the lyrics and sing along triumphantly, missing the irony and adding to it with their ignorance.

I wonder how that looks to the rest of the world, when they see news clips of Americans punching the air and shouting Born in the USA. Do people who speak English as a second language have any greater appreciation of the irony?