What to Read on June 23, 2009

  • Documents Back Saudi Link to Extremists – New York Times – Sadly, this evidence will probably never see the inside of a courtroom, but it adds to the mounting examples of what people in the Middle East already know (see link to Gareth Porter’s article below): We sold our soul to Saudi Arabia a long time ago, and we continue to pay the price.
  • The Disaster Premium — Columbia Ideas At Work – The equity premium puzzle is one of the oldest and most vexing problems in theoretical finance. Despite the high returns to equity, investors put a large proportion of their savings into bonds. This paper unlocks a clue that is not only supported by good empirics but makes intuitive sense: Investors fear large economic downturns, so they invest in bonds to ensure a safe return.
  • Too Big to Fail Is Too Big — Willem Buiter – If you like diving into the details of financial regulation, you’ll love this post. Otherwise, the important takeaway is, “The Geithner plan for restructuring US regulation is silent on the too big to fail problem. That alone is sufficient to ensure that it will fail to result in a more stable and safer US banking and financial system.”
  • Facedown Burials Widely Used to Humiliate the Dead — National Geographic – I think I’ll avoid this risk altogether and go for cremation.
  • Low Brainer: Ancient Skull Shows Early Primates Didn’t Need Big Brains — Scientific American – The differentiating feature of our species is our superior brainpower, but the question remains: Where did it come from?
  • Giant Prehistoric Elephant Discovered — National Geographic – 13 feet tall?! That is one frightening elephant.
  • How To Stay Happy During the Recession — Ray B. Williams
  • Prescription for Iran: Patient Containment — Stephen M. Walt – Money quote: “In fact, we actually do know precisely how to deal with this sort of situation. As we learned during the Cold War, the proper response to thuggish authoritarian regimes is containment via deterrence, combined with hardnosed diplomacy on specific security issues and a sustained effort to win over their societies by showing them that we know how to produce a better way of life. That strategy won the Cold War without the manifold dangers of preventive war, and probably saved millions of lives in the process.” Couldn’t have said it better myself.
  • Steve Jobs and Apple: Here We Go Again — Joe Nocera – I agree.
  • Jim DeMint’s Amazingly Crazy Health Care Plan — Andrew Leonard – So the question is, Did Jim DeMint or Larry Kudlow (see link below) come up with this first, or are they just equally and independently out of touch with health economics?
  • Saudis Tried to Pin Khobar Bombing on Iran — Gareth Porter – Gareth Porter is a first-rate journalist. The five-part series “Khobar Towers Investigated: How a Saudi Deception Protected Osama bin Laden,” of which this is the first article, should be enlightening and disturbing. You will not read this article in the mainstream media, but you had better read it all if you want to understand the on-the-ground nature of American foreign policy in the Middle East. The stories may be new, but the lessons are not: Our protection of Saudi Arabia is despicable and may be largely responsible for 9/11. Our demonization of Iran for Saudi Arabia’s crimes is even more hypocritical and transparent to everyone in the Middle East.
  • Bernanke at the Creation — Wall Street Journal – I have to hand it to the WSJ: they’re crafty. They printed this editorial along with 2003 opinions by Ben Bernanke and their own editorial staff; the former called for low interest rates because unemployment was unusually high, and the latter called for higher interest rates to prevent inflation. The WSJ is oh-so-proud in hindsight because those low interest rates helped cause the housing bubble which burst into the current financial crisis. But they never predicted a housing bubble. They recommended high interest rates to prevent inflation, which never happened! Bernanke, though he made the wrong call, was right that inflation was not a major concern. The WSJ’s nose-in-the-air is like someone who says, “Don’t ride that bike because you could crash and break your leg.” You ignore them, ride the bike, get a cut from the rusty frame, and get a terrible infection. They come into your hospital room and say, “Told ya so!” Nice try, WSJ, but we’re not buying it.
  • A Fairer Credit Card? Priceless — Ryan Bubb & Alex Kaufman – Very good economic research with important policy implications. The key word comes at the end of the column: “nudge”, reminiscent of the book by Richard Thaler and Cass Sunstein. I’m reminded of the piece by James Kwak “describing the debate as one between two economic perspectives: classical economics (credit card issuers should be able to offer any terms they want; if people accept them, that by definition means it increases their utility) and behavioral economics (people suffer from cognitive fallacies, like thinking that they will never pay any of those fees threatened in the credit card agreement, so regulations should help people make better decisions and protect them from bad decisions).”
  • We Don’t Need Big-Bang Health-Care Reform — Larry Kudlow – This is an example of bad economic analysis. Putting aside whether his prescriptions would even work, Kudlow misses the picture entirely. The biggest problem with the health care system is not the uninsured; it’s rising costs! (The best proposals to control costs would take care of the uninsured too. They are not a trivial issue, but they are only part of the problem.) For someone who complains about budget deficits so much, you’d think he’d mention that Medicare and Medicaid pose the biggest long-term budgetary costs.
  • A Tale of Two Depressions — John Mauldin – This is old news on the blogosphere, but in case you missed it, you absolutely must check out these graphs — especially if you like to tell people that this recession doesn’t even come close to the Great Depression. In the United States, you’re right. We fell a lot farther back then (thanks to the gold standard, Smoot-Hawley, etc), but with a more connected global economy, the world as a whole has not been so lucky this time around.