Burkina Faso/Niger and Desert Encroachment.

Burkina Faso/Niger and Desert Encroachment.

In the article, In Niger, Trees and Crops Turn Back the Desert, we get a nice summary of the problems with desertification happening in Niger and what policies exasperated the problems. (Title link) Basically trees became an obstacle to farmers developing their lands and the assets of trees were owned by the state (or more loosely the people). Instead of caring for the trees on their lands, the trees were more or less an obstruction for planting nice even rows of cash crops. Thus the benefits of soil retention and reducing water runoff were lost when the majority of trees were either cut down or neglected in farming practices. All that was required was for reestablishment of property rights along with a long forgotten agricultural technology to stimulate the growth of productive trees for farmers.

Andrew Leonard provides a summary of these techniques in the article A tree grows in the Sahel. Basically it is simply digging a hole and filling it with organic matter of any kind and the most varied the better for retention of waters in the space created as well through the organic materials in the pit. Then the soil is covered back up and if need be plant a tree nearby that will draw upon the water retained in the hole as well access to the organic compounds. Bugs, worms and termites will make holes to the material to help aerate the soil and allow water absorption. In a short time, the farmer will be able to harvest various things from his crop of trees including firewood, fruits, and falling leaves for more pits. The holes are called “zai holes” or planting pits.

A more complete analysis is available in the paper entitled THE EMERGENCE AND SPREADING OF AN IMPROVED TRADITIONAL SOIL AND WATER CONSERVATION PRACTICE IN BURKINA FASO. From the abstract:

This paper describes the emergence of improved traditional planting pits (zaï) in Burkina Faso in the early 1980s as well as their advantages, disadvantages and impact. The zaï emerged in a context of recurrent droughts and frequent harvest failures, which triggered farmers to start improving this local practice. Despair triggered experimentation and innovation by farmers. These processes were supported and complemented by external intervention. Between 1985 and 2000 substantial public investment has taken place in soil and water conservation (SWC). The socio-economic and environmental situation on the northern part of the Central Plateau is still precarious for many farming families, but the predicted environmental collapse has not occurred and in many villages indications can be found of both environmental recovery and poverty reduction. (Kabore, Reij, abstract)

The thing to note about this process, it is mostly traditional and requires no special technology to perform and no outside technology is basically needed. The one aspect that could benefit is dissemination of the technique and collection of data for improvement upon the application of this ancient technology. Cellular telephones again might be handy in disseminating as well as agricultural extension services through government entities or NGOs. Ultimately this will lead to production capability increases but it does not require increased labor force during peak times and can be spread out over the year when labor demand is lowest. (SG, Section 3.5.4) The pits can be done at any time and when the rainy season starts then the benefits can begin the process.







References:
1. Vaitsos, C.V. (1973) ‘Bargaining and the Distribution of Returns in the Purchase of Technology by Developing Countries’, from Henry Bernstein [ed.] Underdevelopment and Development, Penguin Books: Harmondsworth, England, pp 315–22.
2. Paul Collier (2007). The Bottom Billion. Oxford, Oxford University Press.
3. Kabore, Daniel and Reij, Chris (2006), THE EMERGENCE AND SPREADING OF AN IMPROVED TRADITIONAL SOIL AND WATER CONSERVATION PRACTICE IN
BURKINA FASO (PDF), EPTD Discussion Paper No. 114, International Food Policy Research Institute.
4. Bush Encroachment Report on Phase 1 of the Bush Encroachment Research, Monitoring and Management Project,

5. ET:Bush to Solve all African Problems!
6. In Niger, Trees and Crops Turn Back the Desert


7. Lydia Polgreen, New York Times, In Niger, Trees and Crops Turn Back the Desert
8. Andrew Leonard (Oct. 4, 2006), Salon.com, A tree grows in the Sahel

A Dweeb asks: Can America be saved? Paul Krugman.

When Dr. Krugman asks, Can America be saved?, we have to ask from what do we need saving?

So I read this:

Boehner said Americans want government to practice the same financial restraint they have been forced to exercise: “It’s time for government to tighten their belts and show the American people that we ‘get’ it.”

and I wonder if this country can handle the crisis we’re in. Remember, John Boehner is, in effect, the second-most influential member of the GOP (after Rush Limbaugh). And while Democrats hold a majority, it’s not enough of a majority to make the minority party irrelevant.

So the fact that Boehner’s idea of economics is completely insane matters.

What’s insane about Boehner’s remark? He’s talking about the current economic crisis as if it were a harvest failure — as if we faced a shortage of goods, so that the more you consume the less is left for me. In reality — even most conservatives understand this, when they think about it — we’re in a world desperately short of demand. If you consume more, that’s GOOD for me, because it helps create jobs and raise incomes. It’s in my personal disinterest to have you tighten your belt — and that’s just as true if you’re “the government” as if you’re my neighbor.

Yes there is this perception in society and Economists have not been able to dispel that when demand goes down that more belt tightening may not be the answer as the collective. But if all we do is to transfer wealth from the future to now how is this moral for us to it? {I am not saying that I believe that only that is the koan that he must address.}

But we face the isolation paradox and yes please Dr. Krugman, Thoma, etc spend all your money and if you would be so nice, buy some of my products or my wife is in Architect and I am sure she could use the work. The government does not have unlimited resources, it too much abide by some constraints, whether we are approaching that is the question.

Dr. Krugman for me also does not use a more refinement in his analysis than just "demand" and then interpreting that to me consumer demand. A better understanding is absorption in describing a recession or depression. In a basic economy we have Consumers and Business denoted by Investments {planned and unplanned} and Government and lastly the World {exports-imports}. Yes we have unplanned investments by business happening now and consumer spending is down and exports while helped the US in certain months has also dried up as a way to raise absorption. It seems that business in this environment is not willing or even able to increase planned investments to make up the shortages right now and Obama is not making things any better with populist rhetoric. If there is no way to know with certainty what the returns on investments are going to be then business increases its risk aversion levels and thus does not invest. The stock market seems to be indicating these sentiments.

He may think that the Big Push might help us but we still have to think if Government deficits now have a positive benefit to society and not just feel good promises as well as expansion of the welfare system.

Plus, who is “the government”? It’s basically us, you know — the government spends money providing services to the public. Demanding that the government tighten its belt means demanding that we, the taxpayers, get less of those services. Why is this a good thing, even aside from the state of the economy?

Again, this is what the leaders of a powerful, if minority, party think. Can this country be saved?

Yes, we are the government and we do not have Polyarchic Government. But the question he fails to address is whether conservatives in general believe that we are getting value out of those services. Where is the NPV analysis of these projects?

Well, I am sure he is just sitting at home worrying about the Republican Party. But his attitude does not match his concern. I mean if he thinks that "the second-most influential member of the GOP (after Rush Limbaugh)" is going to win friends and influence people then he must be a Libtard. Why not try to correct his mistakes instead of being a political hack?

Instead he sides with Practical Pelosi.
Pelosi open to another stimulus if necessary Economists say it's working, but may not be big enough

"You have to keep the door open to see how this goes," Pelosi said. "But we must give it time to work."
"There's a drum beat of optimism in regard to this package and this president, that is very positive," Pelosi said. She said it would take time for the stimulus to have an impact, but she hoped confidence would return to families and markets quickly.

So a week is enough? a month? We have not even started to seriously hand out the dough and talk about we need more is just silly. But Dr. Krugman eats that up. Sure glad neither of them are at the Fed.

Allen Sinai, chief global economist for Decision Economics, said the stimulus would probably create 2.5 million jobs in the first two years. "Initially, the jobs created may be a little disappointing, but over time, over a three-year period, I think 3 million new jobs is not unrealistic at all."
Despite that forecast, the stimulus is a good policy, Sinai and two other economists agreed.
It just may not be big enough.

I agree in using econometrics as a tool, but there comes a point when there are so many factors that just guessing or a dartboard can be better. Of course they are "creating or saving jobs". How do you prove you "saved" a job based on some indirect effect. That is aside from the paychecks for specific tasks in the government checking account.

Krugman is Still a Dweeb

Let me first start with his latest editorial complete {since short}.
Japan reconsidered

For a decade or so Japan's lost decade has been the great bugaboo of modern macroeconomics. Economists constantly warned that you mustn't do X or you must do Y, because otherwise we'll turn into Japan. And policymakers congratulated themselves in advance for not being like their Japanese counterparts, who dithered and drifted, refusing to make hard decisions.

Well, I'm sure I'm not the only person to notice this: Japan doesn't look so bad these days.

For one thing, the famed sluggishness of Japanese policy — the refusal to face up to banking system losses and pour in the funds needed to recapitalize the system, the refusal to let zombie banks die, the stop-go nature of fiscal policy, with concerns about rising debt warring with concerns about the economy — all of that seems entirely comprehensible now, doesn't it? Even with the knowledge of what happened to Japan to motivate us, so far we're following exactly the same path.

And given what the next couple of years are likely to look like, Japan's lost decade — yes, growth was slow, but there wasn't mass unemployment or mass suffering — is actually starting to look pretty good. We may or may not be about to face our own lost decade, but the sheer misery millions of Americans will face in the near future probably exceeds anything that happened in Japan during the 90s.

I still hope we can do better than the Japanese did, but it's not at all obvious that we will.

I find it funny that he can say with a straight face that "we're following the same path", when he understands that we have done them differently just maybe not as "big push" as he would want us to. Including the fact of "quantitative easing" that Japan did not start until 2001.

But if it was not so bad as in: "Japan doesn't look so bad these days." Then one has to wonder about a couple of his articles he has written before. He does seem to have studied the "lost decade" to understand it more than most economists. First: Setting Sun Japan: What went wrong?
By Paul Krugman

But the new story is much more interesting than the old one. How could a wealthy, productive, sophisticated country have gone from enviable growth in the 1980s to stagnation in the '90s, and now be slipping into a downward spiral of recession and deflation? True, Japan is not a country on the edge of chaos--as Indonesia or Russia is--but that only adds to the mystery. Japan isn't a place where the state is weak, unable to collect taxes or convince investors that their property rights are secure. Nor is it a country at the mercy of skittish foreign investors who must be persuaded to roll over its debt: Japan is still the world's largest creditor. So what's the explanation?

Inefficiency? Japan has many inefficiencies that limit its productive capacity--too many mom-and-pop stores, not enough computerization in the office, and so on--but inefficiency per se is not the immediate problem. What Japan lacks right now is not supply but demand: Japan's consumers and investors just aren't spending enough to keep the country's shops and factories busy.
And the usual remedies for inadequate demand aren't working. Interest rates have been pushed down almost as far as they can go. Like the Fed, the Bank of Japan normally targets the interest rate on overnight loans that banks make to each other. The difference is that this rate is more than 5 percent here, but basically zero there. The big public spending projects the Japanese government launches every now and then do create some jobs, but they never seem to yield enough bang for the yen: The economy keeps relapsing, while government debt keeps mounting.

And: TIME ON THE CROSS: CAN FISCAL STIMULUS SAVE JAPAN?

Now you could argue that the experience of the Depression and after provides just such evidence. Many economists thought that with the end of World War II spending the United States would revert to Depression-type conditions; a whole school of thought, the "secular stagnation" hypothesis, was built around that idea. In fact, once jolted out of depression, the U.S. did not fall back; one explanation is a story something like that in Figure 2.

But it is quite a stretch to argue that Japan in the 90s is a parallel case. It might be; but an at least equally, if not more, plausible story is that Japan has a structural excess of saving over investment, even at a zero interest rate; in that case a temporary fiscal stimulus will produce only temporary results.

What continues to amaze me is this: Japan's current strategy of massive, unsustainable deficit spending in the hopes that this will somehow generate a self-sustained recovery is currently regarded as the orthodox, sensible thing to do - even though it can be justified only by exotic stories about multiple equilibria, the sort of thing you would imagine only a professor could believe. Meanwhile further steps on monetary policy - the sort of thing you would advocate if you believed in a more conventional, boring model, one in which the problem is simply a question of the savings-investment balance - are rejected as dangerously radical and unbecoming of a dignified economy.

Will somebody please explain this to me?

Hey, well he can always change his mind, but it seems that at least he should acknowledge his change in positions and that maybe he was giving the wrong advice either then or now.

ET:Bush to Solve all African Problems!

Well, since I got your attention, let me start with a couple of problems wrapped up in the article:Namibia: Policy to Create a Water Scarcity?

Ever since the government has started its reform of the rural water supply, water has become a scarce commodity, says Mukuya. Under the colonial South African administration, water was free for people in the communal areas. It was one of the many mechanisms the apartheid regime put in place to control the rural population.

Now communities are organised in Water Point Associations (WPAs), governed by committees, tasked with regulating and collecting the levies for the water supply, explains Mukuya, while he tightens the tap to make sure not a drop is lost.

"The government has stopped buying fuel for the pumps as part of the reform programme. They still come in to fix the pump when it breaks, but that will also stop eventually."

It is meant to lead to a paradigm shift. "Under the South Africans, water was used in a completely ecologically unsustainable manner", says Dr. Thomas Falk, author of a soon to be published study on the impact of the decentralisation of the rural water supply that affects one million Namibians.

Basically a neoclassical economics approach can help explain the shift from a resource that was free and thus overused to now trying to "get prices right" through the necessary "paradigm shift". Others may look at this trying to reduce the consumption of a precious resource, but who "pays for it" is a question that society must also answer. Namibia already has the highest Ginni index in the world and anything else to make it harder for the rural peasants will not necessarily be good for society.

Though the water situation in Namibia is believed to be extremely precarious - only the Sahara desert nations are more arid - astonishingly nobody knows exactly how little water there is.

"A quantitative analysis of available groundwater data is on the books, but will take three years to complete", says Greg Christelis, deputy director of Geohydrology at the Ministry of Agriculture, Water and Forestry. He says there is no data indicating that aquifers are depleting countrywide, but acknowledges that existing studies are confined to particular geological sites.

"All we know is that bush encroachment has a large effect on the groundwater table. In areas where bush is removed, recharge is much higher."

Bush encroachment is the most common form of land degradation in Namibia with roughly 26 million hectares of rangeland affected.

Some of the knowledge and technology could be provided by other countries. Of course there needs to be a sensitivity in developing their resources including human capital in problem solving. One of the initiatives that the IMF has endeavored in, is in helping with coordination of international aide agencies, and this passage seems to show a lack of coordination:

An evaluation report on various donor projects by the European Commission in 2008 concluded: "There appears to be little co-operation between water supply and sanitation scheme planners and the providers of water; merely an assumption that water is, or will be, available."

OK, so we got to see how "Bush" creates more problems for the world and how it is destroying Namibia and adversely affecting the poorest of the poorest in Namibia. Let me start with an anecdotal story.

At the meeting, geo-hydrologist Frank Bockmuehl said bush encroachment had reached such alarming proportions, that "our rivers flow far less than two, three decades ago or in some cases don't flow at all any more".
"On our farm in the Outjo area, my grandmother used a lovely spring to water her extensive vegetable garden. She regularly supplied the school hostels in town with the vegetables. The spring dried up 18 years ago; the water table on the farm had dropped by 10 metres."

He then started a debushing exercise and cleared 300 ha recently.
"To my great surprise and joy, the water at the fountain came back a few months ago and has kept a steady flow," the geo-hydrologist said. "The water table rose."

Luckily, there seems to be a solution but maybe this is the area that I honestly need more information about. The quote above and our further discussion is from: Namibia to start bush-to-electricity project from invader-bush. I have other documents that talk about this process but hasn't the USA has tried some of these projects over at least the last 30 years? Even "the Bush" talked about switch grass a few years ago.

A new way of combating bush encroachment and restoring Namibia's savannah landscapes will start in September when a N$ 14 mm project to set up an independent power plant fed with invader bush will kick off. The “bush-to-electricity” project is run by the Desert Research Foundation of Namibia (DRFN), an energy expert at the organisation has announced.
"Other partners are the Namibia National Farmers' Union (NNFU) and the Namibia Agricultural Union (NAU)," Claus-Peter Hager told a meeting of charcoal producers at Otjiwarongo. "The Ministries of Environment and Tourism and Agriculture were also consulted. Funding of N$ 14 mm from the European Union over the next 24 months has been secured," Hager said.

Vast tracts of farmland cannot be used for farming because of encroachment by hardy shrubs and trees, generically known as invader bush. Studies indicate that about 26 mm hectares of agricultural land are infested, which is preventing the growth of useful grass species. It also results in soil compaction in the bush-encroached areas.
This has reduced Namibia's carrying capacity for livestock, resulting in reduced cattle numbers over the past 50 years -- from 2,5 mm in the commercial farming areas down to some 800,000 head of cattle. According to experts, the reduced availability of land for grazing causes economic losses of N$ 700 mm in the agricultural sector every year.

Another worrying factor is that the extensive root network -- up to 40 metres long -- of some invader bush species robs the soil of moisture. Soil also gets compacted, which prevents rain water from penetrating the soil and replenishing the underground water table. Hager told the meeting that usually, underground water was recharged with just 6 % of rain received.
"In bush-infested areas it is less than 1 %." Another adverse effect is that invader bush increases water run-off and erosion.

The project will be located in one of the areas with the highest density of invader bush -- around the north-central towns of Tsumeb, Otavi and Grootfontein. It wants to use farms that already harvest invader bush for charcoal production. The proximity of the areas to power lines, where the generated power can be fed into the national electricity grid, will also play a role.

Well, read the rest of the article since it is short and covers the issues quite succinctly.

What do you think? What other issues/problems should be discussed for this project? To provide some more background, let me start with what inspired at least another look at the Bush encroachment in Namibia. I was looking into property rights and some techniques in Niger dealing with desert encroachment in the blog post: Creeping dunes threaten African nation/But There is Hope in Some Areas. Then das monde had brought up the issues of the Invader bush and the Namibian savanna and he does a good job bringing out the important points in that article.

The following article gives some details about the project but I found the following points important in getting incentives right in any social/economic problem such as invader bush.
Namibia to use invasive shrubs for bioenergy, to meet all power needs

Individual, small farmers whose land is invaded say it is cheaper to buy a new farm than to try to eradicate the hardy bushes.
...
Although there are other methods to limit bush encroachment such as herbicides, use of browsers, fire, stumping or felling and bulldozing among others, many of these methods have been found to be so costly that farmers say it is cheaper to buy another farm than to debush.

This exposes our dilemma in how humans will deal with this economic problem. You can't just continually move to new land when the old land is not going to recover on its own.

The executive summary of the Bush Encroachment Report has some important considerations also:

Policies and legislation
For many years we have thought that problems in agricultural sector should and could be counteracted through scientific and technological solutions alone. Today we realize that the degradation process, with bush encroachment as a prominent sympton, could also be ascribed to policy failures, mainly in the socio-economic field.
...
Since most of the methods to combat bush encroachment are expensive, recommendations are also made herein to Government to introduce a number of socio-economic incentives that would encourage farmers to participate in restoring the land, this precious Namibian asset, to a more healthy and ecologically balance state.

Which again ties back to getting incentives right as we explored already in: Creeping dunes threaten African nation/But There is Hope in Some Areas

Bush to Solve all Problems in Africa!

Well, since I got your attention, let me just say I am not sure if there is enough intellectuals here to be able to help explore the issues in this post. It seems that many of the intellectuals have been "eliminated" here. Some back but others do not seem to come across the divide. Like that Mr. V seemed like an intelligent guy. Before he left he did say that the US was anti-intellectual. I was not sure about that and wanted a chance to discuss it more with him. oh well, on to Bush and what can be done...

Let me start with a couple of problems wrapped up in the article:Namibia: Policy to Create a Water Scarcity?

Ever since the government has started its reform of the rural water supply, water has become a scarce commodity, says Mukuya. Under the colonial South African administration, water was free for people in the communal areas. It was one of the many mechanisms the apartheid regime put in place to control the rural population.

Now communities are organised in Water Point Associations (WPAs), governed by committees, tasked with regulating and collecting the levies for the water supply, explains Mukuya, while he tightens the tap to make sure not a drop is lost.

"The government has stopped buying fuel for the pumps as part of the reform programme. They still come in to fix the pump when it breaks, but that will also stop eventually."

It is meant to lead to a paradigm shift. "Under the South Africans, water was used in a completely ecologically unsustainable manner", says Dr. Thomas Falk, author of a soon to be published study on the impact of the decentralisation of the rural water supply that affects one million Namibians.

Basically a neoclassical approach can help explain the shift from a resource that was free and thus overused to now trying to "get prices right" through the necessary "paradigm shift". Others may look at this trying to reduce the consumption of a precious resource, but who "pays for it" is a question that society must also answer. Namibia already has the highest Ginni index in the world and anything else to make it harder for the rural peasants will not necessarily be good for society.

Though the water situation in Namibia is believed to be extremely precarious - only the Sahara desert nations are more arid - astonishingly nobody knows exactly how little water there is.

"A quantitative analysis of available groundwater data is on the books, but will take three years to complete", says Greg Christelis, deputy director of Geohydrology at the Ministry of Agriculture, Water and Forestry. He says there is no data indicating that aquifers are depleting countrywide, but acknowledges that existing studies are confined to particular geological sites.

"All we know is that bush encroachment has a large effect on the groundwater table. In areas where bush is removed, recharge is much higher."

Bush encroachment is the most common form of land degradation in Namibia with roughly 26 million hectares of rangeland affected.

Some of the knowledge and technology could be provided by other countries. Of course there needs to be a sensitivity in developing their resources including human capital in problem solving. On the initiatives that the IMF has endeavored in helping with is coordination of international aide agencies. As this passage seems to show a lack of coordination:

An evaluation report on various donor projects by the European Commission in 2008 concluded: "There appears to be little co-operation between water supply and sanitation scheme planners and the providers of water; merely an assumption that water is, or will be, available."

OK, so we got to see how "Bush" creates more problems for the world and how it is destroying Namibia and adversely affecting the poorest of the poorest in Namibia. Let me start with an anecdotal story.

At the meeting, geo-hydrologist Frank Bockmuehl said bush encroachment had reached such alarming proportions, that "our rivers flow far less than two, three decades ago or in some cases don't flow at all any more".
"On our farm in the Outjo area, my grandmother used a lovely spring to water her extensive vegetable garden. She regularly supplied the school hostels in town with the vegetables. The spring dried up 18 years ago; the water table on the farm had dropped by 10 metres."

He then started a debushing exercise and cleared 300 ha recently.
"To my great surprise and joy, the water at the fountain came back a few months ago and has kept a steady flow," the geo-hydrologist said. "The water table rose."

Luckily, there seems to be a solution but maybe this is the area that I honestly need more information about. The quote above and our further discussion is from: Namibia to start bush-to-electricity project from invader-bush. I have other documents that talk about this process but hasn't the USA has tried some of these projects over at least the last 30 years? Even "the Bush" talked about switch grass a few years ago.

A new way of combating bush encroachment and restoring Namibia's savannah landscapes will start in September when a N$ 14 mm project to set up an independent power plant fed with invader bush will kick off. The “bush-to-electricity” project is run by the Desert Research Foundation of Namibia (DRFN), an energy expert at the organisation has announced.
"Other partners are the Namibia National Farmers' Union (NNFU) and the Namibia Agricultural Union (NAU)," Claus-Peter Hager told a meeting of charcoal producers at Otjiwarongo. "The Ministries of Environment and Tourism and Agriculture were also consulted. Funding of N$ 14 mm from the European Union over the next 24 months has been secured," Hager said.

Vast tracts of farmland cannot be used for farming because of encroachment by hardy shrubs and trees, generically known as invader bush. Studies indicate that about 26 mm hectares of agricultural land are infested, which is preventing the growth of useful grass species. It also results in soil compaction in the bush-encroached areas.
This has reduced Namibia's carrying capacity for livestock, resulting in reduced cattle numbers over the past 50 years -- from 2,5 mm in the commercial farming areas down to some 800,000 head of cattle. According to experts, the reduced availability of land for grazing causes economic losses of N$ 700 mm in the agricultural sector every year.

Another worrying factor is that the extensive root network -- up to 40 metres long -- of some invader bush species robs the soil of moisture. Soil also gets compacted, which prevents rain water from penetrating the soil and replenishing the underground water table. Hager told the meeting that usually, underground water was recharged with just 6 % of rain received.
"In bush-infested areas it is less than 1 %." Another adverse effect is that invader bush increases water run-off and erosion.

The project will be located in one of the areas with the highest density of invader bush -- around the north-central towns of Tsumeb, Otavi and Grootfontein. It wants to use farms that already harvest invader bush for charcoal production. The proximity of the areas to power lines, where the generated power can be fed into the national electricity grid, will also play a role.

Well, read the rest of the article since it is short and covers the issues quite succinctly.

What do you think? What other issues/problems should be discussed for this project?

Mark Thoma may be missing Ricardian Equivalent.

Let me first start off with the post and with Dr. Thoma's comments:Snake-Oil Assets Robert Shiller:

I'm not sure that confidence and too much trust on the upside and the pessimism and fear we see on the downside are the causes rather than the effects of cycles (and I'm also not sure that Shiller is making that claim). That doesn't mean that psychological factors don't have important feedback effects that help reinforce booms and busts, or that these reinforcing effects can't produce volatile swings in the economy that need to be prevented or dampened through government action, only that the changes in mood seem to be more a part of the process than a primary cause of it. But I don't want to close my mind to the possibility.

But if the effects of the psychological factors are driving the cycles then the start or the very seedlings of the cycle turns may be of little interest. It just depends on the factor weights of each of the causes of the cycles. When the cycle turns {in that instant} it may be nothing just the heard in the pact decides to go the other direction and everyone else starts to feel the draft.

From the article:A failure to control the animal spirits By Robert Shiller

The next blog post is more in line with the title in: Rogoff: Countries Risk Drowning in Red Ink Ken Rogoff with lots of gloom and doom:

That's why I wrote this. As I noted, there are plenty of people who are anxious to pin our economic problems on the deficit, and going one step further, the welfare state (e.g. the "growth could be particularly dismal, as the Obama administration steers the country toward more European levels of welfare assistance and income redistribution" statement above). But government intervention is not going to make things worse for, say, the typical unemployed worker, it will make things better by improving job prospects and providing an enhanced level of support while unemployed (health care, unemployment insurance, food stamps, and similar programs). The stimulus package won't prolong the recovery period, it will shorten it by jump starting the economy in important areas and keeping it going until the private sector can take over (think of the government spending and tax cuts as a bridge over troubled assets).

Well, being basically a conservative although when it shown externalities or deficiencies in the markets then I have no problem with interventions. At on at least one level I believe in libertarian paternalism or Pigou Taxes. So this Shock Socialism does not bode well to me in the least. Now I agree about the facts of the safety net and helping those that are low in disposable income for the short time period. But to assume that it will help people with job prospects is the question still not answered to my satisfaction. Because even if does jump start the economy which I also question based on the steps in this government intervention programs, it still may not help the individual that is unemployed. Does he have the job skills and training that will make him eligible for the new jobs? Is it in the community he lives in? Other idiosyncratic traits of the individual could hamper his abilities to get a job.

So I want to emphasize one more time that stabilization policy does not have to change the size of government in the long-run (and see pgl for a debunking of some of the claims about the size of government. i.e. he notess that "Federal spending as a share of GDP was about as high in 1985 as it is projected to be for 2019"). Fiscal policy can increase the size of government, but it can also shrink the size of government (lower taxes in the downturn, then cut spending when things are better to eliminate the deficit and government will shrink). So the criticism is not about the use of stabilization policy to help people during the downturn and to give the economy a boost, instead it's a claim about the long-term political aims of the administration with respect to the size of government. However, according to pgl's calculations, the projections are that the size won't exceed what we had under that well known socialist sympathizer Ronald Reagan.

Believe me, I am a Keynesian so I understand about taking from the abundant years and transferring them to the lean years. But some of these new proposals is an entrenchment of government and that {my friend Dr. Thoma} is the question. If anyone has not learned about how the UK handles these Fiscal Issues should look more into it. Here are two sources that I used a lot in my class {got a B not sure why}:

5. HM Treasury, ‘Fiscal Stabilisation and EMU’, Sections 2–4 Willem Buiter (2003), ‘How to Reform the Stability and Growth Pact’.

6. Carl Emmerson, Chris Frayne and Sarah Love (2001, Updated 2006), “The government’s fiscal rules”, http://www.ifs.org.uk/bns/bn16.pdf

As far as projected in 2019 being about the same size as 1985, we have some things coming that may make that comparison mute. First, baby boomers will be well into retirement and as such may not be contributing any longer to economic growth. Secondly, with this downward demographic predictions then the fact of those projections must seriously be questioned when they were basing it on over 3% growth some years and {I believe} they used 4% in out years. Thirdly, social security will then have to start paying out more than it receives. Thus the budget has to even more frugal than what it was in 1985. Until the baby-boomers start dieing off then Fiscal restraint may be hard to do.

Finally, I think I will get to my main point in this post and that is how Ricardian Equivalence {RE} is related to all this mess. The first time I read about RE, I was quite skeptical and not only for the reasons of the Homo economicus, but for the fact that who benefits from the government may be different than those that pay for the government "gifts". While the strict RE would say we are only concerned about the taxpayers and they then would know what the level of debts/deficits are. But would they take into account all factors in the debt accumulation or are they tuned into what the debt is at every moment? Heck most citizens are stupid "on the street" and not aware that Obama did not pick Sarah Palin.

I, being more of a "structuralist Neo-Keynesian" then I am thinking that RE may be apropos at this time. Right now, since Obama has become President and even after confirmation that he won by an undisputed margin then the markets and to a degree main street as well as banks have become more risk adverse. At times like this then a good Fiscal Shot in the arm could under normal conditions fill in the absorption gap.

But, and this is a big but, since taxpayers are becoming a more scarce breed in the sense that more and more workers do not pay anything into the Federal Government and may actually get some in return or pay little, then those "rich" people may understand that it means them. They no longer are sure at what the rates of return are. In addition to the normal risks involved in the market they also face uncertainty about what the tax structure will be and to handle the tax implications. If the plans were already out there as to who will face tax increases and to what amount then, maybe the markets would get back to normal.

Thus, the more that Obama seeks to stimulate the economy without saying how that it will be paid off makes the market all the more skeptical about expected returns on investments and this is increased by increasing levels of uncertainty. So far, the peace dividend does not appear to come to fruition {50k in Iraq,more to Afghanistan}, earmarks are still alive and well, not sure what taxes that Pelosi will dream up and a host of "get the rich man" is not making the investor class or even the investor class very comfortable. Dr. Thoma like me probably does not put much stake into the Ricardian Equivalence but like most economic theories, they did explain something in the past and those same factors could come around again in a different time and place. It is up to economists to try and think which models may explain the current situations and not stuck into one set of models no matter how good they are in most economies.

Talking about uncertainty: Market Uncertainty Leads to Selloff.

One last thing Dr. Thoma, one of my tutors was Dr. Paul Downward and he wrote the following that I think you may find enlightening: Reorienting Economics Through Triangulation of Methods Paul Downward and Andrew Mearman

Carry on...

A Global Retreat As Economies Dry Up

A Global Retreat As Economies Dry Up As World Trade Plummets, Bustling Ports Stand Idle And Foreign Workers Track Back Home

Interesting, I did note this on the caption for the first page:

Facing a repressive government under U.S. sanctions, thousands of Burmese risked their lives in a quest for new factory jobs in Thailand. But when the global economy went code red, Thailand's factories collapsed.

Not sure why it needed to mention about US sanction, why not indicate that the nation propping up that regime is China?

Western governments, through bailouts and nationalizations, are exerting profound new influence over banks and multinationals that helped sow the seeds of globalization throughout the developing world. But the message being sent by the West now is that there's no place like home for job creation and investment. In France, President Nicolas Sarkozy offered a $5 billion lifeline to French automakers, then promptly called on them to use only French-made parts and relocate their factories in Eastern Europe back to France. In the United States, President Obama's 2010 budget would tighten taxation on U.S. companies with operations overseas, limiting incentives to do business abroad. In Britain, bailed out and nationalized banks are being told to offer loans to Britons first.

Now did someone mention somehthing about how bad "Buy American" was? But this clearly looks like an excuse to do what they wanted to do anyway:

A case in point: After "Buy American" provisions won support in the United States as part of the $787 billion stimulus package, Indonesian authorities fired their own salvo. They ordered all civil servants in Southeast Asia's largest economy to consume food, clothing, shoes and other products made only in Indonesia.

"How can you expect countries like Indonesia not to respond when our products are being turned away abroad," Prihortono said. "That's the problem. People think they are only doing what is fair."

There is one bit of possible silver lining in this. No longer does there seem to be a brain drain or human capital drain from LICs to high income countries. Hopefully they will take their skills back home but for countries like Burmese, that is not likely at all...

 

 

 

"This is clearly not going to be a short period of adjustment . . . but globalization is not a bad strategy," he said. "It just takes patience during times like these."

Yes, truly.

Open Letter to Dr. Mark Thoma.

Dear Dr. Thoma:

Again, I must praise your abilities and knowledge of banking and monetary policy. You truly show devotion to your chosen profession and have a very good blog that you keep active with lots of excellent posts while still helping people understand many of the economic theories that underlie events in the news. I again must thank you for posting your lectures on-line. I thoroughly enjoyed the one on econometrics and hope to watch through the history one.

But you seem to not appreciate my input to your exclusive club. Now I could use a 100 socks to post, but do you really want anonymous posters? To review our dialogue so far:

RE: Nope...‏
From: Mark Thoma
Sent: Fri 9/12/08 10:29 AM
To: 'Ronald Rutherford'

I actually do use the same criteria, and have, many, many times.

You implied that I was presenting false and misleading data. I wasn’t – I would delete any comment that mischaracterized what I’ve done, and I do, so you are not special no matter how much you want to convince yourself that you are. You don’t see the other comments that are deleted – that’s the whole point of deleting them.

But again, anyone insinuating that I am presenting things to mislead people will get the axe. I simply don’t do that. I’m not Greg Mankiw.
-----------------------
From: Ronald Rutherford
Sent: Friday, September 12, 2008 10:18 AM
To: Mark Thoma;
Subject: Nope...

Thank you very much Dr. Thoma for responding and providing such an delightful blog that links to and presents a lot of important and interesting information. The information on Core Inflation and general discussions on inflation is very important information that gets confused by so many people. Again thanks for having your lectures on-line.

BUT, I did say the "graph you posted" not your graph. Do you use the same criteria {false and misleading} to block other comments when they confirm your bias? I imagine not. You should have noted the difference in data sets and how conclusions could be drawn that are not necessarily the truth. And provided the link you provided me and explained it further.

Sincerely,
Ronald Rutherford
-----------------
Date: Thu, 11 Sep 2008 16:56:42 -0700

By the way, it’s not my graph – but I did check it out and I was confident of the source. Two minutes of your time – just click through – shows this (another reason your assertion is incorrect):

http://nsidc.org/arcticseaicenews/faq.html#error_bars
So please quit saying I was misleading. In any case, the links and full sourcing were there.
_____________________________________________
From: Mark Thoma
Sent: Thursday, September 11, 2008 4:50 PM
Subject:

I don’t remember what you said, but it either lacked respect, or I thought it was wrong.

Dissension is fine, but crossing certain lines of discourse, or making false and misleading claims, is not.

I removed your comment again (the implication that it was removed to stifle dissent is false). If you want to try again without the complaint about the previous moderation, go ahead.

I could care less what Greg Mankiw does or does not do. I have found your blog interesting enough to respond to and would like the honor to post there.

But, when I find you as nothing more than partisan hack, I wonder about your ability to divide politics from economics. For example in the post: "John Stewart Explains Economics to John Sununu". You compare a comedian that just throws shit against the wall until something sounds funny. If you really paid attention, Stewart would have ignored a lot of things you consider the truth. It is just a matter that you have ideological blinders when evaluating the actions or statements of Republicans. As in:

One last note. It's pretty sad that John Stewart clearly has a better understanding of economics - much better - than a former senator who has been a member of the Committee on Finance and the Joint Economic Committee. No wonder the Republicans screwed the economy up so much - they can recite the ideological talking points that "tax cuts make it better, government makes it worse," but most of them don't seem to have a clue what makes the economy tick.

Do you even even listen to Democrats and their so called "economic concepts"? Hell some do not even know what supply and demand curves are.

The most funny thing about that post is that supply and demand is not market share but in absolute terms. It is more important what the "quantity supplied" to the market from the GSEs and not their relative terms. Also, the question should be whether they took on more bad debt during the two preceding years not even absolute terms of loans. So, I see no a priori reason to accept this analysis.

In the post "The Depression Narrative as a Self-Fulfilling Prophecy", you not only deleted my posts but fail to acknowledge that incentive matter. The funny thing is that in other posts you note that sentiment has not changed on Wall Street or Main Street.

The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation — because the Great Depression serves as a model for our expectations, damping what John Maynard Keynes called our “animal spirits,” reducing consumers’ willingness to spend and businesses’ willingness to hire and expand. The Depression narrative could easily end up as a self-fulfilling prophecy.

I would hope that you could see the incentives and risks in changing people's expectations.

In the post "[url=http://economistsview.typepad.com/economistsview/2009/02/the-employee-free-choice-act.html]The Employee Free Choice Act[/url]", all I can say is that I am disappointed that you would sign such garbage. I will assume that you like monopolies even if it has the title of Union.

But hey keep up posts like: Did China Help to Create the Financial Crisis?" That was truly a good analysis of important issues. I would also point out that since developing countries have shied away from depending on the IMF and have increased their excess reserves that this may have confirmed what you are saying. It was unfortunate that the propaganda about "Neoliberalism" and the Washington Consensus have warped sound economic policies.

Anyway, thanks for being there.
Sincerely,
Ronald Rutherford

PS: Just to clear the air, I do tend to call people dweebs even if they are much smarter than me. As in:
Dr Mark Thoma is a Dweeb!
Dr. Thoma shows his compassion and not necessarily his Economics...
Mark Thoma is a Dweeb-Still