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Niall's back with an extra dose of Keynes-bashing, but now Brad's on the case

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In an LA times editorial, Niall Ferguson augments his Feb. 2 Financial Times piece, which I commented on earlier, with much more explicit Keynes-bashing and fiscal-stimulus-dissing.  This time, Brad's on the case.

Long Treasury yields did rise a bit (roughly from just under 3, to just over 3.5, percent over the last few weeks), and there was similar if less pronounced movement across the longer end of the curve, so maybe we shouldn't count on financing the whole stimulus at todays low rates---though I couldn't tell you if this is a response to the clear likelihood of a stimulus package, which I would have thought would have been priced in for a while now.  But if we're getting output closer to potential, sooner, with the stimulus, we're increasing the overall stream of real output that the Treasury will have avaible to tax to pay these things back---increased indebtedness being met with increased debt-servicing capability.  Maybe not one-for-one, although that cuddly, big-eyed multiplier sure helps.  The cuddly reference:  "Uneasily aware that their discipline almost entirely failed to anticipate the current crisis, they seem to be regressing to macroeconomic childhood, clutching the Keynesian "multiplier effect" -- which holds that a dollar spent by the government begets more than a dollar's worth of additional economic output -- like an old teddy bear."---Ferguson from the LA Times piece.)  Among the most multiplier-besotted economists would seem to be Paul Krugman;  here is a fairly random sample of him failing to anticipate the current crisis (you can go back much further with him on the dangers --- and let's not forget, the existence --- of the housing bubble).  As for regression to childhood, there seems to be a more serious epidemic among some (but far from all!) politically conservative economists, of regression to being macroeconomically unborn.  What's Ferguson's argument here: If they teach it in Econ 1 in every halfway respectable university in the country, there can't be anything to it?

Radicals asking for bank takeovers in left-wing rag: Reinhart and Rogoff on the WSJ op-ed page

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Carmen Reinhardt (Economics, U MD) and Kenneth Rogoff (Economics, Harvard), on the WSJ editorial page:

"For far too long, official estimates of the likely trajectory of U.S. growth have been absurdly rosy and always behind the curve, leading to a distinctly underpowered response, particularly in terms of forcing the necessary restructuring of the financial system. Instead, authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership, and only then recapitalizing and reprivatizing them."

But what would the former chief economist of the IMF know about such things?

This ain't no disco...

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NEW YORK (AP) -- Wall Street is now worrying about the companies usually seen as safe havens.

After an early rally Wednesday, investors succumbed to concerns about disappointing earnings and the market ended the day with a loss. Falling consumer stocks weighed most heavily on the Dow Jones industrial average, which slid 122 points.

...

Falling orders at Cisco Systems Inc. were adding to investors' anxiety. The world's largest maker of computer networking gear said after the end of trading that orders showed a sharp drop in January. Investors have been pumping money into tech stocks since the start of the year believing those companies would be less likely to see demand fall as businesses looked to cut costs with equipment upgrades.

Nasdaq 100 futures were down more than 1 percent after Cisco's report.

....

"There's so much uncertainty right now that investors are looking for any clues that the economy may be starting to stabilize and turn around," said Michael Sheldon, chief market strategist at RDM Financial Group.

"Safe havens?"  "...pumping money into tech stocks?"  "...looking for clues the economy may be stabilizing and starting to turn around?"

Stocks might be fairly or even a bit low-valued now on historical measures, but if people are really thinking in the terms these quotes suggest, they haven't factored in the next couple of years of the economy, or they are REALLY believers in the---admittedly existent, for a change---competence of the current administration to deal with a truly daunting situation, and its ability to lead the world in dealing with it.   In the words of the Talking Heads.... this ain't no party, this ain't no disco, this ain't no foolin' around!

So, buy some at this level if you're concerned about being left behind in a turnaround... but save some for Dow 6000.... and some more for 5000 if we get there...irrational despair, and plain old illiquidity and overleverage, of which there is likely some left, leading to rational despair, should make things overshoot on the downside at least once...

Blowin' Hot and Cold---Niall Ferguson on recapitalization versus stimulus

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Niall Ferguson seems to agree with Paul Krugman and the Axis of Smart on nationalizing, er, sorry, recapitalizing the banks:

"First, banks that are de facto insolvent need to be restructured – a word that is preferable to the old-fashioned “nationalisation”. Existing shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalisation after losses have meaningfully been written down. Bond­holders may have to accept either a debt-for-equity swap or a 20 per cent “haircut” (a reduction in the value of their bonds) – a disappointment, no doubt, but nothing compared with the losses when Lehman went under."

He even cites the Swedish case as a sensible model while, of course, noting the need to avoid "the nightmare of a state-dominated financial sector".  I don't think Larry Summers will let that come to pass... let's just hope the soon-to-be-announced overhaul of the rescue package for financial institutions involves an effective temporary takeover, if perhaps in some form of ---voting, please--- preferred equity stake by the government, rather than the perhaps more efficient outright purchase of the big banks on the open market.

Now, where does Ferguson think the money for this takeover and recapitalization will come from, if not government borrowing?   Substituting government debt for private may indeed stimulate demand, through the wealth effect and lower debt servicing costs, especially because the government can borrow at bargain-basement rates right now, so even if the--somewhat, but only somewhat, mythical---rational taxpaying consumer is factoring in the need for higher taxes in the future to pay this off, it's a net gain.  Of course, if the rational taxpaying consumer is a Keynesian and believes output will be closer to potential because of this stimulus, the anticipation of the higher lifetime income stream that will generate is still more impetus to spend---an argument that applies to government-expenditure-based stimulus, too.

Forcing renegotiation of mortgages, and the making of new mortgages, at lower rates is another interesting idea of Ferguson's;  noises from the Obama administration suggest they may have something in mind along these lines---and with the noise about helping out homebuyers coming from Republicans in Congress, maybe there could even be bipartisan support.  (Naah, they'll back off on principle.)

But what about the rest of Ferguson's piece:

"...the western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are groaning under unprecedented debt burdens. Worst of all are the banks. The best evidence that we are in denial about this is the widespread belief that the crisis can be overcome by creating yet more debt.

The US could end up running a deficit of more than 10 per cent of gross domestic product this year (adding the cost of the stimulus package to the Congressional Budget Office’s optimistic 8.3 per cent forecast). Today’s born-again Keynesians seem to have forgotten that their prescription of a deficit-financed fiscal stimulus stood the best chance of working in a more or less closed economy. But this is a globalised world, where unco-ordinated profligacy by national governments is more likely to generate bond market and currency market volatility than a return to growth."

Well, the last bit sounds more like an argument for the US providing leadership in co-ordinated, global fiscal stimulus policy than for giving up on stimulus.  (It's also the argument for buy-domestic provisions in stimulus plans, though that's definitely a second-best option to co-ordinated, unrestricted stimulus, and perhpas somewhat silly in that much of what a stimulus package will get spent on will be nontraded goods in any case---although some good public transportation infrastructure would be highly welcome, and might well involve a lot of European-made equipment.)

It's hard to think of a better time than now, with the lowest borrowing rates in years available to the US Treasury, to make some serious public investments.   So Ferguson's ideas on the financial sector and mortgage loans seem reasonable, and may well provide fiscal stimulus themselves, but his argument against government expenditure for additional stimulus seems weak.  Co-ordinated profligacy with your restructuring, anyone?

Celler el Masroig 2007 Sol'a Fred

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Had this wine last night with a casual dinner of posole and english-muffin pizzas prepared by a friend who's visiting from the East Coast.  Not sure how much I paid for it, but it seems to go for around $10 on the internet.  The wine is 90% Carinyenya (Carignan), 10% Garnacha (Grenache), from the Denominaco' d'Origen Montsant, in Catalunya.  I think I bought in on the basis of a shelf-slip quoting a Parker (or at least Wine Advocate---Parker's publication which now employs other tasters/reviewers as well) rave.  Was a little apprehensive given that Carignan-based wines are sometimes a bit rough and one-dimensional.  Carignan was at one time widely planted in the Southwest of France and Northern Spain for it's high production of simple country wines.  For awhile many producers in the Languedoc and southern France were grubbing up Carignan vines and replanting with grapes with more international appeal, like Cabernet and Syrah.  Some of the wines thus produced were good to excellent, but from my limited experience some were also just dark and inky but uncomplex, high in alcohol, and tiring to drink.  I'd guess there's been a bit of return to roots in the area as some growers try to make more traditional grapes like Carignan give the best wines they can.  Anyway, Celler el Masroig has certainly succeeded in doing that here: this really is a perfect pizza wine, with the blackberry fruitiness that Carignan has at its best, tannins relatively smooth, not rough, and in the background, with a sappy, relatively smooth feel in the mouth that's delicious, and can even handle the mild spice of a posole (traditional New Mexican hominy and chile-based stew, in this case a vegan version).  Not a Great Wine, perhaps, but that's not the point---nor would a Great Wine be as enjoyable with a casual meal like this.  I doubt you'll find a better Carignan anywhere, and at ten bucks the price is about right.

Sometimes a wine touted as a great pizza or barbecue wine, a relatively uncomplicated, easy-drinking red, can turn out to be just boring, a bit rough, or tiring---not necessarily the fault of the touter, it may just depend on the exact food pairing; they may have had it with something that somehow cut, or complemented, the tannin and let the flavor emerge.  I don't think you'll have that problem with this baby, though---if it can handle pizza and posole, it should go with just about any food you'd normally want to serve an uncomplicated, fruity, southern European wine with---like burgers, barbecue, or for that matter, a cheese (like the yummy Cotswold with chives that our friend brought along to end the meal with).

Cheers!

Howard

Introducing this blog --- Wine, Physics, and Song

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I'm a physicist/computer scientist/applied mathematician or something (my Ph.D. is in Physics), whose day job is mostly working on the theory of quantum computation and quantum information processing at Los Alamos National Laboratory.

You can find some of my work here (under author, put in "barnum").

The title of this blog was chosen after I found that many other possibilities were either taken, or the most natural URL to associate with them was taken.  It's not to be taken as an exhaustive description of the topics of a blog, but as a representative sample.  For example, I'll probaby opine freely on economics, public policy, and the doings of the not-a-minute-too-soon-to-be-inaugurated Obama administration.  I own the copyright of all content I supply to the blog and the blog site, except for fair use of material copyrighted by others; and by commenting on this blog, users grant me the right to use the comment material, for example by keeping it available on this blog.  For now, I've enabled comments, but they will not appear publicly until they are moderated.  Once I see how this goes, I may enable immediate posting of comments that pass wordpress's G-rated test.   Offensive and nonconstructive comments will not be posted.  If it's too much work, I may need to disable comments; we'll see.  Please keep comments thoughtful and on topic; consider whether you have something to add beyond "me too", and whether you are informed on the topic you plan to comment on.

Cheers!

Howard

How to appreciate wine (gosh, a tough one), and Greatest Bottle #1

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Since it's first in the title of the blog, I'll start out with a bit about wine.  Advice on how to appreciate it:

If it's yummy, drink it. If it's boring, cook with it. And don't forget to swirl and sniff!

Seriously, there are a lot of truisms you'll find in most good books on wine and wine-drinking---ones by Kermit Lynch, Robert Parker, Hugh Johnson, Jancis Robinson, and the lot, and most of them are true. Drink what YOU like. Share it with appreciative friends, when possible. (But don't be afraid to have a glass with some cheese and nuts if you're up late alone, or stuck on your own at a one-star restaurant in France, either...) Drink it with food, and give some thought to the pairing of wine and food. Consider two classic strategies for food/wine pairing: choose a wine with similar qualities to the food, that will harmonize with it (a velvety chardonnay with a soft, gently flavored white fish,like sole, for example, a fruitier, more acidic sauvignon blanc with a slightly fishier, firmer one like sea bass); or, choose a wine that will make a striking, though not clashing, foil to the dish. Don't be a slave to rules---if you like red with fish, drink it. If you like Lancers with something, drink it. When traveling, try the local wines, many of which will be much better when they haven't traveled far. (I've never had a really satisfying Loire red in the United States---what should be complexity and leafiness tends to become just a bit tannic and bitter, while the fruitiness never really takes wing---but I had three Bourgueils on a recent visit to France that were perfect with the dishes they accompanied, fresh, fruity, yet complex, some with leafy notes, or hints of coffee.) And---try aging the stuff when appropriate. It's a pain, it takes forethought, it can be a roll of the dice with wines whose ageworthiness has not been confirmed by decades (or centuries) of tradition, but it's worth it.

Above all, don't let a high price, or someone else's opinion, influence your taste unduly. If Parker thinks it's junk, but you like it, consider yourself lucky, and buy more: if he'd liked it, it probably would cost more. That doesn't mean Parker's an idiot, or a one-track fruit-and-tannin-bomb promoter as some would say; he tastes lots of wines, and will guide you to some stunningly good deals as well as some that may strike you as boring. (Okay, as boring fruit-and-tannin bombs, sometimes...).

With this in mind, I'll post an occasional series of notes on The Greatest Bottles I've Tasted, where greatest refers to the whole experience of drinking the wine, not to its abstract position in some hierarchy of the world's greatest wines. Such a hierarchy makes some sense, but it's far from the most important thing to keep in mind when enjoying wine. So, number one in my Greatest Wines Ever, is a plain old Cotes du Rhone whose name and vintage I've forgotten (it might have been something like Cuvee du Roi, but it was also one of the cheapest Cotes du Rhone around at the time). I drank it in Berkeley, in the mid or late eighties, while I was living in a bizarre one-person apartment on the south side, a few blocks Bay side of Telegraph. Bizarre because it consisted of a living/bed room into which the door from the landing opened directly, and beyond that, a small kitchen/dining area. (The bathroom, featuring a large claw-footed iron tub, was across the landing, though private, requiring a separate key for its deadbolt.) The area was classic student ghetto, with a pair of tennis shoes hanging from the phone lines out front whose possible significance escaped me at the time.

I drank this wine (not the whole bottle at once, of course), by myself, with nothing but bread and a country-style pate, medium-chunky, with embedded pistachios, and some decently chewy/flaky French bread whose source---Berkeley has a few---I forget. An absolutely perfect combination---the wine was devoid of complexity, medium-to-light-bodied, lowish in alcohol, only slightly if at all tannic, a bit on the watery side and tasting of nothing so much as grape koolaid. It was the perfect, slightly cool, fresh, grapy-tasting, thirst-slaking foil for the bread and pate. Probably there was also a hint of the typical Cotes-du-Rhone leafiness or smokiness---I don't recall with certainty, at this remove---but if so, it didn't overpower the freshness and fruitiness, though perhaps it added a little touch of complexity that nudged the whole experience into the category of Nirvana. This wine would be very unlikely to ever appear on anyone's list of the world's great wines, or even of the best Cotes du Rhone, but although I've had similarly memorable wine experiences with wines recognized as the world's greatest and most expensive, this experience was right up there with them. And that's what wine should be all about: enjoyable at the time, and maybe even providing a unique (because every bottling is different) and long-remembered experience....one of many vinous and non-vinous experiences that make up a life worth living.