Kevin Drum

The Chinese Housing Bubble

| Mon Apr. 12, 2010 1:02 PM EDT

Over in Beijing, Bertel Schmitt has dinner with an American insurance company CFO and the Chinese head of a Chinese/American bank. He reports back:

When the discussion came to the Chinese real estate bubble, my Chinese banker friend emphatically acknowledged that China is in a huge one. Mostly in the tier one cities, but getting into the tier 2 cities also. He said that it is an absolute insanity. People buy homes and apartments, and keep them empty. Vacancy rates in tier one cities are sometimes higher than 30 percent. About 60 skyscrapers in Beijing are vacant. He congratulated me on my choice of renting, and suggested I should move, because rents are actually coming down. Caused by the oversupply of unsold properties, held for speculative purposes.

So what happens when a real estate bubble bursts in a country with a semi-state-controlled economy like China? Beats me. But it can't be good no matter what kind of country China is, can it?

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Is Climate Economics a Mirage?

| Mon Apr. 12, 2010 12:40 PM EDT

Stuart Staniford, after reading Paul Krugman's NYT Magazine piece about climate economics, is skeptical that we can reduce carbon emissions 83% by 2050. After all, the economy is going to grow a lot during the next forty years:

If the economy is going to be a bit more than three times larger, but we are only going to emit 17% of the current level of carbon emissions, then the carbon intensity of the economy — that is the ratio of carbon emitted per dollar of goods and services created, is going to have to be only 5% of the current value. Next you have to figure that there are certain things in an industrial society that are very hard to do without liquid fuel — construction and agricultural machinery come to mind, along with aviation. Relying heavily on biofuels is a very dubious prospect in a world that also needs to feed 9 billion (assumed wealthier) people from its limited agricultural land. So you can probably figure that the residual 5% of carbon emission intensity is all going to go on these kind of specialized uses that are hard to substitute.

Therefore, these goals basically imply that the ordinary living and working of most citizens would be essentially carbon free by 2050. That is in 40 years time.

....Now, the lifetime of cars is much less than 40 years, so they will all be replaced anyway; that's not a problem (though there are certainly are questions about the ultimate scalability of that many electric cars). But the median age of a house is 35 years [...] and of course other kinds of infrastructure tends to last even longer than houses.

....Now, think of it this way: suppose you have a certain amount of money to spend over the next forty years that is your share of industrial society's surplus. You could take that money and either a) tear down your house and replace it with a super-insulated carbon-neutral one of about the same size, or b) add an extra floor and a swimming pool to the house you have and continue to power it with cheap fossil fuels (coal and shale gas, let's say). I would argue that this is, very roughly, what the choice between business as usual and an 80% reduction in carbon emissions means in personal terms.

This strikes me as both right and wrong. Are we likely to meet our goal of cutting carbon emissions 83%? Probably not. I imagine Stuart is right about that. But is that cause for despair? Hardly. If we aim for 83%, maybe we'll get to 60% instead. And perhaps that will turn out to be enough. Or, if it isn't, perhaps some modest geoengineering will get us the rest of the way. And if that's not enough and geoengineering isn't acceptable even on a modest scale — well, at least we've only got 23% to go. Any way you look at it, we're better off than if we shoot for a more "reasonable" goal of 60% and only make it to 40%.

Beyond that, of course, we don't necessarily have to live in super-insulated passive solar houses or work in super insulated zero-emissions offices and factories. Ordinary efficiency gains can get us a long way toward lower — if not zero — emissions, and what energy needs remain might be provided by solar, geothermal, or other sources. It's not an all-or-nothing proposition.

I think it's too easy to be overwhelmed by the scope of the climate change problem. It's unquestionably fantastically difficult, and any sober look at human nature, developing country growth, and capital stock inertia suggests that we're going to have a very hard time meeting our most ambitious goals. But there really are pretty feasible ways of getting a lot of the way there, and if carbon pricing and other programs motivate the next Thomas Edison to invent something remarkable a year or a decade before it might have otherwise happened, who knows? That might get us the rest of the way.

And if it doesn't? Well, look: three degrees of temperature increase is still better then five degrees. Six inches of sea rise is better than 12 inches. A hundred million dead is better than a billion dead. This stuff is worth doing even if it's not perfect. After all, what is?

We Are What We Eat

| Mon Apr. 12, 2010 12:03 PM EDT

Via Ezra Klein, here's a fascinating little New York Times graphic that shows how much food we eat compared to other countries. Though, actually, it's not so little, which is why I'm just excerpting a snippet here. Frankly, I'm a little surprised that our consumption of packaged food isn't higher than it is. It turns out that it's not really that different from France or Spain.

But when you drill down into the details things look a lot different. We eat a lot of meat, for example, while Spaniards eat vast amounts of fruit. On the packaged side, we eat lots of microwave meals (as do the Japanese), while the French and Spaniards eat a lot of baked goods. And we're way ahead of everyone in our consumption of snacks and candy. USA! USA!

Reading Books on the iPad

| Mon Apr. 12, 2010 11:45 AM EDT

If I were to buy an iPad — and I have enough barely used electronic doodads around to suggest that I just might — I'd buy it primarily as an ebook reader that I could do other stuff with. So then: how is it as a reader? Where can you get books? How many books are available? Are pages rendered as actual pages, complete with charts/picture/tables/etc. in their correct places? Are books searchable? Etc. I already have a Kindle, but I found it very frustrating with nonfiction books, and my reading these days is something like 90% nonfiction. So I don't use it much. Should I get an iPad instead?

Samuelson's Book

| Sun Apr. 11, 2010 10:39 PM EDT

Paul Krugman says he learned something new at yesterday's MIT memorial service for Paul Samuelson:

I had no idea that the MIT economics visiting committee tried to force Samuelson to call off the publication of his 1948 textbook, on the grounds that Keynesian economics was too left-wing.

As it happens, I just finished reading Yves Smith's Econned, and she talks about this episode early in her book. As a public service, here's her synopsis:

A Canadian student of Keynes, Lorie Tarshis, published an economics textbook in 1947, The Elements of Economics, which included his interpretation of Keynes. It also suggested that markets required government support to attain full employment. It was engaging and well written, and sold well initially, but fell off quickly, the victim of an organized campaign by conservative groups to have the textbook removed. The book, and by implication Keynes, was inaccurately charged with calling for government ownership of enterprise.

Any taint of Communist leanings would damage the career of a budding academic. So aside from his refusal to accept some fundamental elements of Keynes's construct, Samuelson had another reason to distance himself from the General Theory. Samuelson said he was well aware of the "virulence of the attack on Tarshis" and penned his text "carefully and lawyer like" to deflect similar attacks.

More about Tarshis and Samuelson here. It includes the phrase "that bastard Buckley" just to spice things up a bit.

Supreme Court Handicapping

| Sun Apr. 11, 2010 7:40 PM EDT

There seems to be a remarkable consensus that Obama's shortlist for the Supreme Court consists of just three people: Elena Kagan, Diane Wood, and Merrick Garland. What's more, the conventional wisdom seems to be slowly congealing that Kagan is the favorite because she's a bit more centrist than the others and Obama doesn't really need a big fight in the Senate this summer.

But is that really true? To the extent that he takes politics into account with his choice, it seems to me that Wood is the best choice. The tea party fringe is going to find some reason to go ballistic over anyone Obama picks, so choosing a centrist doesn't really help him there. All three are well enough qualified that they're almost certain to be confirmed, so a centrist doesn't really help him there either. But what could help him is building on the progress he made in closing the "enthusiasm gap" by passing healthcare reform last month. The liberal base is starting to get a little more excited about things these days, and nominating a liberal justice — which shows that Obama is willing to nominate a liberal justice — could (a) get lefty juices flowing, (b) potentially cause conservatives to score an own goal if some of their number go overboard on the attacks, and (c) do it all without really affecting the independent vote since Wood is, after all, perfectly well qualified.

Plus she got her law degree from the University of Texas! I still haven't forgiven UT for this — and I probably never will — but at least it's west of the Mississippi. Fight the league, President Obama!

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Quote of the Day: Undermining Security

| Sun Apr. 11, 2010 1:47 PM EDT

From Rep. John Fleming (R–La.), calmly discussing his national security differences with the commander-in-chief:

Simply put, President Obama is disadvantaging the United States one step at a time and undermining this country's national defense on purpose.

Italics his. Steve Benen calls this a "casual accusation of treason." Gotta disagree, though. There doesn't seem anything casual about it.

So How's the Economy Doing, Anyway?

| Sun Apr. 11, 2010 1:29 PM EDT

Business Week's Mike Dorning thinks the economy is on the mend:

While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable's measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs — more than it had during any month in the past three years. 

Floyd Norris of the New York Times agrees that a lot of people are being too pessimistic:

“Go back and read what people were saying in 1982 or 1975,” said Robert Barbera, the chief economist of ITG. “Nobody was saying, ‘Deep recession, big recovery.’ It is quite normal to expect an abnormally weak recovery. It is also normal for that expectation to be wrong.”

....In 1982, Democrats scoffed at a surging stock market and thought a severe recession would last for a very long time....Change a few words (Reagan to Obama, Democrats to Republicans, 1984 to 2012) and you have an accurate description of the current political climate. Could the Republicans be as wrong now as the Democrats were then?

There's a lot to this. But just off the top of my head, here are the things that gnaw at me when I hear stuff like this:

  1. This is a balance sheet recession, not a Fed-induced recession. Paul Volcker caused the 1981 recession by jacking up interest rates and he ended it by lowering them. That's not going to happen this time.
  2. In fact, there won't be any further stimulus from lower interest rates. They're already at zero, and Ben Bernanke has made it clear that he doesn't plan to effectively lower them further by setting a higher inflation target.
  3. Consumer debt is still way too high. There's more deleveraging on the horizon, and that's going to make consumer-led growth difficult.
  4. The financial sector remains fragile and there could still be another serious shock somewhere in the world.
  5. There are strong political pressures to reduce the budget deficit. That makes further fiscal stimulus unlikely.
  6. Housing prices are still too high. They're bound to fall further, especially given rising interest rates combined with the end of government support programs.
  7. Our current account balance remains pretty far out of whack. Fixing this in the short term will hinder growth, while leaving it to the long term just kicks the can down the road.
  8. The Fed still has to unwind its balance sheet. That has the potential to stall growth.
  9. Oil prices are rising. This not only causes problems of its own, but also makes #7 worse.
  10. Unemployment and long-term unemployment continue to look terrible. Yes, these are lagging indicators, but still.

I don't expect all of this stuff to be as dire as it sounds, and overall I suspect that we are indeed going to see steady if unspectacular growth over the next few years. But I'm not entirely sure of that, and these are the reasons why. Just thought I'd share.

Fight the League!

| Sun Apr. 11, 2010 12:55 PM EDT

Orin Kerr snarks about the diverse background of Barack Obama's shortlist of picks to succeed John Paul Stevens on the Supreme Court:

No matter who he chooses, Obama will continue to break new ground, or at least help bolster some of the low numbers of people of certain arguably underrepresented backgrounds on the current Court. For example, Elena Kagan would become only the second former Harvard professor presently on the Court (joining Justice Breyer). Either Kagan or Wood would be only the second Chicago professor (joining Justice Scalia).

....Elena Kagan would also bring notable educational diversity to the Court. Kagan would be the very first Justice ever to have attended Princeton and then Harvard Law. Obviously, that would be a major break after two consecutive nominees who had attended Princeton and then Yale Law (Justices Alito and Sotomayor). Whoever Obama picks, I think it’s clear that Obama faces a major choice and that his selection will be a historic occasion.

Stevens aside, every single justice on the Supreme Court attended an Ivy League law school (Harvard, Yale, or Columbia). It's an East Coast conspiracy. Where are the candidates from Stanford? Cal? Michigan? Vanderbilt? Or one of those other states west of — well, everywhere. West of Delaware, anyway.

Some years ago, when I was blogging for the Washington Monthly, I remember having a conversation with its editor, Paul Glastris, about the interns they were planning to hire that summer. Basically, to a man and woman, all the good candidates were from East Coast schools. How about Ezra Klein? I said. He's a good guy and he goes to UCLA. Strike a blow against the Ivy League mafia! And thus history was made.1

Sure, Obama went to Columbia and Harvard Law. But he's a Hawaii guy at heart, and that's as West Coast as it gets. So fight the power, O. Be true to your roots. Hope and change means someone from outside the Ivy League.

1Or, um, something like that. Maybe I'm overstating my role a wee bit. But who wouldn't?

Quote of the Day: Banana Peels

| Sat Apr. 10, 2010 11:47 PM EDT

From Simon Johnson and James Kwak, on whether the financial meltdown of 2008 was basically a gigantic accident caused by mistaken models and excess optimism:

It was as if the government first repealed the laws against littering, eliminated all public sanitation services, and subsidized the consumption of bananas . . . and then the global economy slipped on a banana peel.

I remember trying once to come up with a similar analogy that started off with repealing all the speed limit laws and getting rid of the highway patrol, but I never quite finished thinking it through. In the meantime, this one works.