Recommended Weekend Reading

By John Ballard

Too long to blog, too important to skip or too entertaining to miss.
Here's what I'm looking at and passing along.

?Meet the Most Dangerous Man in Cyberspace: The American Face of Wikileaks in Rolling Stone. This article appeared first in September but is being republished with Wikileaks finally getting the international attention it deserves. I got the link from Susie Madrak's Facebook entry.

Jacob Applebaum stands at the center of the Wikileaks phenomenon. As I read I wondered how many more such people Assange may have in the stable. That question was not broached in the article but this is a lark of a read.

Here's a taste from deep in the text. Opening lines at the link will grab you with more important content but this is what lies beyond..

Appelbaum's obsession with privacy might be explained by the fact that, for his entire childhood, he had absolutely none of it. "I come from a family of lunatics," he says. "Actual, raving lunatics." His parents, who never married, began a 10-year custody battle before he was even born. He spent the first five years of his life with his mother, whom he says is a paranoid schizophrenic. She insisted that Jake had somehow been molested by his father while he was still in the womb. His aunt took custody of him when he was six; two years later she dropped him off at a Sonoma County children's home. It was there, at age eight, that he hacked his first security system. An older kid taught him how to lift the PIN code from a security keypad: You wipe it clean, and the next time a guard enters the code, you blow chalk on the pad and lift the fingerprints. One night, after everyone had gone to sleep, the boys disabled the system and broke out of the facility. They didn't do anything special � just walked around a softball field across the street for half an hour � but Appelbaum remembers the evening vividly: "It was really nice, for a single moment, to be completely free."

When he was 10, he was assigned by the courts to live with his father, with whom he had remained close. But his dad soon started using heroin, and Appelbaum spent his teens traveling with his father around Northern California on Greyhound buses, living in Christian group homes and homeless shelters. From time to time, his father would rent a house and turn it into a heroin den, subletting every room to fellow addicts. All the spoons in the kitchen had burn stains. One morning, when Appelbaum went to brush his teeth, he found a woman convulsing in the bathtub with a syringe hanging out of her arm. Another afternoon, when he came home from school, he found a suicide note signed by his father. (Appelbaum saved him from an overdose that day, but his father died several years later under mysterious circumstances.) It got so that he couldn't even sit on a couch for fear that he'd be pierced by a stray needle.

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?A contagious Irish disease? is in The Economist. My current obcession with macroeconomics was fed by one of Kat's links to that source which led me to other content. This is an exciting time to be blogging and reading because Wikileaks is lacing together the dynamics of global politics and economics in a manner that is unprecedented. These lines from Kat's source sum up the big picture quite well.

The basic question is not whether we think Julian Assange is a terrorist or a hero. The basic question certainly is not whether we think exposing the chatter of the diplomatic corps helps or hinders their efforts, and whether this is a good or bad thing. To continue to focus on these questions is to miss the forest for the texture of the bark on a single elm. If we take the inevitability of future large leaks for granted, then I think the debate must eventually centre on the things that will determine the supply of leakers and leaks. Some of us wish to encourage in individuals the sense of justice which would embolden them to challenge the institutions that control our fate by bringing their secrets to light. Some of us wish to encourage in individuals ever greater fealty and submission to corporations and the state in order to protect the privileges and prerogatives of the powerful, lest their erosion threaten what David Brooks calls "the fragile community"�our current, comfortable dispensation.

You see the conundrum? Some will challenge and others will submit.

The article focusing on the Irish bailout gets to the credit default swap reference in the fifth paragraph and makes reference to the .

The bail-out�s failure was immediately apparent in the spreads of Irish, Portuguese and Spanish government debt over German bonds. Within 24 hours, these had grown wider than before the deal was announced (see chart 1)["Five year credit-default-swap spreads"]. Ominously, the spread on Spanish bonds reached its highest since the euro�s launch in 1999. And on November 23rd Portugal was paying over four percentage points more than Germany to borrow money; Greece was paying a similar spread in mid-April, just weeks before its bail-out.

After treating the politics of Ireland and Spain as though the details are as easy to measure and predict as the availability of raw materials for manufacturing or weather forecasts impacting commodities futures, the article eventually mentions the European Financial Stability Facility I just wrote about.

Maybe I'm just a paranoid old fool, but I'm not alone. Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF and what he says makes me feel sane if not reassured.

By nationalizing private debts, Europe is following the path of the 1980�s debt crisis in Latin America. There, too, governments widely �guaranteed� private-sector debt, and then proceeded to default on it. Finally, under the 1987 Brady plan, debts were written down by roughly 30%, four years after the crisis hit full throttle.

Most post-mortems of the Latin American crisis suggest that all parties would have been far better served had they been able to agree on partial debt forgiveness much earlier. Latin America might have returned to growth far sooner than it did. Creditors might even have received more in the end.

As European policymakers seek to move from one stage of denial to another, perhaps it is time to start looking ahead more realistically. As any recovering alcoholic could tell them, the first step is admitting, with Merkel, that Europe has a problem.

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?And finally Principles and Guidelines for Deficit Reduction, a "working paper" by Joseph Stiglitz (9 pages, pdf) is a product of New Deal 2.0. (H/T 3Quarks). Now we wander into Never Never Land where politics and policy are driven by rational thinking and equitable solutions to thorny problems, a dreamy place where economic challenges are met with reasonable solutions, safety nets are spread beneath all dangerous high wires and everybody gets a pony for Christmas. This paper excites my imagination as much as Ray Bradbury's Martian Chronicles did many years ago. Joseph E. Stiglitz is Senior Fellow and Chief Economist at the Roosevelt Institute, University Professor at Columbia University in New York, and chair of Columbia University's Committee on Global Thought.

Given the enormous increase in inequality that has occurred in the United States over the past three decades, any measure that harms those at the bottom should also be unacceptable, and measures that impose undue burdens on the middle class should receive careful scrutiny.

[...]
...In the years before the crisis, the performance of GDP appeared good (though not stellar). But beneath the surface, it was clear that all was not so rosy: as we have noted, most Americans were seeing their incomes stagnate; and the growth itself was not sustainable. It was based on a bubble, itself supported by unsustainable levels of debt. Moreover, 40% of all corporate profits were in the financial sector and 40% of all investment was in real estate�and both numbers were fictions, in one case based on flawed accounting, in the other on �bubble prices.� In much of the discussion below, we will be paying attention to the impact of tax and expenditure policies on growth, but in doing so, we need to be sure that attention is focused on the appropriate metrics.

This means that a measure that corrects an environmental distortion might lower conventionally measured GDP; but even if it does so, that is not necessarily relevant. Because economic sustainability requires environmental and social sustainability, what matters is the impact on metrics that take into account impacts on resource depletion and environmental degradation (sometimes called �green GDP� metrics.)

[...]

1. Growth Enhancing Deficit Reduction Measures (Increased spending in high yield government investments, Reduced spending...on corporate welfare, reducing excessive payments to the pharmaceutical companies, better auctioning/management of government owned natural resources and other assets)


2. Towards a Fairer and More Efficient Tax System


3. Careful Scrutiny of Non-Growth-Enhancing Expenditures

I could go on, but it's better the reader just print out the first seven pages and read for yourself (the last two pages are endnotes for the purists among us). He advances several seldom mentioned tax and revenue management items that would generate tons of revenue for government use with virtually no ill effects on anyone other than the corporate leeches now sucking these juicy little tits. Two of my favorites are a Financial Transaction Tax and EPS Fees.

• Financial Transactions Tax
  For a quarter century, it has been recognized that short term financial transactions may contribute to economic volatility without enhancing long term economic performance. They were at the center of the global financial crisis at the end of the last century. In recent years, partly because of that crisis and partly because of the current Great Recession, this notion has received widespread support within academia and within civil society; and with the acceptance of that perspective has come increasing support for a financial transaction tax. Such a tax, even at a very, very low rate, would raise considerable revenue, and there is little evidence that it would have any adverse effect on long-term productivity �on the contrary, it is likely to enhance it.

• EPS (Electronic Payment System) Fees
  Modern technology has allowed the creation of an efficient electronic payments system. It should cost almost nothing to transfer money from an individual�s bank account to the merchant�s bank account when a purchase is made. Yet the credit card companies charge large fees, as much as .6% to 2.4%.20 These fees act as a tax on every transaction, but a tax that goes not to public purpose but to enrich the coffers of the credit card companies, largely the banks. Other countries have curtailed the anti-competitive practices; but given the need for deficit reduction, an alternative is to redirect the revenues for public purpose, by, for example, setting the fees at 1.5%, with say 50 basis points going to the card companies, and the rest dedicated to deficit reduction. This is an example of an efficiency enhancing deficit reducing reform�consumers and merchants would be better off, transactions costs would be lowered, and so to would the deficit.