October 12, 2008

AP Reporters Err in Claiming No Nobel Nominee Analysis of Current Market Melt

Filed under: Economy,MSM Biz/Other Ignorance,Taxes & Government — Tom @ 8:49 pm

ap_logo.gifPoor Karl Ritter and Matt Moore of the Associated Press must have a lot of time to kill, a dearth of ideas, and a studied disinterest in accuracy as they await the awarding of the Nobel Prize for Economics in Stockholm, Sweden on Monday. A list of past winners is here.

Besides lamenting that no woman has ever won the Economics Prize (so?), the AP pair felt the need to relate the financial bailout passed by Congress and signed by the President a week ago, and the current steep stock market decline that followed it (or, as yours truly and Investors Business Daily would argue, occurred because of it), to who might win the award.

Along the way, they, as AP reporters are wont to do, erred, and quite seriously.

Here’s how their report, weirdly entitled “Amid the meltdown, economics Nobel no easy pick,” began (bold is mine):

If history is any guide, this year’s Nobel economics prize will award the developers of economic theories that have had the time to take root, grow and prove resilient.

The past also indicates that Monday’s winner will probably be an American male who will have done the bulk of his work several decades ago, not someone who has analyzed issues related to the financial meltdown that is now throwing capitalism into turmoil worldwide. Also, no woman has ever won the economics prize from the Nobel Foundation since it was first handed out in 1969.

But unless one really believes that professional economists just sign any old thing that crosses their desk, Ritter and Moore are incorrect that all nominees suffer from a dearth of knowledge of issues relating to what the pair describe as the “meltdown.” At least two nominees under serious consideration looked at the matters involved closely enough to be among the over 160 economists who signed a letter to the Speaker of the House of Representatives and the President pro tempore of the Senate on or shortly after September 24, 2008. The 160 signers also included at least three current Nobel laureates.

One of the nominees for this year’s prize who signed the letter, Lars Peter Hansen of the University of Chicago, was named by the AP pair. The other, Harvard’s Oliver Hart, is mentioned at an October 10 New York Times Freakonomics Blog entry by Steven D. Levitt.

Both gentlemen are among those who signed onto the following letter:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

I first learned of the letter from this article at Bloomberg News. If the actual contents of the letter were posted at any news site, I couldn’t find it.

Considering its gravity and its source, a Google News search on “economists letter bailout” (not in quotes) between September 24-30 surfaced pretty light mention of the letter. The only front-page story about it appeared on Page A01 of the Washington Post on Friday, September 26. Other mentions were clearly less prominent. The ones I found were at a Reason blog post, a New York Times “Talking Business” column by Joe Nocera, the Harvard Crimison, a Chicago TV station and a semi-coherent LA Times column by Joel Stein. I doubt there were many other citations of the letter, and could locate no reports about it by AP.

The report by Ritter and Moore shows that that weak original news coverage begets weaker and erroneous subsequent news coverage — enough in this case to blow away the reporters’ core premise that no one “who has analyzed issues related to the financial meltdown” is up for Monday’s Nobel. They’re flat-out wrong.

Cross-posted at NewsBusters.org.

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1 Comment

  1. How would one apply for this award?

    Would it require a mathematic proof? If it did then at what level would it get recognized? What is happening in Washington is unfair and I have seen very little offered as to what to or how to. The loss can be split into a single component, and recorded as a percentage of that. That capital needs to address each of those, and unfortunately the inherent problem is larger and much more ominous.

    As each part, each component represents a part of the whole and we have correlations intertwining across relationships.

    In reality it is false value and a differentiation between that of income and obligations. From the lender higher risk equates to higher potential earnings, for the borrower higher risk represents a higher probability of failure. The correlation is very positive, as the rates increase the potential for higher profit increases the probability for failure. We have it even in the credit card industry, less likely to repay gets less probability to repay.

    Fraud we have fraud in all of this, it is being called predatory when referring to lenders and it is fraud with respects to borrowers, even if formed from a genuine lack of comprehension, it is fraud. Ignorance is not excuse for the law as it is, even the common laws of mathematical limits. That I what this is about, being outside of the limits, ignoring the limits to keep it all going and as it did it compounded.

    What is not being considered is the matrices, what you earn less your obligations, and then a real amount of financing, not an endless amount until you have no ability to repay. That is the FICO system and not borrower friendly, it is lender friendly, are we seeing the math relationship, there are real limits and the minimal pavement on obligations can actually exceed net income. I or we can assume that people know what they can afford, well actually that is not correct, they actually all cannot.

    The false consumer value is obvious, and since they are up against the wall they in turn affect those that survive on that relentless consumption. A certain amount of that disappears as the dept and cost inflate. Is it a snow ball or is it an avalanche?

    The pensions and social security, these are still on the side of the mountain precariously clinging to the side of the slope, with not much to hold them up. Then you have an increasing depletion in the form of contributions and value, as the claims are an upward slope, we are a older society ready to retire. It may be to late? These may begin to fall, the time line of their imbalances are definitely shorting.

    The answer is mass deflation in value, wages and cost have to fall. That is the turn that has to be made, and if not done intelligently it will not work. The focus has to be on the core components, and the largest is housing then transportation and then insurances.

    It is an equation and it has stratifications, quintiles and at each level or stratification the market must exist. What you earn and what is available, the lowest is outside of economics and is a loss, then as you move up it moves to a break even then into profit.

    That is all about efficiency and insuring that the market exists at the lowest level, that has to be with little or no subsidizes. The breakeven needs to be sought out, it needs to be where the government needs to focus. Build, manufacture…then recover the costs. It has to be at the most affordable point on the curve, that offers incentives to exist within it. A safe clean and secure place, then add price the market can offer more, and those that earn more can aspire to that if the value is apparent to them.

    The midpoint defined, the modest lowest level a modest wage and sufficient basic market products and services.

    This bailout is abstract, it is addressing at a location too distant from the starting point.

    Each loan and each purchaser needs better scrutiny, homes should never be sold in disrepair, and worse if they are inefficient. The prices have to be set to meet the market actually below the market in many places in volume. The banks should hand them to the government less the cost to repair them, make them more efficient. These contracted not above the market price, government should seek the lowest costs and not without consideration to esthetics. The values are low so margin are more conducive. This has to be done regionally, not by banking institution, by region, by zip code. It can not be done without complete understanding of the income of the regions.

    Comprehensive urban planning, land use to the finite level.

    Adding value to a region, higher quality homes, education facilities, parks etc. Police and fire, commercial districts, industrial zones. Better for less, then the wages fall, because the cost of living falls.

    The repository is imperative, and leaving your home to move to a more affordable home that could offer a better standard and better price would be a mark against you but not the end. That will happen, because as wages fall then so will more insolvencies occur.

    This is all about real value and staying within it, at every level and in every aspect of life.
    If a person is willing an able to do your job for less than you are overpaid. That means that special qualifications and skills have to be real and so does education. The scores you attain the levels you progress to and attain.

    This is the thing, all an employer should offer is a wage and all the obligation should be yours. Even safety and health risk can be tracked relatively easily if we had a universal set of medial records, that had a link to who you are and where you work. If insurance is private then providers could identify these risks and legally address them.

    All insurances should be private, and mandatory obligations that have to be sold and bought. The prices set by government as a percentage of income and with consideration to costs finding the lowest breakeven and providing health care at it. This would keep cost low, local primary care centers. These would be point of building primary record sets, these facilities geographically convenient and they should charge nominal fees.

    It is all about having data and data sets, it is all about privacy and civil rights. Protected until you say look at me, tell me what I can do to improve my position in life. Tell me what services are available to me. Tell me if I am earning my worth.

    As population grows we have to be infinitely more efficient, we cannot regulate but need to set limits to insure the markets exist to the highest proportion of the population. The only measure of intellect is truly adaptability, we must become more adaptable and transitional. We are not we are collectively delusional and riddled with false values, we will pay for that collectively.

    Fairness is not equality, not everyone is equal, we all have the basic needs and we need to insure that they exist and that everyone is self sufficient. Wee at every level need to be risk adverse and efficient, however we need to aspire to high standards and high quality.

    The problems at hand and the solution being offered, I foresee slow and painful decline, if we have too much decline and if we lose the pensions, watch out for riots and crime.

    These cyclical taxes linked in and that grow on income and expense are foolishly wasteful, what is amazing is that our overvalued economy recorded record deficits in government.

    We need clear data and it has to be addressed objectively not subjectively with these distorted ideal based on for the most part foolishness, a lack of knowledge and truly born out of a sense of entitlements, complacency and greed.

    Comment by Oengus — October 13, 2008 @ 12:02 am

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