Buy Me Some Peanuts and Cracker Jacks

Once upon a time, there was a lovely newspaper known as the International Herald Tribune. Each year on baseball’s opening day, the paper would publish its late sports editor Dick Roraback’s poem recalling what it was like to be Over Here when the season was starting Over There.

Its language is sliding toward the archaic, its references even more so — although while Forbes and Griffith have been gone for decades, the Nats are back and playing their 10th season — but since the international edition of the New York Times (the Hairy Trib’s successor) won’t be putting any rhymes on its sports page today, we might as well.

Under the fold, “The Crack of the Bat.”
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Il faut sauver le soldat Juncker. Pourquoi, on ne sait pas

What about some actual European politics? Jean Quatremer has an interesting story. He starts off with a joint profile of Martin Schulz and Jean-Claude Juncker – and I presume I’ve now lost 90 per cent of the readers – but then it gets interesting.

So, the political parties in the European Parliament decided back in 2011 to name top candidates at the elections, and then to treat the winner’s top candidate as the Parliament’s candidate for President of the European Commission. All parties did this except for the extreme right and the odd new group with the British Tories in, who decided not to name a top candidate. The Parliament doesn’t get to nominate the president, but it does have a veto. This now starts to look a lot like the Parliament getting to choose, as the parties have agreed to veto anyone, expect the top candidate who wins the election. You could even call it democracy, of a sort.

It seems that Angela Merkel, and the intergovernmental wing of the EU more widely, doesn’t like this much. It is, after all, an effort by the elected branch to take over more power. Although everyone claims to want a more democratic EU, nobody wants this to happen at the expense of their own power. So, there is a plan afoot.

Juncker, the continental chief conservative, would be appointed as president of the Council immediately, on polling day. Therefore, the Parliament wouldn’t have the chance to appoint him to the Commission, and the agreement between the parties would no longer be valid as there would no longer be a conservative chief candidate.

This might throw the whole issue open, and leave it to the freies Spiel der Kräfte as they say in German politics. Alternatively, it might leave the Commission to the Left. Merkel would keep some sense that the intergovernmental power controlled things, keep Juncker in yet another of his countless eurojobs, and get a German at the Commission, although she would have to tolerate a Social Democrat.

Schulz, for his part, is setting up a coalition of the very broadest Left to back him in the case that he either wins the elections, which is possible, or that Merkel has Juncker lifted out by helicopter. This means the end of the weird longstanding coalition between Socialists and Conservatives in Brussels. Told you there was something interesting in here.

That said, I can’t help thinking that the whole manoeuvre with Juncker is exactly the sort of thing that millions of Europeans hate about the EU. He has been something pompous in the EU for the whole of my life and I can’t think of anything he has achieved with it except for protecting the Luxembourg tax haven. Now the prospect of him losing an election is greeted with some scheme to give him yet another eurojob in pursuit of an institutional politics spat maybe 0.01% of Europeans could describe.

Over at the Open Europe Blog, a comment on a post about the AfD says:

The issue is that nowhere in Europe the combination between desillusioned voters and business oriented policies seem to be very appealing. It looks to be one or the other. There looks to be room for a more business oriented party in most countries.

The answer is, of course, that they’re disillusioned with the business-oriented policies and the Junckerist politics.

Price and quantity

An upshot from the last post. Markets can adjust by price, or by quantity. Economics usually assumes that they do both simultaneously, although the maths usually doesn’t work that way. There is no reason I can think of to prefer either mode of adjustment a priori, but practical applications will usually show that one or the other would be better.

In the radical view that markets are institutions that are defined by the societies that create them, it is a very important question whether a new one (or an old one undergoing change) will tend to adjust price-first or quantity-first.

Still in search of requisite variety: UK housing edition

The search for requisite variety goes on. At the moment, the big guessing game in British macroeconomics is “when does the Bank put up interest rates?” The following story suggests that this is beside the point.

The statement noted that mortgage demand was up 40% in the year to January, while surveys by the main mortgage lenders suggested prices were around 10% higher in February than a year earlier.

It said: “In a continuation of a longer-term trend, mortgages at loan-to-income ratios above four times accounted for a higher share of new mortgages in the third quarter of 2013 than at any time since the data series began in 2005. New mortgage lending at high loan-to-value ratios remained low by historical standards, though the number of mortgage products offering higher loan-to-value ratios had doubled over the previous six months.

“Given the increasing momentum, the FPC will remain vigilant to emerging vulnerabilities, will continue to monitor conditions closely and will take further proportionate and graduated action if warranted.”

Threadneedle Street intends to oblige banks and building societies to carry out stringent stress tests later this year to see whether they would find themselves in trouble in the event of a slump in house prices or a sharp rise in interest rates.

Oh jesus here we go again

Yeah. Interestingly, most of the classic bubble pathologies are showing up – try this for size – but for the first time in my life, this seems to be accompanied by dread, not euphoria. Nobody is cheering.

These stress tests are interesting. First of all, the fact that the Bank needs to audit the banks to work out if it is actually possible to increase the policy rate without triggering a major bank failure is itself evidence that the situation I described in the original In Search of Requisite Variety post is coming to pass. The rest of the economy is more than lacklustre but the housing market is going ape again.

Secondly, the version of that story that appeared in the paper contained several paragraphs that don’t appear in the web version. For example:

Amid growing concern that the central London property market is already overheating, the Bank’s financial policy committee said that from June it wanted to have the powers to set the interest rate scenarios lenders would have to consider when granting home loans

Another quotes Brian Hilliard of Société Générale as saying:

Both of these metrics, loan-to-value and loan-to-income, appear in the list of potential future tools the committee could use. The FPC would probably move first on loan-to-income. The problem with controlling loan-to-value ratios is that it might be thought to run contrary to the idea of the government’s Help to Buy scheme

What’s going on here is that the Bank is seeking requisite variety. Specifically, they’re trying to create policy tools to address a housing bubble without imposing monetary contraction on the whole economy. Setting “the interest rate scenarios lenders must consider” and then auditing them should lead the lenders to turn down more applications for very large mortgages. Setting a limit in terms of loan-to-income would have a similar effect on mortgages applied for by borrowers who might struggle to repay them. Rather than changing the price of credit economy-wide, this would mean that some new applications would be credit-rationed.

This, of course, represents finance being re-regulated. In the de-regulation era, it was thought that the big issue was the overall price of credit, which a central bank could control. Its distribution among borrowers, sectors, and geography would find its own level. Brad DeLong’s Republic of the Central Bankers gets at this weird combination of enormous central-planning power vested in the Fed, and its restriction to hugely general and rough measures.

It was hoped that this represented a sensible compromise between the need for a stabilisation policy, and the avoidance of what was thought to be harmful bureaucracy. But another way of looking at the republic of the central bankers is that it is rather like Russia – it has a stash of nuclear weapons with which it can destroy the economy and that’s basically it. Precisely because its chief policy options are “Nobody notices” and “Blow everything up”, its day to day influence is often less than it imagines. It is also superbly, peerlessly unaccountable.

I am much in favour of re-creating a variety of policy responses. I am, though, worried that the regulatory power is being re-created in the unaccountable and often explicitly anti-democratic domain of the central bank. This is evidence, though, that the political system itself lacks requisite variety. Who do I vote for to re-regulate mortgage finance? As a result, the problem landed with the people who did have enough degrees of freedom to do something: the Bank.

Mark Carney agrees.

“This focus initially made sense since one of the greatest challenges for macroeconomic policy in the late 1970s and 1980s was the fight against inflation,” he said. “However, with time, a healthy focus became a dangerous distraction.”

He described the move by Brown in 1997 to give the Bank independence to set interest rates focusing on an inflation target as a “deconstruction of the old model of central banking”.

“In my view, while there were enormous innovations of enduring value during this period, the reductionist vision of a central bank’s role that was adopted around the world was fatally flawed,” Carney said in his Mais Lecture at the Cass Business School in London.

Territorial integrity

The UN General Assembly declares the Crimean referendum invalid, 100-11.

Russia absorbing Crimea will be the first time since 1945 that a country other than Israel has taken over a part of a neighbouring state and formally annexed it, other than colonial outposts. Some people are maybe not appreciating what a break with international norms that is.

A few of those annexations of colonies were a lot more brutal affairs than Crimea: Ogaden, East Timor, Western Sahara. It’s still a very short list. Iraq and Kuwait was very briefly an exception and was supposed to once and for all end that sort of thing (and end history).

Handy Guide to 1930s Analogies

Crimea: Anschluss. Mostly wiling population, dissent shouted down or stamped out, stage-managed sham referendum. The main difference is that the troops of the larger, external power were already in Crimea, rather than just across the border in Bavaria.

Kharkiv, Donetsk: Sudetenland. Some real tension, mostly trumped up and stage-managed confrontations. Pleas for “protection” from some parts of a particular nationality to the outside power. Not fooling anyone. In contrast to then, Kiev would try to defend the frontier region militarily. (The great powers will not intervene, should it come to that.) Whether that defense would succeed is rather an important question. There’s not a major defensible barrier until the Dniepr. Speaking of which…

Dnepropetrovsk, Zaporizhia: Poland. The great powers would not be able to overlook the dismemberment of a major European state. They wouldn’t be able to stop it, either.

Poland: France. It’s on.

Crimea: meet the family

Here’s something interesting: the pro-Russian paramilitary leader in the Crimea is the son of the pro-Russian paramilitary leader in Transnistria.

As that empire was pushed out of Eastern Europe, Aksyonov’s father, Valery, became the leader of a group called the Russian Community of Northern Moldova, which campaigned for the rights of ethnic Russians in a country ruled by the Moldovan majority. In 1990, the ethnic tensions in that country erupted into war, and the Russian army came to the rescue of paramilitary groups fighting the forces of the Moldovan government. Two years later, the conflict ended with the de facto secession of a breakaway state called Transnistria, a sliver of land that runs along the Dniestr River.

Today, Transnistria is still a frozen conflict zone on the map of Europe – and a state that Aksyonov reveres. Its independence is not recognized by any member of the United Nations, including Russia. It is the only part of Europe that still uses the insignia of the Soviet Union, and its economy imposes Soviet-style subsistence living on the masses while the politically-connected elite benefit from its unique black market. As an unrecognized state unbound by international law, its customs points are a clearinghouse for contraband, including tobacco, guns and counterfeit liquor. But Aksyonov sees it as a place to be emulated. “Transnistria is a bastion of Russian culture inside Moldova,” he says. “They wanted to preserve their identity. And I fully support them, because I know what kind of pressures they faced.”

Who knew frozen conflicts could be a family business? Of course, “family” and “business” are usually very ordinary words that can take on a very different significance.

He remembers Aksyonov in the 1990s as a member of a criminal syndicate called Salem, which was named for the brand of contraband cigarettes they imported and dealt in bulk. (Other accounts claim the group was named for the cafe where they hung out.) “Aksyonov was a capo for them, an enforcer,” says Los. “He had a group of ten guys that would go around collecting money.” Aksyonov’s nickname in the local underworld, says Los, was the Goblin. “Every gangster had a nickname. I was called Horns because of my surname.” (Translated from Russian, the word los means moose or elk.)

In Crimea, it looks like he’s starting with the banks. Of course. Was ist ein Einbruch in eine Bank gegen die Gründung einer Bank? I do think this fits with my idea that this is about post-Soviets vs. pre-Europeans.

Update: He may have just added two gas companies. Nothing succeeds like success.

far from original heading

In the wake of the mysterious disappearance of Ballardian Malaysian Airlines Flight 370 to the East or possibly the West of the Malaysian peninsula,  here's an interesting account of all the ways civilian airliners keep in touch with ground control in the various territories they cross over. It reveals that quite a lot of the time they're not actually in touch at all. Those reassuring blips on the screen are sometimes just flight path projections, as they appear to have been in this case.

It's shocking – and fascinating in a morbid way – that you can just lose an airliner full of people, as though it was a collective Amelia Earhart. But maybe its not so surprising. It's not just that ground coverage is incomplete. There are more flights than ever before, flying from and between places where perhaps the staff are not too well trained, funded or attentive, over vast expanses of ocean, desert, tundra, jungle and ice. Perhaps the surprising thing is that it doesn't happen more often. I speak as someone who has flown over the arctic with this on my mind. Anyway:

This incident (frankly, we’re not even 100 percent sure it is a crash) is different. So far, no debris field has been found, the Pentagon reports that it detected no midair explosions in the area, and Malaysian authorities have issued contradictory statements about what primary-radar tracks they may or may not have observed. Based on the vast search area, it appears that authorities believe that the plane may have been deliberately flown far from its original heading. If that’s the case, then whoever redirected the plane might well have timed its abduction to coincide with the period when it would have slipped out of sight of the air traffic control system anyway.

The search for flight 370 is also hampered by the fact that the relevant sea lanes are literally full of crap. The almost certain bet is catastrophe in the air compounded by incompetence on the ground, but the resonances of the case are so strange that you wouldn't be surprised to discover that, 20 years on, some mad visionary pilot had taken his passengers to  - say – sojourn among the Wa for urgent but incomprehensible reasons. After all, if the pilot was just intent on suicide/murder, why wait until he was out of contact?