Archive for December, 2008

2008 in Review

Wednesday, December 31st, 2008

No one can legitimately deny that 2008 was an interesting year.

Any presidential election year is bound to draw disproportionate attention, but this year particularly so. The US electorate elected its first African-American as president, Senator Barack Obama. Most importantly, the electoral race did not center on the question race. With the exception of a couple of ill chosen remarks about looking like the faces on currency [1], Obama avoided playing the “race card.” No one of any stature suggest that race disqualified Obama as president. There was no so-called “Bradley effect” where Americans would publicly say they would vote for a black candidate, but in the privacy of the voting booth allow a latent racism or fear prevent them from casting a vote for a black person. Americans were nearly as unprejudiced in the private deliberations as in their public statements. Americans clearly deserve more credit than they deserve. It is hard to imagine any other country that would elect a racial minority of that country as its chief executive.

Early in the year, Shelby Steele, was not enthusiastic about chances for a black president. In his view, any black had to be non-threatening to the white majority and not appear to be a candidate whose primary message was race. On the other hand such a candidate would not seem as an authentic black to fellow African-Americans. As it turns out, once it became clear that Obama had a realistic opportunity to win the presidential election, the prospect of a black American president excited African-Americans. There was no litmus test of authenticity.

This was embarrassing year for journalism. The enthusiasm for Obama was  so great that many lost even the appearance of objectivity.  The first victim of this bias was Senator Hillary Clinton who was regularly portrayed negatively by MSNBC. Hillary even began to appreciate Fox News. Actually, the Democratic primary was an amusing battle between the politics of gender and the politics of race with both candidates anxious to claim the mantel of representing a victim class without the weakness of appearing to be victim.

After the election there were media mea cuplas. The ombudsman of the Washington Post wrote:

“The Post provided a lot of good campaign coverage, but readers have been consistently critical of the lack of probing issues coverage and what they saw as a tilt toward Democrat Barack Obama. My surveys, which ended on Election Day, show that they are right on both counts.”

There were similar self-analysis from other organizations. The real question is why such retrospection and assessments were not forthcoming when they could have improved coverage during the campaign. The behavior of the main-stream-media is not healthy for democracy.

The biggest news of the year may have been news that fell off the front pages: the Iraq War. Largely because of the troop surge and the associated strategy, the War in Iraq is succeeding. Perhaps  the most important measure for Americans, the increased security in Iraq has resulted in dramatic reductions in American lost of life. This month thus far 14 Americans had died and only seven from hostile actions. Of course, any loss is devastating for the soldier’s family, but no one can deny that Iraq is largely now a settled issue — mostly as a consequence of the effectiveness of the American military.

Unfortunately, the victory will be a silent one as American troops are allowed to slowly return home as Iraqis become more and more responsible for their own security. In part because the media does not want to grant President Bush the credit for an important success Americans and troops will not enjoy the satisfaction of victory — just compensation for their sacrifice.

Finally, this is the year that the economy fell into a dramatic recession which has dramatically reduced stock values and real estate prices. Certainly, the business cycle has not been repealed and we can always expect episodic recessions. This particular recession was initiated under a complex interaction between public and private mistakes. The housing market was oversold largely under the encouragement of government to extend loans to people who could not afford them — the “sub-prime” crisis. The increase in oil prices helped trigger some of the defaults.

This crisis was then magnified by credit default swaps where  companies in a non-transparent fashion had traded risk. This radical increase in liability brought down many investment houses. As a consequence, the federal government had to intervene with massive bailouts (with dubious salutary effect) to rescue irresponsible behavior by large Wall Street investment house. We can hope that 2009 with mark the beginning of the recovery.

[1] Barack Obama: “‘Well, you know, he’s got a funny name and he doesn’t look like all the presidents on the dollar bills and the five dollar bills and, and they’re going to send out nasty emails.”

Standing Up to Fascists?

Saturday, December 20th, 2008

This summer I enjoyed the rare pleasure of showing off Washington, DC to some German colleagues and friends of mine. Our wanderings took us past the reflecting pool in the shadow of  Lincoln Memorial, past the Korean War Memorial, and the newly opened memorial to those who lost their lives in World War II. Finally, we ended up on Pennsylvania Avenue in front of the White House. The area is a perennial place for protesters to exercise“ right of the people peaceably to assemble, and to petition the Government for a redress of grievances” as guaranteed by the First Amendment to the US Constitution.

In this particular instance, one could debate how peaceable the assembly was. The assembly was no doubt an energetic petition for redress of grievances, where people were carrying signs protesting what they decried as a Fascist American government. Not being one to suffer fools easily, I kindly offered to the protesters the observation that the very ability of being able to protest in front of the White House, the home of the US chief executive, graphically undermined their argument. I am not sure they understood my comment, but they certainly did not find it persuasive. I had forgotten the rule that one should not argue with fools for too long for it grants them more credibility than they are entitled to.

I was reminded of this small story when watching the rude Iraqi who took it upon himself to show contempt for President George Bush (and the US incidentally) by throwing shoes at him. The projectiles missed their target largely due to the President’s ninja-like reflexes. The person making the assault has been detained and may yet imprisoned, but by his very act he undermined his own argument. Had the same act occurred during the regime of Saddam Hussein, not only would he have been executed, but so would his family and friends. The revenge would have been sure and swift and brutal [1]. The shoe assailant, Muntazer al-Zaidi, who the New York Times reports sympathized with the Nazi-inspired Baath, would never have dared such an action in the authoritarian state the US liberated.

Perhaps incident is best explained by Iraqi Ambassador Samir Sumaida’ie who challenged Code Pink protesters who would apparently side with and lionize a Nazi so long as he opposed President Bush.

[1] Amir Najmi, Middle East expert, personal communication, December 2008.

Determining the Limits of a Recession

Sunday, December 14th, 2008

It was recently announced that the National Bureau of Economic Research (NBER) has determined that we are currently suffering in an economic recession, which began in December of 2007. Given the long time between the beginning of the recession and the official annoucement of a recession, one is given to wonder why the NBER took so long to come to such a formal determination.

The conventional definition of a recession is two consecutive quarters of negative economic growth. Such a definition is convenient in that it is not ambiguous. Except for errors in estimating economic growth (say for example estimating economic growth to be 0.1% as opposed to -0.1%), there can be general agreement about when the economy is in recession.

For economic planning and reconstruction of economic history, it would be convenient to have a measure that would locate a recession in time with greater precision than two quarters.

The National Bureau of Economic Research is the official body for such determinations.According to the NEBR the defintion of a recession is based on:

“(1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP.”

However, history suggests that the industrial production (IP) metric dominates the determination of recession. The graphs below were pulled fromDavid Carbon ( They show industrial production as a function of time for the last four recessions.

The key to note here is that the beginning the recessions as defined by the NBER seem to correlated with the peak in industrial production and to end when industrial production turns upward (regains positive derivative). Of course, the month-to-month industrial production data can be noisy and it would not be appropriate to mark every little bump and dip in industrial production as a recession. It is thus necessary wait some time to determine if industrial production as really peaked or begun increasing again.

Industrial production measures manufacturing and mining output. Given the changing nature of the economy toward a service-based one, one can question how good a measure industrial production is. Nonetheless, it appears to be the proxy that it used by NBER for economic activity.The current recession is very interesting, at least from a graphical point of view.

The figure below is a plot of recent industrial production.

Note that in December of 2007, industrial production reached a local peak. However, the downturn afterwards was shallow. Indeed, during the summer of 2008, industrial production seemed to be on the rise. It is easy to understand why the NBER was reluctant to declare a recession at that point. Then in August and September, industrial production took a nose dive. The fact that we are in a recession is now unescapable. It is also interesting to note industrial production increased quickly last month. Whether this is a bump on a long-term bottom or a V-shaped recession remains to be seen. At this point, it would be premature for the NBER to make any determination.

Obama Opts Out of the Public School System

Sunday, December 7th, 2008

For much of the last few years, the Left and the Left media have not been discontent to just oppose Bush’s Iraq War policies. They have tried to pull the rug from under George Bush’s sincerity with regard to the Iraq War. This was particularly true when the war was not going well. Now that the surge has apparently worked despite what the chattering classes just knew to be true, this sort of noise has diminished. Nonetheless, as recently has 2007, the LA Times was whining that the Bush family was not setting a good example by serving in the military.

Jenna Bush was donating the her earnings from her book to UNICEF, yet the LA Times complained that the ``25-year-old makes the rounds of TV talk shows this fall in a White House limousine, dozens of her contemporaries will be arriving home from Iraq in wooden boxes.”

Of course, and the LA Times knows it, it is not  possible to hold  Bush morally responsible for his adult daughters’ decisions. There is no evidence that if any of the Bush children wished to serve in the military George Bush would have objected. Moreover, as Prince Harry of Great Britain discovered, despite the noblest of intentions to serve, the presence of celebrity can endanger other soldiers.

It is not unreasonable for parents to have mixed feelings about dangerous occupations for their children. For example, everyone would agree that firefighting is a noble and dangerous profession that is crucial for society. Yet there is no parent of a firefighter who does not worry about the safety of their child and many who wish their children would find a safer occupation. This does make parents hypocrites, but parents.

It is unlikely that the LA Times will rope President-elect Barack Obama with he same stilted standards it tries to bind Bush with. Obama was supported overwhelmingly by public school teachers’ union members. Yet when given the opportunity to use the services offered by his ardent supporters, he politely declined. He will not send his young daughters to a District of Columbia public school, something the President Jimmy Carter did. Despite having heaped praise on D.C. schools chancellor Michelle Rhee, Obama will be sending his daughters to the elite private school, Sidwell Friends. What does this say about Obama’s real assessment of DC public schools? This particular school choice is a decision made by the adult Obamas, not by their children as in the case of military service for Bush’s children.

This is not a criticism of Obama. He has an positive obligation to provide for the best education of his children. If he did less, we should all believe less of him. However, we should remember that Obama’s choice is an option that he withholds from others when he stands with the public school teachers’ union in refusing to give the parents of poor children even modest school choice.

Nor are we likely to see the LA Times praise Senator John McCain or Governor Sarah Palin for sincerity on their Iraq War positions since they have children who serve or have served there.