The abuse of public position for personal gain is widespread in the United States. Inevitably, despite the best efforts of the politicians to suppress it, some of it seeps out around the edges. Be assured, this is just the tip if the iceberg, most continues unseen unless someone trips over it.

Here’s one that caught my attention today – the Bloomberg administration bargaining for free use of a luxury box by city officials at Yankee Stadium. The city officials are trading public goods for personal rewards. The defense seems to be that “everybody does it.” Doubtless true, but shameful.

Other recent examples include Rep Rangel, whose behavior seems to include abuse of the rent control system in New York, not paying tax on his rental income and now protecting a tax break in exchange for a large contribution to a favorite cause. Or Sen Stevens, recently convicted of taking “unreported gifts,” but still on the public payroll for $122,000 a year?

Oh, the wonderful “two-party” system.

An good piece from an actual economist, comparing the present situation to Japan’s “Lost Decades”.

Reports that the USA government’s total financial commitments from the financial crisis now top US$5 trillion raise the obvious question “Can they afford it?”.

The answer isn’t obvious. Some economists, from a range of schools of economic thought, argue that the government sector (lumping the Treasury and the Federal Reserve together) has a limitless capacity to pay debt as a consequence of its status (especially since the US dollar is still the world’s reserve currency).

I don’t dispute the capacity of the government sector to issue debt. But if it is to service that debt then there are financial issues for both the government and taxpayers if the debt it takes on is huge.

The bailout may amount to swapping a small amount of private debt for a larger amount of public debt in the future. This certainly seems to be the history of Japan’s attempts to “pump prime” its way out of the collapse of its Bubble Economy.

I found this video on the same blog. It is absolutely hilarious. On a more serious note, it is somewhat gratifying to find that there are even economists who think, as I do, that neo-classical economics is bunk. The gentleman whose blog I linked, Steve Keen, calls himself a heterodox economist.

How come I got it right, and “they”–the official economic managers–got it so wrong?

It’s not because I’m any brighter than they are–there are plenty of highly intelligent people in those organisations. Instead, it’s because they follow mainstream views in economics, and I follow a minority perspective. The economic history we are currently living through is proof that the mainstream is fundamentally wrong about the nature of the economy, while my minority perspective is at least partially right.

This is not something one should be able to say about a science, and there lies the rub: economics is not even close to qualifying as a science. A better model for economics is a group of warring religions–or science, such as it was, before Galileo’s empirical revolution, when what mattered to scientists was not empirical relevance, but conformity to with the Bible.

Yes! Yes! Read More!

What to do when the kids are asleep or in school, and hubby is off at the office like a good sarariman? Well, trade forex of course.

Ms. Mitsui, the Sakura City homemaker, started casually, hoping to add to her teenage son’s education fund and gain a bit of intellectual stimulation. She started trading with FXOnline in October last year with 1.5 million yen in her account. Often trading with 100 times leverage when the markets were relatively calm and the yen was falling, she had built up her winnings to 20 million yen by August.

All that changed on Aug. 8. Watching the opening ceremony of the Beijing Olympics on television at home, Ms. Mitsui glanced at her cellphone and gasped when she saw the yen start to rise sharply against the euro, which she held. Her balance dropped rapidly to one million yen.

The economics graduate now hedges her positions and takes small profits quickly, closing out her position within a few hours. Ms. Mitsui is relaxed about her losses and wants to keep trading. She likens her trading to a full-time occupation, asking: “Would you give up your job?”

Angela Merkel, the German chancellor, spoke out against the interest rate slashing which encourages excessive borrowing and punishes saving.

Excessively cheap money in the US was a driver of today’s crisis,” she told the German parliament. “I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.

OK, that adds up to one politician who, at least partially, gets it. Can we hear from a second?

We can’t have Maggie anymore, I’m afraid. But perhaps we could borrow Angela. Sort of a reverse Marshall Plan, y’know?

Thanks to naked capitalism, I found Warren Buffett’s wonderful parable of the Gotrocks, illustrating the costs of the Wall Street parasites.

To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others.

The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.

After a while, most of the family members realize that they are not doing so well at this new “beat my- brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course. It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.

The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with self-confidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.

The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.

And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses – and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked). A sufficient number of arrangements like this – heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the family the Hadrocks.