Nowreach

Monday, January 3, 2011

A Glimpse of the Original Ippudo in Tokyo

?Mmmm, this bowl of Ippudo ramen from the Ebisu location in Tokyo looks like the one called Shiromaru Hakata Classic here.

Fork in the Road Beijing correspondent Lillian Chou recently traveled to Tokyo, where she met another friend of ours, musician Carl Stone, and the two of them went ramen-hopping, which has long been as easy to do there as it has become in NYC -- where dozens of ramen joints have opened in the last few years.

?One of their stops was Ippudo, which has three outlets in Tokyo. Here, we have a single branch, which is rather grandiose for a noodle parlor. Even in mid-afternoon early in the week, you're going to have to wait an hour or more just to get in. The specialty of the house is a pig-foot broth called tonkotsu, which originated in the southernmost Japanese main island of Kyushu, a broth that has been available here in one form or another for many years.

Lillian and Carl visited the original Ippudo, in the Ebisu neighborhood, and found it a much more modest establishment than our own, not all that different from the zillions of other ramen joints in Tokyo, though considered one of the very best. They noted other differences, too, including free appetizers of pickled spinach and bean sprouts, as opposed to the crazy roster of appetizers you pay for here.

To me, the ramen and the broth look just about the same. Another difference: The Ebisu store -- located in a semi-upscale shopping and nightlife zone -- is open every day till 4 a.m. We only wish!

?Apps and add-ins offered for free at a Tokyo outpost of Ippudo include whole peeled garlic cloves and a garlic press that looks very Italian.

Next: A photo of the interior ...

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Disclosure Rules for Economists

By James Kwak

In October, Gerald Epstein and Jessica Carrick-Hagenbarth released a paper documenting potential conflicts of interests among academic economists writing about the financial crisis and financial reform. Focusing on the?Squam Lake Working Group on Financial Regulation and the Pew Economic Policy?Group Financial Reform Project, they found that a majority of the economists involved had affiliations with private financial institutions, yet few of them disclosed those affiliations even in academic publications (where they do not face the word constraints imposed by print newspaper editors), preferring to identify themselves by their universities and as members of prestigious institutions such as NBER. To be fair, they did not find a strong relationship between economists’ affiliations and their positions on financial reform, perhaps because of the small sample and the limited amount of variation in the positions of members of these groups.

Epstein and Carrick-Hagenbarth called in their paper for economists to disclose any potential conflicts of interest, especially when writing for a general audience. This proposal has picked up some steam, first in the blogs (me; Nancy Folbre in Economix;?Felix Salmon (“it’s not going to happen: there’s too much money riding on the continuation of the status quo”); Mark Thoma; Mike Konczal; Planet Money) and, more recently, thanks in part to the movie Inside Job, in the mainstream press. According to Sewell Chan in?The New York Times, the AEA claims that it will consider a new ethical code or at least disclosure rules for economists?– although, in a forthcoming book, “[George]?DeMartino describes concerns dating to the 1920s about the influence of business on economic research, and cites multiple calls within the association for a code of conduct — all of which have been rebuffed.”

Epstein and Carrick-Hagenbarth have drafted a letter to the president of the AEA asking for the adoption of a code that requires economists to avoid conflicts of interest and to disclose ties that could create the appearance of a conflict of interest. If you are an economist and would like to sign on, you can email Debbie Zeidenberg (peri at econs dot umass dot edu) by Sunday evening. The full text follows.

We strongly urge the American Economic Association (AEA) to adopt a code of ethics that requires disclosure of potential conflicts of interest that can arise between economists’ roles as economic experts and as paid consultants, principals or agents for private firms. As the economics profession serves a prominent role in economic policy, the public’s confidence in the integrity of the profession will, in part, depend on how the issue of potential conflicts of interest is addressed.? We believe that the AEA, as the main professional organization of the economics profession, should take the lead on creating and adopting a code of ethics to address this issue.
More specifically we propose that the AEA adopt a code modeled on that of the American Sociological Association.[1] This code could state that: “Economists should maintain the highest degree of integrity in their professional work and avoid conflicts of interest and the appearance of conflict. Moreover, economists should disclose relevant sources of financial support and relevant personal or professional relationships that may have the appearance or potential for a conflict of interest in public speeches and writing, as well as in academic publications.”
This issue has taken on greater salience as the recent financial crisis has highlighted economists’ potentially conflicting roles that may have affected their real or perceived impartiality as analysts and experts. For example, in an assessment of 19 economists who have played prominent and influential roles in recent public policy debates, Gerald Epstein and Jessica Carrick-Hagenbarth found that 13 out of 19 economists had private financial affiliations indicative of some possible conflicts of interest, but only 5 had clearly and publicly revealed their affiliations.[2] A Reuters study of Congressional testimony by academics (many but not all of whom are economists) analyzed “… 96 testimonies given by 82 academics to the Senate Banking Committee and the House Financial Services Committee between late 2008 and early 2010 — as lawmakers debated the biggest overhaul of financial regulation since the 1930s.”? They found that “…roughly a third (of the academics) did not reveal their financial affiliations in their testimonies, based on a comparison of the text of their testimonies available on the Congressional committees’ websites with their resumes available online.”[3]
Economics is unusual among the social science professions in that it lacks professional ethical codes or guidelines.[4] In addition to the American Sociological Association, the American Anthropology Association has a code of ethics.? Similarly, the American Psychology Association and the American Statistical Association both have guidelines for ethics.? These codes and guidelines vary in several ways: some demand that professional members simply reveal potential conflicts; others demand that they do whatever they can to avoid or end such conflicts.[5]
We anticipate that objections may be raised to this proposal for a code of ethics. First, some may argue that this code would be redundant since many academic economists are already working under a conflict of interest policy as put forth by their respective universities.? But these codes primarily proscribe conduct that would conflict with the interests of their universities and do not address potential conflicts with respect to the broader public or government. Moreover, many economists are not academic economists and they too should be held to uniform standards of professional conduct.
Second, some economists may believe that listing their paid positions on their CVs and/or biographies constitutes a sufficient act of disclosure. However, we do not think this is sufficient disclosure.? It is not reasonable to expect the public to look up each expert’s CV and biography when trying to assess their statements.? Our proposed code would require economists to disclose all relevant potential conflicts of interest in all relevant situations, particularly in academic articles, general media pieces, speeches and testimonies.
In conclusion, we strongly urge that the AEA create and then promote adherence to a professional code of ethics that at a minimum requires transparency with respect to potential conflicts of interest. We believe this would be an important and necessary step toward enhancing the credibility and integrity of the profession.
We urge the AEA to take up this matter at its first opportunity.

[1] The ASA code requires that “Sociologists maintain the highest degree of integrity in their professional work and avoid conflicts of interest and the appearance of conflict”.? With respect to transparency, the sociologists’ code requires that: “Sociologists disclose relevant sources of financial support and relevant personal or professional relationships that may have the appearance or potential for a conflict of interest to an employer or client, to the sponsors of their professional work, or in public speeches and writing”.? http://www.asanet.org/images/asa/docs/pdf/CodeofEthics.pdf

[5] The American Psychologists Association declares in their ethics guideline that psychologists should avoid a professional role that could impair their objectivity to carrying out their duties as psychologists. The American Statistical Association demands that statisticians should not only disclose all conflicts of interest but they should also resolve them.

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Posts of the Week

As we near the end of both the truncated week and the entirety of 2010, here's one final look back at Things That Appeared on This Website This Week and a forward-thinking wish for a Happy New Year ....

Our Man Sietsema's 10 Favorite NYC Dishes of 2010.

Floyd Cardoz talked about Tabla's closing and why he'll be in Times Square on New Year's Eve.

At Lotus of Siam, a battle of Northern larb versus Isaan larb.

A timely guide to hangover cures from the pros: grease, sweat, and hair of the dog.

Ask the Critics: Where can I get a Japanese breakfast?

The early word on Café Kristall.

The Kiwano: melon, cuke, or total waste of money?

Make Kittichai's chicken and coconut wrapped in egg nets.

Exorcising this year's most disturbing Christmas images.

Have a tip or restaurant-related news? Send it to fork@villagevoice.com.

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New Year's Greetings

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Why Can’t Europe Avoid Another Crisis? Why Can’t the U.S.?

By Simon Johnson

Most experienced watchers of the eurozone are expecting another serious crisis to break out in early 2011.? This projected crisis is tied to the rollover funding needs of weaker eurozone governments, i.e., debts falling due in March through May, and therefore seems much more predictable than what happened to Greece or Ireland in 2010. ?The investment bankers who fell over themselves to lend to these countries on the way up, now lead the way in talking up the prospects for a serious crisis.

This crisis is not more preventable for being predictable because its resolution will involve politically costly steps – which, given how Europe works, can only be taken under duress.? And don’t smile as you read this, because this same logic points directly to a deep and morally disturbing crisis heading directly at the United States.

The eurozone needs to – and will eventually – take three steps:

1. Agree on greater fiscal integration for a core set of countries.? This will not be full fiscal union, but it will comprise some greater sharing of responsibilities for each other’s debts.? There is much room for ambiguity in government accounting and great guile at the top of the European political elite, so do not expect something completely clear to emerge.? But Germany will end up underwriting more of the liabilities for the European core – the opposition Social Democratic Party and the Greens are very much pushing Chancellor Angela Merkel in this direction by calling her “unEuropean”.?

2. For the core countries, the European central bank (ECB) will receive greater authority to buy up government bonds as needed.? Speculators in these securities will be badly burned as necessary.? The wild card here is whether Bundesbank president Axel Weber will get to take over the ECB in fall 2011 – as expected and as apparently required by Ms. Merkel.? Mr. Weber has been vociferously opposed to exactly this bond-buying course of action.? The immovable Weber will meet the unstoppable logic of economic events.? Good luck, Mr. Weber.

3. One or more weaker countries will drop out of the eurozone, probably becoming rather like Montenegro – which uses the euro as its currency but does not have access to the ECB-run credit system.? Greece is probably the flashpoint; when it misses a payment on government debt, why should the ECB continue to accept Greek banks’ bonds, backed at that point effectively by a sovereign entity in default?? The maelstrom will probably sweep aside Portugal and perhaps even Ireland; the chaos will threaten Spain and Italy.

It would be so easy to set up preemptive programs with the IMF for Portugal and Spain, but this will not happen.? The political stigma attached to borrowing from the IMF is just too great.

The unfortunate truth is that despite its much vaunted supposed return to preeminence and the renewed swagger of senior officials, the IMF remains weak and of limited value.? It is an effective lender to small European countries under intense pressure – Latvia, Iceland, Greece, etc.? But the Fund does not have the resources or the legitimacy to save the bigger countries.

At the end of the day, the Europeans will save themselves, with the measures outlined above – only because there will be no other way to avoid wasting 60 years of political unification.? But this action won’t “save” everyone; one or more countries will be forced out of full eurozone membership (although they will likely keep the euro as the means of exchange).? And the costs to everyone involved will be large and largely unnecessary.

And remember, when the financial markets are done with Europe, they will come to test our fiscal resolve.? All the indications so far are that our politicians will also struggle to get ahead of financial market pressure.?

There are plenty of places in Europe where you can find an easy political consensus is to cut taxes and increase budget deficits.? Sadly, this no longer pacifies markets.? The American political elite – right and left – believes that we are different from the Europeans because we issue the dollar and therefore have some special privileges for ever.

But this is not the 1950s.? Asia has risen.? Europe will sort itself out and become more fiscally Germanic.? The Age of American Predominance is over.?

Our leading bankers looted the state, plunged the world into deep recession, and cost us 8 million jobs.? And now many of them stand by with sharpened knives and enhanced bonuses – also most willing to suggest how the salaries and jobs of others can be further cut.? Think about the morality of that one.

Will no one think hard about what this means for our budget and our political system until it is too late?

An edited version of this post appeared this morning on the NYT.com’s Economix blog; it is used here with permission.? If you would like to reproduce the entire post, please contact the New York Times.

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The More Things Change …

By James Kwak

As a holiday gift to myself, I’ve actually been reading a real book, on paper — The Worldly Philosophers, by Robert Heilbroner. The book itself was not a gift to myself; I have my sister’s old copy, which is the 1980 edition. The book is a traditional intellectual history of some of the main figures in economics. As the original was written in 1953, it focuses less on the mathematical line of economics, from Walras and Marshall through Arrow-Debreu to the present, and more on what used to be called political economy: Smith, Ricardo, Mill, Marx, Keynes, etc. It’s not a way to learn economics, but a way to learn something about the historical conditions that helped give rise to some important economic ideas.

But some passages seem oddly relevant today. Discussing the conventional economic wisdom of the early nineteenth century (pp. 121-22):

“They lived in a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. . . . It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.”

And on the conventional economic wisdom of the late nineteenth-century Gilded Age (p. 215):

“Indeed, the world was so scrubbed as to be unrecognizable. One might read such leading texts as John Bates Clark’s Distribution of Wealth and never know that American was a land of millionaires; one might peruse F.H. Taussig’s Economics and never come across a rigged stock market. If one looked into Professor Laughlin’s articles in the Atlantic Monthly he would learn that ‘sacrifice, exertion, and skill’ were responsible for the great fortunes.”

The hero of that chapter is Thorstein Veblen, who argued that the so-called captains of industry were not the sources of technological progress and economic development, but a parasitic class engaged in financial games to divert excessive profits to themselves: “The bold game of financial chicanery certainly served as much to disturb the flow of goods as to promote it” (p. 235). For Heilbroner, writing and rewriting during the thirty years of postwar prosperity, this was a problem of the past; Veblen did not see the ability of capitalism to evolve into a more efficient, more socially beneficial form.

For us, however, that progress seems less certain, and the financial engineering of the past decade seems little removed from the exploits of the nineteenth-century robber barons. And conventional economic wisdom — not the stuff taught in Ph.D. programs, but the thin veneer of economism that dominates public discourse (raise the minimum wage and unemployment will go up; increase regulations on banks and capital will contract and unemployment will go up; increase the estate tax and business owners will work less hard and unemployment will go up) — has hardly changed, either.

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Friday, December 24, 2010

Bankers’ Pay On The Line Again

By Simon Johnson

The people who run big banks in the US have had a good year.? They pushed back hard on financial reform legislation during the spring and were able to defeat the most serious efforts to constrain their power.? They and their non-US colleagues scored an even bigger win at Basel this fall, where the international committee that sets financial safety standards decided to keep the required levels of equity in banks at dangerously low levels. ?And the counter narrative for the 2008 financial crisis, “Fannie Mae made me do it,” gained some high profile Republican adherents closely aligned with the men who will control the House Financial Services Committee in 2011-12.

But there is also a potential lump of coal in Santa’s sack for the biggest banks, in the form of restrictions of pay – both its structure and perhaps even the amounts (although officially the latter is not currently on the table).

The impetus here comes not from American “populists” of any kind – although reformers of left and right have been pushing for progress on this issue since massive bonuses were paid out by firms that were saved by the taxpayer in fall 2008 (and again in 2009 in some cases).? According to the Wall Street Journal, for 2008 there were nearly 5,000 bonus payments in excess of $1 million at “the largest US banks that accepted Treasury aid.”

Rather the push to constrain bank executive pay comes from officials and the political elite in continental Europe – supported by an increasingly effective pro-reform group around the Bank of England (led by Mervyn King, the governor).? There is also supportive language in the Dodd-Frank financial reform bill, although this by itself rather vague and completely open to interpretation by the regulators.

Still, the overall proposal is entirely reasonable and well thought through at a general level: “lock-up” a considerable fraction of bank bonuses until we see, after several years, exactly how the banks do.

The issue, of course, is that banks (with their ludicrously low levels of equity; if this point is not clear to you, see this primer) can juice their returns considerably by taking on more risk.? These risks may not be apparent for quite a few years – depending on how long it takes the credit cycle to run its course.? Eventually, if those risks threaten to bring down one or more big banks, there may be a rescue by the taxpayer – and there is nothing fair or politically palatable about that.

Bank executives hate the idea that their pay will be constrained in any way.? In Europe, where bankers are less powerful than in the US, they have already lost this battle – although there is still a lot of a fighting about details and implementation to be done.

In the US, as we head into 2011, expect to see three types of pushback from the banks’ very sophisticated PR machines.

a) “We already ended Too Big To Fail”.? But we didn’t, at least for the global megabucks that would be subject to these compensation restrictions.? There is no way to handle the failure of a cross-border systemic bank, although than through Lehman-like collapse.? The case for stronger preemptive action to reduce system risk is overwhelming.

b) “This would weaken us relative to our global competitors”. Not really – given that it is the regulators of our main competitors who are initiating this move.? To be sure, Chinese banks are not likely to follow suit, but that is hardly relevant – and since when do we let China dictate our regulations or supervisory practices?

c) “This represents an inappropriate extension of government into private business decisions”. But there is little new here – at least since the 1930s, the relevant authorities have had the power to limit dangerous-risk taking by systemically important banks; the intent of the Dodd-Frank financial reform act was definitely to update and strengthen those powers.? Banks are different from other businesses; their failure can jeopardize the entire economy – as we saw in 2008-09.?

The banks will also worry that such pay restrictions will encourage their top talent to leave and join the relatively unregulated hedge fund and private equity sector.? This is a legitimate point – and suggests that the pay reforms may actually be implemented.? When powerful people (the hedge funds) want a change because it will disadvantage their competitors (the big banks), such changes are much more likely to happen in the American financial system.

Pushing risk-taking into hedge funds or other relatively unregulated entities does not of course solve the deeper problems that brought us to the brink of disaster in fall 2008.? But attempts to develop a more comprehensive approach for the system – limiting size and leverage (debt relative to equity) for the biggest players – were defeated at the behest of the big banks.?

Pay restrictions are not the ideal solution and they are not the end of the reform story.? But we should take what we can get at this stage.? Or, as seems more likely, we should encourage this debate to move into a more public arena – perhaps the regulators will push for restrictions and House Financial Services will raise objections.

The fight to make our financial system safer has barely begun.

An edited version of this post appeared this morning on the NYT.com’s Economix blog; it is used here with permission.? If you would like to reproduce the entire column, please contact the New York Times.

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