Anonymous: From Wikipedia:

In the first quarter 2008 GDP grow only 0,1%. The government made a supplementary negative budget, which was passed by Riigikogu. The revenue of the budget was decreased for 2008 by EEK 6.1 billion and the expenditure by EEK 3.2 billion.

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do these lucky guessers (i assume that was what he was doing--maybe i'm wrong!) cause problems for decision markets because they are so sensational people give them too much credence? i know people can bet against the lucky guesser and might stand to make some money, but i wonder if contagion is too much of a problem in some cases. i don't really know.

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Vroman, so are you buying TIPS (Treasury Inflation-Protected Securities) or what?

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@vroman: Estonia. According to Wikipedia:

"In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. The income tax rate will be decreased by 1% annually to reach 18% by January 2010."

However, I think that most people who read OB will agree that governments face flawed incentives.

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What so fascinating about this Korea incident is that the same government that bans a book written by an economist - not Lady Chatterley's Lover, not James Joyce - a prize-winning economist - arguing that intervening in the economy is sometimes a good thing then intervenes in the economy.

Not only do I just not get the arrest of what seems like a particularly pitiful and completely powerless member of the pajamas media, but I cannot fathom their continued ban on shorts.

Everyone does it "in an attempt to stem some of the worst stock-market slides," as the WSJ reported last fall, as if regulators didn't know that it only makes stock-market slides worse and prolongs them.

Stock Market Policy Isn't About Stock Markets?

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Heres my prediction: the world is doomed. The socialists and corporatists are willing to play negative-sum-games-to-win with public finance indefinitely. If, theoretically, printing $1T ex nihilio for a bailout results in 20% inflation, but you increase your personal net worth by 100% from the proceeds, then its in your best interest to encourage this policy over and over, even though its wrecking the rest of the economy. Since this is now standard practice, government control of the economy will only accelerate, in all industrialized countries. There will be decreasing amount of excess capital in private hands for R+D budgets. Technological progress will slow to a crawl. More continent wide federal superstates will form in the pattern of the EU, ie the North American Union, African Union, etc. To eliminate competiton for their hyper-inflating national currencies, these will consolidate into a single Orwellian world govt with a single currency, probably within 30 years. And thats the end of history. Theres no reason anything would ever change from then on until Earth eventually get hits by an asteroid and erases any evidence we ever existed. There will be no AI, no singularity, because its not in the interest of central bankers.

Show me I'm wrong. Show me any evidence that the trend of govt spending as % of GDP is decreasing anywhere. What mechanism is driving this trend? The personal best interest of inter-dependent politicians and finance officers. Why would this mechanism ever stop?

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I had made what seemed like a paranoid guess at this sort of thing happening soon in a 12/15/08 blog post, I wonder if I'll be included in the ranks of seditious bloggers?Seriously though, I think its inevitable that the US government will find itself taking similar positions against its citizens. When the finance industry becomes part of government, what separates negative expectation-setting outlooks from sedition?

I wonder how long before we come to that... also how long before gold is outlawed outright again?

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From frelkins' link, the author of a book partially banned in South Korea, Ha-Joon Chang, says

The (South Korean) government is democratically elected, it changes, so no one in a democracy can say having a different opinion from the government of the time is unpatriotic or anti-government in general. Indeed no democratic government can say that about criticism, only a despotic one can.

Great quote.

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Following in our footsteps, South Korea banned shorts, and then extended that ban into this year.

Needless to say, this move did not restore market stability, but as in the US, only increased volatility and reduced liquidity, while scaring investors half to death, since forcing the market to lie never boosts confidence. The Korean market fell by nearly 50%, compared, for example, to the New York's 34%, in 2008. Trading suspensions due to sudden plunges were invoked as many as 26 times. They are bailing out their auto industry too.

Yet none of these actions are working for Korea - they are barely working for us - so it's perhaps not surprising that the government is freaking out, even tho' the won has started to recover. Clearly, it is a sign of desperation that they are now jailing bears. That they are seeking "accomplices" is particularly terrifying.

I wonder if we had plunged that extra 16% with so many trading curbs and continued short bans if some here wouldn't likewise be calling for the head of Nouriel Roubini. But truth-seeking is truth-seeking: Free Minerva!

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To quote Archibald Putt:

"Rejection of management objectives is undesirable when you are wrong, and unforgivable when you are right."

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We usually think of optimism as a self-serving bias - people predicting greater success for their plans, so that others will join them. But I wonder how much of human optimism might derive from this sort of social selection pressure - pessimists being outcast from the tribe?

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