RSSCOMPANIES: INDUSTRIES:
Economic Risk in 7 Countries Spooking Investors
Matthew Bandyk
Despite federal spending consuming 27.2 percent of GDP, the United States maintains a Aaa rating. But you can't say the same about many countries in both the developed and developing world where continued fallout from the economic crisis is hurting their credit ratings. As a result, investors have viewed the economic situations in these countries as increasingly risky bets.
The Emerging Economic Order
(c) Jack Ohman
The New Population Bomb
Jack A. Goldstone
Averting this century's potential dangers will require sweeping measures. Policymakers must adapt today's global governance institutions to the new realities of the aging of the industrialized world, the concentration of the world's economic and population growth in developing countries, and the increase in international immigration.
President Obama's Surprising Relationship With Lobbyists and Big Business: Tim Carney discusses Obamanomics
Jessica Rettig
Barack Obama campaigned for president, says Tim Carney, as an advocate for big government, claiming that more federal regulation and spending will protect American consumers against the excesses of big business. But, Carney argues the president's push for more intervention actually favors big business and lobbying
Keep Congress Away From the Fed
Mortimer B. Zuckerman
The Federal Reserve has to be protected. If global financial markets came to believe that Congress and political pressure was determining monetary policy, there would be dangerous consequences.
The Case for a National Infrastructure Bank
Mortimer B. Zuckerman
The costs of long neglect of our infrastructure and our precious land -- and the commensurate benefits of doing something about it -- are manifest to every commuter, every driver, every airline passenger, every flood victim. Now, the vital rebuilding of America must begin with federal government money
Latin America: Chile Now One Step Closer to First World
Andres Oppenheimer
Recently, the Organization for Economic Cooperation and Development (OECD) -- the club of the world's richest democracies -- formally invited Chile to become a member. Chile had applied for membership two years ago. Chile will become the first South American member of the OECD
Beginning of a New World Epoch
Paul A. Samuelson
President Barack Obama's 2008 electoral landslide victory averted a global financial meltdown. Had Republican Sen. John McCain won that election, present U.S. GDP would have been even lower than it is now, by more than 15 percent! And similar losses in global productivity would also have taken place.
Unemployment Rockets
October Jobs Report: A True Witches' Brew
Liz Wolgemuth
In what will no doubt boost skepticism over the Obama administration's message of stimulus success, the unemployment rate in October rocketed to 10.2 percent, a figure much higher than economists had expected and just 0.6 percentage points away from the post-World War II high seen in 1982. While unemployment snapped back down swiftly in the early-1980s recession, it is widely expected that job creation will be slow in this recovery.
Economy: Cities Where Jobs Recovery Will Be Slowest
Liz Wolgemuth
While the nation's job market is awful overall -- thousands of Americans are exhausting their unemployment benefits daily -- it's clear that the true jobs picture is as varied as the nation's topography. With the promise of a recovery on the horizon, new data show that the employment upturn will be regional as well
Forget Inflation, Deflation Is a Bigger Danger
Mortimer B. Zuckerman
Inflation typically results from 'too much money chasing too few goods.' Today, too much supply is chasing too little demand. That, coupled with consumers' need to save money to rebuild their finances, raises the risk of deflation, not inflation. And as workers compete for scarce jobs and companies underbid one another for sales, both wages and prices will remain under pressure.
Economy: Finding Opportunity in the Recession
Matthew Bandyk
Of all the industries devastated by the recession, the media has been one of the most notoriously affected. According to the Bureau of Labor Statistics, 65,000 media jobs were cut in 2008 -- nearly 4 percent of the industry's total. Newspapers are perhaps the biggest loser, with more than 9 percent of jobs eliminated in 2008. However, ...
Unemployment and Foreclosure: If You Don't Have a Job, How Will You Pay the Mortgage
Ilyce Glink
When it comes to foreclosure, the problem isn't just the 7.2 million jobs that have been lost during this great recession. There are millions of Americans who took a huge pay cut to keep their companies going. Unpaid furloughs and 10 to 25 percent pay cuts mean tens of millions of Americans are having a much harder time paying their bills -- and their mortgages are at risk as well.
Latin American Economy Will Do Well, but Not Great
Latin American Current Events, News & Affairs - Andres Oppenheimer
The news that Brazil and Mexico have come out of the recession and are poised for solid growth in 2010 should be celebrated, and both countries' leaders should be given credit for their sound economic management. But in the global economic context, the two Latin American giants' recovery will be modest.
The Dollar and the Deficits
C. Fred Bergsten
The dollar is under attack on two fronts. Private investors are driving it lower in the foreign exchange markets. Monetary authorities are questioning its role as the world's key currency. There is an obvious linkage between the two attacks: expectations of further falls in the dollar's value will accelerate the prospect that foreign central banks will switch to euros
U.S., China and the Emerging Economic Order
Henry Kissinger
The assumption that the end of the recession will restore the familiar global economic system ignores the psychological and political upheaval that has taken place.
A vast tide of liquidity coupled with America's appetite for consumer goods had sent enormous amounts of dollars to China that, in turn, China lent back to us for still more buying.
Economy: Past Stormy Weather and What May Follow
Paul A. Samuelson
The Fed and the majority of the consensus forecasters fear that this expected recovery might be a weak one that does little to reduce Main Street's unemployment. And it may also imply that future private consumer and investment spending will continue to be anemic. That would mean that at the global level there might not be the replay of the old-time drama in which the American locomotive comes to the rescue of depressed economies.
Divine Debt Trumps All
Victor Davis Hanson
In modern America, debt -- whether national, state or trade -- now plays the same overarching role as the ancient Greek notion of fate. And the president, Congress and the states for all their various agendas are impotent since they must first pay back trillions that have long ago been borrowed and spent.
Joseph Stiglitz Left's Favorite U.S. Nobel Economist
Andres Oppenheimer
U.S. Nobel laureate Joseph Stiglitz has become a sort of rock star in left-of-center Latin American countries for his vocal criticism of free-for-all capitalism. But in a wide-ranging interview, he offered some advice that many of his fans in the region may not want to hear.
The Dollar's Fate, in the Longer Term
Paul Kennedy
There is a most interesting debate going on at present in the academic community about the longer-term fate of the U.S. dollar as the supreme reserve currency for foreign-exchange transactions and, more importantly, for the currency holdings of national governments, global companies and the producers of oil, gas and other raw materials.
The Dilemmas of the Dollar
by Barry Eichengreen
Legions of pundits have argued that the dollar's status as a reserve currency has been damaged by the credit crisis of 2007-9. The crisis has not exactly enhanced the attractions of the United States as a supplier of high-quality financial assets. It would be no surprise if the disfunctionality of U.S. financial markets diminished the appetite of foreign central banks for U.S. debt securities.
Low and Behold the Price of Oil
by Edward L. Morse
The rapid fall and then rebound in oil prices over the past year surprised many people. But it was not unusual: commodities markets are cyclical by nature and have a history punctuated by sudden turning points. Although this generally makes it difficult to forecast prices, it is safe to say that commodities markets will remain lower over the next few years than they have been over the past five.
General Motors: 'Cash for Clunkers' a Huge Success
Amanda Ruggeri
Not everyone supported the Senate's passage of a bill that boosted "cash for clunkers" by $2 billion, effectively extending it through Labor Day. But it's hard to argue that the program, which gives rebates to people who trade in old cars for more fuel-efficient vehicles, hasn't made the auto industry happy. That's true for General Motors ...
Growth With Equity: Brazil's Path to Economic Recovery
by Patrus Ananias
The financial crisis has left few corners of the global economy unscathed, but many of the loudest cries reflecting the deepest pain are largely ignored. These are the cries of the world's poorest citizens whose suffering is not measured in battered portfolios and retirement plans but in their daily survival
Government Bailout
(c) Paul Tong
Opportunity Cost of the Bank Bailout
Arianna Huffington
The lopsided 'recovery.' Banks that received billions in taxpayer handouts now reporting massive profits and setting aside record amounts for executive bonuses, and the American people continuing to face 9.5 percent unemployment, 10,000 foreclosures a day and vital services being cut.
Boomers, Housing and Retirement:
A Symbiotic Relationship Unravels
By Mark Miller
The housing market is showing some tentative signs of recovery. But if you're a baby boomer relying on housing wealth to help fund
retirement, don't hold your breath. True, the most recent Standard and Poor's/Case-Shiller home price index showed that U.S. home
prices rose in May on a month-to-month basis for the first time since
Is the Economic Marriage Between China and U.S. on the Rocks?
Niall Ferguson Interview
China and America had effectively fused to become a single economy: Chimerica. The Chinese did the saving, the Americans the spending. The Chinese did the exporting, the Americans the importing. The Chinese did the lending, the Americans the borrowing. As the Chinese strategy was based on export-led growth, they had no desire to see their currency appreciate against the dollar. The unintended effect of this was to help finance the U.S. current account deficit at very low interest rates. Without that, it's hard to believe that U.S. financial markets would have bubbled the way they did from 2002 to 2007.
Nine Reasons the Economy is Not Getting Better
Mortimer B. Zuckerman
We are now looking at unemployment numbers that undermine any confidence that we might be nearing the bottom of the recession. The appropriate metaphor is not the green shoots of new growth. A better image is to look at the true total of jobless people as a prudent navigator looks at an iceberg
House Votes to Give Cash for Clunkers Another $2 Billion
Amanda Ruggeri
After "cash for clunkers" proved so popular that it threatened to run out of cash within its first week, the House pushed aside the other items on its agenda today to save it, passing a bill that allots another
4 Things to Know About the Cash-Strapped 'Cash for Clunkers'
Matthew Bandyk
The government set aside $1 billion for the "cash for clunkers" program, which is meant to give $3,500 or $4,500 vouchers to people who
trade in their gas-guzzling vehicles for new, fuel-efficient ones. But now that the
Cash for Clunkers Program Has Its Roadblocks
Kathy Kristof
If you want to trade in your junker for a new vehicle under the federal government's 'cash for clunkers' program, you'll have to act fast. Plus, qualifying for the vouchers isn't as simple as you might think. In fact, you'll need to know three things to decide whether it's a good deal for you.
Making Sense of 'Cash for Clunkers'
Matthew Bandyk
With new-car sales slumping, automotive companies have been looking for ways to get consumers back into showrooms. Washington checked one item off car companies' wish list when it passed the Consumer Assistance to Recycle and Save Act of 2009 -- commonly known as 'Cash for Clunkers' ...
Why June Jobs Report Is So Depressing
Liz Wolgemuth
The brutal truth about the
Unemployment Reaches 9.5 Percent, Highest in 26 Years
Amanda Ruggeri
The Labor Department's job report this morning may not be surprising, but it's still disappointing: The unemployment rate rose in June to 9.5 percent, making it the worst in 26 years. The rise, from 9.4 percent in May, is slight. However, it keeps the economy on track to hit a 10 percent unemployment level by the end of the year, as analysts have predicted.
Would Second Stimulus Create Jobs?
Liz Wolgemuth
Americans are stumbling through a job market that is overwhelmed with supply, stripped of security, and skimmed of hours and benefits, and the unemployment rate has already climbed much higher than officials had forecast. So, the real question is, what could a second Obama administration stimulus do that the first one couldn't? To answer that, it's necessary to know how the first $787 billion package has disappointed.
Accurately Counting Stimulus Jobs Proving Tough
Amanda Ruggeri
As Americans become more skeptical of the administration's promise that the stimulus package will create or save 3.5 million jobs, there's an added frustration: Even if the $787 billion act is successful in creating work, Americans may never know. That's because counting the jobs involves estimating what would have happened without legislation, a slippery task even if the economy weren't so volatile.
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We've Gone From Saving Wall Street in Order to Save Main Street to Just Saving Wall Street
Arianna Huffington
Remember how, when taxpayers were being asked to fork over billions of dollars to bail out Wall Street, we were told it was essential to saving Main Street? Well, in just a few months, we've gone from saving the banks in order to save the economy to just saving the banks. It's the opposite of mission creep.
Editorial Cartoon by David Horsey
Happy Economic Recovery vs. An Anemic One
Paul A. Samuelson
The number-one question preoccupying economists, policy agents of government and Main Street families is this:
Will "recovery" from the current U.S. financial meltdown arrive before the end of 2009? Or, failing that, will it at least arrive early in 2010?
Geopolitical Consequences of the Financial Crisis
Roger C. Altman
It is now clear that the global economic crisis will be deep and prolonged and that it will have far-reaching geopolitical consequences. The long movement toward market liberalization has stopped, and a new period of state intervention, reregulation, and creeping protectionism has begun.
Economic Crisis will Create the Social Heroes of Tomorrow
Alvin and Heidi Toffler
The economic crisis now gripping the world is going to go away. We may not know precisely when, where and how. But one thing is certain. Nothing is likely to blow away the waves of change that have marked human history
House Prices, Mortgage Interest Rates Key to Housing Market Recovery
By Ilyce Glink
With housing prices falling and mortgage interest rates rising, it's hard to say the housing market has bottomed out. And, yet, there are some reasons for a more optimistic housing forecast, according to Mark Zandi, chief economist for Moody's Economy.com
10 Most Dollar-Discounted Housing Markets
By Luke Mullins
As the historic real estate bust continues to gut home prices throughout the country, property owners everywhere are scrambling to attract buyers. For some home sellers, that might mean chipping in for closing costs; others might try to sweeten the deal by handing out perks, like a free parking spot. But for many homeowners, the most efficient way to sell a home in a depressed market is to simply drop the listing price.
Joseph Stiglitz:
Will Capitalism Survive Wall Street Apocalypse
Matthew Bandyk
A few days after writing about how the United States is not heading towards socialism, Joseph Stiglitz suggests that might not be true about the rest of the world. Stiglitz argues that the lesson many Third World nations might take from the financial crisis is that capitalism is fundamentally flawed.
Asia Economy: Tamed Asian Tigers, Distressed Chinese Dragon
by Brian P. Klein and Kenneth Neil Cukier
Since the 1960s, Asian economies have focused primarily on exports. It was the key to success in Japan, South Korea, Hong Kong, Singapore, and Taiwan. Much of Southeast Asia and China soon followed suit. Over the past decade, the region's exports have increased from 37 percent to 47 percent of GDP. By hitching their wagons to exports, however, Asian countries left themselves vulnerable to a drop-off in Western consumption
Whistling Past Economic Graveyard: Audacity of Misplaced Hope
by Arianna Huffington
When Tim Geithner unveiled the Public Private Investment Program, he said that dealing with these assets was a "core" part of solving the financial crisis. But the banks would much rather keep pretending that their toxic assets are not that toxic, and worth much more than they really are -- a risky charade the relaxed mark-to-market rules allow them to continue to pull off
Not Going to Be Economic Depression
Global Economic Viewpoint
Last week at the Milken Global Conference, three Noble Laureates in Economics sat down to discuss the global recession -- Gary Becker (Nobel Prize, 1992), Roger Myerson (Nobel Prize, 2007) and Myron Scholes (Nobel Prize 1997).
All three agreed that this is not going to be a depression and that the free-market economy is fundamentally healthy.
Why No One Can Guess When
Main Street Recovery will Occur
Paul A. Samuelson
Federal Reserve Chairmen Ben Bernanke glimpses a possible recovery by year end. He is a cautious scholar, backed by the best forecasters in the world at the Federal Reserve Board.
I would be a rash fool to quarrel with this quasi-optimistic view that by year end some stability will occur. You and I should hope that there will indeed be a glimmer of light at the end of the tunnel ahead. But shift our vision now to the future. Even if the short run prospect for a 2009-2010 recovery turns out to be good, I must warn once again that the long-run outlook for the U.S. dollar is hazardous.
Free-Market Economy Fundamentally Healthy
Global Economic Viewpoint
Last week at the Milken Global Conference, three Noble Laureates in Economics sat down to discuss the global recession -- Gary Becker (Nobel Prize, 1992), Roger Myerson (Nobel Prize, 2007) and Myron Scholes (Nobel Prize 1997).
All three agreed that this is not going to be a depression and that the free-market economy is fundamentally healthy.
Brazil, China & India Can Mitigate Global Crisis
Global Economic Viewpoint
Brazil, India and even China will not be able, by themselves, to correct the dysfunctions that produced the global crisis. But it is true that the economic power of these three countries can mitigate its negative consequences. ...
The Global Economy: Worse & Worser
Today's global economic debacle shares a disturbing number of similarities with the early stages of Japan's "lost decade" of the 1990s.
Without good policy and better luck, the world may well fall into a prolonged period of slow GDP growth, high unemployment, and stagnant living standards like that which unfolded in Japan almost 20 years ago.
Today's Global Economic Debacle: The Japan Fallacy
As the United States sinks deeper into recession, many observers fear the country could reprise Japan's "lost decade," the decade of stagnation that followed its mammoth property bubble in the late 1980s. But this fear is unawarranted.
Even the United States can Manage Itself into Economic Irrelevance
Chris Thomas
America has been the greatest of all nations for a long time. But we should not forget, especially at a crucial juncture like this, that with enough bad decisions and enough political incompetence, we can indeed manage ourselves into decline.
Deng Undone: China Halts Market Reform
Since the present Communist Party leadership took power, fresh market-oriented liberalization has been minor. Such policies have been wound down and supplanted by renewed state intervention. In privatization, prices, even foreign trade and investment, the PRC was heading away from the market well before the financial crisis erupted.
Why China & U.S. Not Ready to Upgrade Ties
Calling on the United States and China to do more together has an undeniable logic. Both Washington and Beijing are destined to fail if they attempt to confront the world's problems alone, and the current bilateral relationship is not getting the job done.
But elevating the bilateral relationship is not the solution. It will raise expectations for a level of partnership that cannot be met and exacerbate the very real differences that exist between Washington and Beijing.
Larry Summers: Brilliant Mind, Toxic Ideas
by Arianna Huffington
According to most commentators, the president's press conference went a long way toward taking the spotlight off the roiling anger over AIG, bonuses and Wall Street abuses -- and putting it back where the president wants it: on the imperative need to pass his budget.
But the best laid plans of our remarkable president may be laid to waste by a bank rescue plan that is the product of exhausted ideas put together by men far too beholden to Wall Street.
To understand why a man as brilliant and accomplished as Summers can be so wrong about what to do with the banks and Wall Street, it would be useful to turn to "The Innovator's Dilemma," by Harvard Business School professor Clayton Christensen.
Boeing Engineer Gets 15 Years In Economic Espionage
A Chinese-born engineer convicted in the United States' first economic espionage trial was sentenced to more than 15 years in prison for stealing sensitive information on the U.S. space program with the intent of passing it to China.
Businesses Reluctant To Hire New Workers
The economy looks better this year than it did in 2009 but despite positive economic reports, businesses remain reluctant to hire and financial markets are still jittery. David Wessel of The Wall Street Journal tells Renee Montagne that the economy isn't growing fast enough to create enough businesses that need new workers.
U.S. Security Now Hinges On European Financial Crisis
A year ago, the U.S. intelligence community's "threat assessment" identified the global financial crisis as the number one near-term threat to national security. This year's assessment found that the global economy less threatening, but it did highlight one notable development: Economic problems in Europe are now more worrisome than in the developing world, a reversal of the pattern of recent years. NPR's Tom Gjelten reports.
The Super Bowl Stock Market Predictor
The Super Bowl Stock Market Predictor holds that if a team from the old NFL wins, the market will rise in that year; if a team from the old AFL wins, the market will fall. In 1990 two researchers found that the predictor was accurate 91 percent of the time. A member of Washington and Lee University's finance faculty, George Kester, has completed a new study that finds that the predictor's accuracy has fallen slightly to 77 percent. He speaks with host Liane Hansen.
Small Relief In Job Numbers
The January jobs report showed the economy losing 20,000 jobs, but there was some good news. The unemployment rate actually declined last month. Monthly job losses have declined sharply from a year ago, but employers are still very reluctant to hire additional workers.
Paulson Calls For More Financial Regulatory Power
The economy was on the verge of collapse in 2008 when the federal government stepped in to shore up the financial system. Former Treasury Secretary Henry Paulson, who was at the center of those efforts, says the government still needs better tools to prevent another crisis.
World Markets Slide, But Dow Finishes Above 10,000
The stock market ended a fractious day narrowly mixed and suffered its fourth straight losing week amid another series of troubling economic signals. The Dow Jones industrials, down nearly 170 in the afternoon, closed up 10, or 0.1 percent, at 10,012.
Decline In Consumer Borrowing Slows
Americans borrowed less for an 11th consecutive month in December, paying off credit cards while increasing borrowing for cars and other products. Total borrowing dropped by $1.8 billion — far less than the revised $10.6 billion drop for November, and below the $9 billion decrease analysts had expected.
Jobless Rate Falls To 9.7 Percent
The U.S. unemployment rate fell to 9.7 percent in January, down from 10 percent the month earlier. Still, government figures show the economy lost another 20,000 jobs last month.
The Economics Of Snowstorms
A winter storm hitting the mid-Atlantic region Friday and Saturday has already garnered nicknames including "snowpocalypse" and "snowmaggedon." The National Weather Service's forecast of 1-2 feet of snow has led to school and office closings, canceled flights and a run on grocery stores. Scott Bernhardt, chief operating officer of Planalytics, a company that studies the impact of weather, discusses the costs and benefits of a snowstorm.
Greece Debt Problems May Pose Systemic Risk
Stock markets in the U.S. and Europe have taken a beating in recent days because of worries about the debt crisis in Greece, Portugal, Spain and some other European countries. Financial Times reporter Stacy-Marie Ishmael says while they may seem like small players in the global economy, they are not.
Jobless Rate Unexpectedly Drops To 9.7 Percent
The report hinted at some job market improvement, even though employers shed 20,000 jobs in January.
World Markets Drop Over Worries About Debt, Jobs
Stocks in Asia and Europe tumbled today over investor concerns about a weak U.S. job market and a debt crisis in Greece that could spread to other countries. Today's slide comes on the heels of Wall Street's worst day in seven months, following news of an uptick in unemployment claims.
Help For Small Businesses: Examining The Options
Renee Montagne talks with Karen Mills, head of the Small Business Administration, about how small businesses are faring, credit challenges, and efforts to renew federal funding and other measures to make it easier for entrepreneurs to borrow money.
Unemployment Rate Falls, But Job Losses Continue
The Labor Department on Friday said U.S. employers cut 20,000 jobs last month — but the unemployment rate fell to 9.7 percent.
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Correction: World trade
In “Fading trading” (January 30th) we said that rich countries’ GDP shrank by 3.2% in 2010. We meant 2009. Sorry. This has been corrected online. ...
Economics focus: Diversity training
Some developing economies are rich but crude, while others are poor but sophisticated ONCE a sleepy fishing port, the industrial city of Yanbu, on Saudi Arabia’s Red Sea coast, is now a monument to the country’s efforts to diversify its economy. Its petrochemical plant is a sprawling palace of pipes. Propane tanks and cracking towers shimmer in the heat like domes and minarets. The facility’s engineers live with their families nearby in a leafy enclave, their shady balconies reminiscent of the traditional rowshan windows of old Jeddah. At the local mall, shoppers can buy any flavour of Holsten Pils they like (strawberry, apple, pomegranate), so long as it is non-alcoholic. Like many developing countries, Saudi Arabia has long struggled to wean itself off its dependence on a handful of commodities, in this case oil. Yanbu was built by a royal commission, set up in 1975 as part of a concerted effort to move the Saudi economy beyond crude into downstream industries, such as refined petroleum and petrochemicals. The policy has enjoyed some success: Saudi petrochemical exports exceeded $14 billion in 2008. The kingdom is more ambivalent about some of its other forays. It is, for example, now phasing out efforts to grow wheat in the desert. ...
Norway's pension fund: Passive aggressive
A row over the world’s second-largest sovereign fund revives an old debate SELDOM has a school of thought fallen from grace as fast as that of “efficient markets”, the concept that asset prices already reflect all available information. Yet despite the crisis, the ideas of the Chicago School are still at the centre of a row over the management of the world’s second-largest sovereign-wealth fund. The Norwegian Government Pension Fund Global, which is more commonly known as Norway’s petroleum fund, looks after some 2.6 trillion Norwegian krone ($444 billion) in savings from royalties on the country’s oil and gas reserves in the North Sea. The fund, which Norway is saving for a rainy day, is already about the size of the national economy and will probably double within about a decade. ...
Longevity swaps: Live long and prosper
Plans are afoot to create a new capital market in longevity risk DEATH comes to everyone. The timing is much less certain. Longevity risk, the risk that people will live longer than expected, weighs heavily on those who run pension schemes and on insurers that provide annuities. Actuaries have a track record of systematically underestimating gains in life expectancy, and more old people means a bigger bill for benefits providers. Every additional year of life expectancy at age 65 is reckoned to bump up the present value of pension liabilities in British defined-benefit schemes by 3%, or GBP30 billion ($48 billion). Demand for ways to offload longevity risk is increasing, particularly in Britain, which has lots of annuities and defined-benefit pensions. Solvency 2, a pending set of rules governing European insurers, is one source of pressure: it will force annuity providers to hold more capital against unhedged longevity risk. Pension schemes, fed up with filling in deficits only to see them widen again, are desperate to manage away as much risk as they can. Many schemes have now hedged against interest-rate movements and inflation; longevity is the next thing on the list. ...
Buttonwood: Stimulating debate
The markets, and developed economies, are too dependent on government action AS JANUARY goes, so goes the year. That old stockmarket saying does not augur well for 2010, given that the MSCI World index fell by 4.2% in the month, the biggest decline since February 2009, and emerging markets dropped by 5.6%. Although markets rallied a bit in early February on better-than-expected economic data, the poor start to the year reflected an inherent contradiction to the rebound of 2009. That rally seemed to be dependent both on extraordinary stimulus measures by governments and central banks, and on a vigorous economic recovery. But both cannot co-exist for long: either the recovery will not last or, if it does, the stimulus will be taken away. ...
Carbon markets after Copenhagen: Don't hold your breath
Why hasn’t the carbon price fallen further? SOMETHING curious has been happening in the carbon markets. They are entirely political creations—even the most inventive financial engineers would not, on their own, have come up with the idea of a difference in value between the air people breathe in and the air they breathe out. Yet traders seem pretty uninterested in political cues. At the chaotic end of the Copenhagen climate summit in December, prices in the largest market in carbon-dioxide emissions, the European Emissions Trading Scheme (ETS), did drop from €14.60 ($20.50) to €12.70. But that still left the price of a tonne of carbon dioxide comfortably above its lowest level last year. The Democrats’ subsequent Senate-election loss in Massachusetts, which dealt a crippling blow to the prospects of an American cap-and-trade system that would have greatly expanded world carbon markets, had even less effect. And the announcement this week of the commitments to carbon reduction that countries were willing to accept under the Copenhagen “accord” caused scarcely a ripple. ...
China's financial system: Red mist
Who matters in the world’s second-largest financial system is barely understood FROM being a rounding error a decade ago, the financial clout of China now trails only that of America. By market capitalisation, it has three of the four largest banks, the two largest insurance companies, the second-largest stockmarket and a lengthening list of investment funds. Yet who makes the decisions in China is barely understood. The government and the Communist Party are intimately entwined with the managers of China’s financial institutions. Working out who is really in charge is almost impossible. Even attempting to do so takes you into sensitive territory. Disclosing information about how the Chinese government works risks violating nebulous secrecy laws or sacrificing business opportunities. Many China-watchers will only speak face to face, concerned about using e-mails or phone calls to discuss what, in the West, would be standard chatter about the status of bankers and their supervisors. ...
American mortgages: Return to lender
Mortgage lenders’ past sins catch up with them DURING the boom, American banks spent surplus profits on share buybacks. Now they are being forced into repurchases of a nastier kind: securitised mortgages whose flaws allow buyers to toss them back to the original lender. Keenest to ensure that the banks own up to their past sins are Fannie Mae and Freddie Mac, the housing agencies that bought or guaranteed many of the loans. Their stock of seriously delinquent mortgages is rising sharply and stands at $300 billion. Now majority-owned by the government, they are under pressure to claw back every dollar possible for taxpayers—hence the hordes of employees poring over loans for signs of irregularities, such as false income statements by borrowers or second-home buyers posing as owner-occupiers. ...
Unpaid in Manhattan: Stuyvesant Town in default
WHEN it was built in 1947, Stuyvesant Town and Peter Cooper Village in New York was seen as an emblem of affordable housing for war veterans and public-sector workers. Later it became an inner-city oasis for the middle classes. Now it is a symbol of the housing bubble. Tishman Speyer and BlackRock splashed out $5.4 billion for the 80-acre (32-hectare) estate in 2006. The market soon tanked. They then lost a legal battle to raise controlled rents to market levels. This week, after defaulting on loans, they agreed to hand the keys to creditors, some of which stand to lose a lot more than the two lead investors. The complex is now worth an estimated $1.9 billion. ...
Hedge funds and private equity: Off target
Some will benefit from curbs on the banks FEW politicians have a good word for hedge funds and private equity. In the European Union, the Alternative Investment Fund Managers Directive, which attempts to bring the two industries into the regulatory net, is lumbering through the system. And Barack Obama’s new plan to rein in the banks clearly sees their direct involvement in the two sectors as a source of unjustifiable risk. It is still not clear precisely what the American administration intends to do. Mr Obama said on January 21st: “Banks will no longer be allowed to own, invest or sponsor hedge funds, private-equity funds or proprietary-trading operations for their own profit unrelated to serving their customers.” At first sight, the “sponsorship” clause might seem to apply to prime brokers, the bank divisions which supply hedge funds with finance, back-office and trade-execution support, investment advice, technology and a whole lot more. Todd Groome, chairman of the Alternative Investment Management Association, an industry-lobby group, says “the language is quite broad-brush.” ...
Greek government bonds: My big fat sell-off
A successful bond issue provides only temporary respite THE Greek finance minister, George Papaconstantinou, must feel like a man who finds a one-euro coin on the pavement only to discover he had earlier dropped a five-euro note. Worries about Greece’s public finances seemed to recede on January 25th when it raised €8 billion ($11 billion) in an issue of five-year bonds. That appeared to kill the idea that Greece may not be able to tap bond markets for much-needed cash. Yet two days later the yields on Greek government bonds jumped to their highest since 1999. The sell-off renewed fears that markets may lose faith in Greece altogether. Talk of a bail-out by its euro-zone partners is growing. The country’s initial fundraising success came at a hefty price. The new five-year bonds will pay a coupon of 6.2%, a 3.5 percentage-point spread over the “mid-swaps” rate, a yardstick for creditworthy borrowers of euros. Yet the deal suggested there is appetite for risky sovereign bonds at the right price. The bank syndicate placing the bonds was able to drum up €25 billion-worth of orders in a few hours. ...
Regulating banks: Garrottes and sticks
The first of four articles on the implications of the Volcker rule examines reactions on Wall Street A RECENT episode of “Mad Money” on CNBC, a financial-news network, featured the “Lloyd Blankfein pinata”. Hung from the studio ceiling to symbolise the beating that bankers—not least Goldman Sachs’s boss—have been taking lately at the hands of politicians, the effigy rained down fake gold coins when split apart. Wall Street’s predicament is the inverse of the one it faced in late 2008, says Frederick Cannon of Keefe, Bruyette & Woods, a broking firm. Then, officials wheeled out weekly plans to save banks. Now they are rushing out measure after measure to punish the survivors, accompanied by increasingly fiery rhetoric. Barack Obama kept up the assault in his State of the Union address this week. Admitting that the bank bail-out was “as popular as a root canal”, he vowed to take on lobbyists who were “already trying to kill” financial reform. ...
Financing solar power: A lighter burden
A promising way to defray the cost of going green SWITCHING to solar power may help to save the planet. Homeowners, however, aren’t so sure it will save them money. Energy costs may be lower than their existing electricity bills, but the initial expense of installing solar panels puts many people off. Enter the city of Berkeley, California, which has just completed a pilot programme in which it lends homeowners the money to put panels on their houses. The owners repay the loans over a period of years through an extra charge on their local property-tax bills. The city raised the money to lend by issuing a Property Assessed Clean Energy (PACE) bond, a type of financing geared specifically to making properties more energy-efficient. In the past year 13 states have adopted legislation enabling municipalities and finance companies to issue PACE bonds. Another, Arizona, has a law pending. Berkeley’s scheme is the only one so far directed exclusively at solar power. ...
Buttonwood: Not what they meant
The unintended consequences of past financial reforms BARACK OBAMA’S new plan for the banks is unlikely to achieve his stated aim that “Never again will the American taxpayer be held hostage by a bank that is too big to fail.” But whether or not the proposed measures fall short of that ambitious goal, one thing is sure. If the plan is implemented, it will have unintended consequences. That has been the history of previous financial reforms. Take Regulation Q, a rule established by the American authorities in the 1930s to restrict the interest rate that banks could pay on deposits. It had several motives, including a desire to boost banks’ profits (and thereby help pay for deposit insurance) and a belief that competition to pay high deposit rates would encourage banks to take too many risks. The rule was extended to thrifts (savings-and-loans institutions) in the 1960s. ...
Obama's economics team: New plan, new people?
Presentation, not policy, may be the undoing of Tim Geithner ONE of the uncertainties about Barack Obama’s abrupt shift on bank regulation is what it implies for his core economics team, especially Larry Summers, his chief adviser in the White House, and Tim Geithner, the treasury secretary. Both men were long sceptical of the feasibility and wisdom of ideas put forward by Paul Volcker, a former chairman of the Federal Reserve. The White House’s adoption of the “Volcker rule” has fuelled chatter that their influence is waning as Mr Obama becomes less friendly to Wall Street. Much of that speculation is misplaced. The Volcker rule may have looked like a reaction to the Democrats’ loss of a once-safe Senate seat in Massachusetts. Insiders insist, however, that Mr Geithner and Mr Summers were not suddenly sidelined but gradually persuaded of the merits of limiting banks’ activities. As the scale of banks’ profits provided evidence of the implicit subsidy in proprietary trading, and as luminaries from Mervyn King of the Bank of England to Stanley Fischer of the Bank of Israel urged more radical action, so Mr Volcker’s ideas gained momentum. ...
World trade: Fading trading
After a sharp revival, global trade growth is slowing again IN, OUT, shake it all about. Last year was a terrible one overall for global trade. Volumes fell by 14.4%, according to the World Bank. But that figure masks whipsawing activity throughout the year. The Netherlands Bureau for Economic Policy Analysis reckons that the volume of world exports fell by 10.6% in the first quarter of 2009, grew only slightly in the second and bounced by 3.5% in the third quarter. Bernard Hoekman, director of the bank’s trade group, says the three months to September saw a “sharp V-shaped recovery”. There are two worries to spoil this improving picture. One is what happened after the third quarter. Mr Hoekman believes that there was a “distinct slowdown” in the pace of recovery towards the end of 2009. Preliminary figures suggest that the volume of world trade expanded by just 1.1% in November, less than the October increase of 1.4% and much less than the 5.4% rise in September. The bank reckons that the value of world trade (which is also affected by price and exchange-rate fluctuations) fell slightly in November. A rebound in shipments in and out of some of the world’s busiest ports also faded (see chart). Why would the resurgence have fizzled? The best explanation is that third-quarter growth was buoyed by the rebuilding of inventories, which were slashed in the depths of the crisis. That effect may have ebbed. ...
Tackling deflation in Japan: Can Kan?
A new finance minister wants the Bank of Japan to target inflation THE situation has “completely changed,” says an ebullient Keisuke Tsumura, an elected official in the newish government’s Cabinet Office. The Bank of Japan (BoJ) “has redefined its understanding of price stability. Some market participants now regard it as de facto inflation-targeting.” That would be something to get excited about. Since the start of Japan’s deflationary era in 1999, the BoJ has stoutly resisted calls to set an inflation target against which it can be judged—and by which it can be embarrassed if it misses. Its inflation objective is defined in the loosest terms, as a rate between zero and 2%, with no time-frame to achieve it and no penalty for failure. ...
Economics focus: From bail-out to bail-in
In a guest article, Paul Calello (pictured left), the head of Credit Suisse’s investment bank, and Wilson Ervin, its former chief risk officer, propose a new process for resolving failing banks WHAT should policymakers do when faced with the potential failure of a large bank? In 2008 officials had to choose between taxpayer bail-outs (bad) or systemic financial collapse (probably worse). Various ideas to make finance safer, like contingent capital and living wills, are circulating today. But the central issue of bank resolution, perhaps the most vexing aspect of the financial crisis, has not been clearly addressed. A “bail-in” process for bank resolution is a potentially powerful “third option” that confronts this problem head-on. It would give officials the authority to force banks to recapitalise from within, using private capital, not public money. The concept builds on time-tested procedures that have been used to keep airlines flying and industrial firms going even as their capital structures were being reorganised. It accelerates those procedures to address the unique circumstances of financial firms operating in today’s fast-moving markets. If done correctly it should strengthen market discipline on banks and reduce the potential for systemic risk. ...
American banks: Through FICC and thin
A possible end to the pain for lenders POLITICIANS tend to tar all bankers with the same brush. The results unveiled this week by America’s financial giants were, however, far from uniform. Citigroup and Bank of America (BofA) posted thumping quarterly losses. Morgan Stanley eked out a modest gain. Wells Fargo and JPMorgan Chase made healthy profits. Goldman Sachs was expected to report a glittering set of numbers as The Economist went to press. The differences were partly down to one-off hits. Citi, for instance, had to swallow $6.2 billion in after-tax charges related to repayment of its federal bail-out funds. Behind the noise, however, some trends are emerging. Loan losses appear to be stabilising. For some, the worst may even be over. At BofA, America’s biggest lender, net write-offs fell by 13% in the fourth quarter, the first decrease in nearly four years. Across the industry, credit-card delinquencies are flattening out. ...
The Economist: Finance and economics
Finance and economics
Copenhagen talks enter 'new phase'
Copenhagen climate conference enters a 'new phase' as ministers join in intensive negotiations to deliver an agreement by the end of the week, the president of the meeting says
Obama presses banks to boost lending
President Obama told the US's top bankers that they had a 'special responsibility' to help spur on the economic recovery after they received government bail-outs last year, urging them to increase lending to small businesses and mortgage refinancing
Darling defies threats on bonus tax
The chancellor has warned he will not water down his 50 per cent supertax on bonuses or offer special deals after brokers and banks threatened to move staff out of the UK
Clouds mar Europe's sunnier outlook
Prospects have brightened noticeably since August, when the map was last published, with northern Europe capturing the best of the light. A robust recovery in Germany and evidence of a clear turnaround in France have helped
Fed to split monetary and liquidity policy
The Federal Reserve is unlikely to make any big changes to its monetary policy stance at the conclusion of its December meeting on Wednesday, though there is a chance it could make some alterations to its provision of liquidity
Greece moves on costs and corruption
The Athens stock market lost 1.2 per cent in early trading as investors absorbed news of the Greek government's plan to reduce the country's budget deficit
US banks to repay rescue funds
Citigroup and Wells Fargo unveiled plans to sell a total of up to $30bn in stock and return a combined $45bn to US taxpayers in a move that will free them from heightened government supervision but could hit shareholders
Japan business confidence remains low
Business morale improves more slowly in the fourth quarter and large manufacturers surveyed by the central bank plan record cuts in capital spending as a strong yen threatens a fragile economic recovery
China eclipses US in initial public offferings
Chinese stock exchanges raised double the amount of money secured by IPOs across the US showing how activity is shifting from west to east
Pipeline brings Asian gas to China
The first pipeline bringing central Asian natural gas to China opened, underscoring Beijing's importance to the former Soviet republics. China's president, Hu Jintao, joined counterparts from Turkmenistan, Kazakhstan and Uzbekistan for the ceremony
Rich nations step up pressure on Beijing
Developed countries are putting the Chinese delegation under intense and co-ordinated pressure. The harder line has come about partly since they suspect China of using the G77 group of 130 developing nations to advance its agenda
White House predicts jobs growth
The US economy will be creating jobs by the spring, the White House predicted for the first as the President prepares to meet chief executives from twelve of the US's largest banks to increase the pressure on them to lend to small business
Nobel laureate who turned economics into a science dies
No economist alive is unmarked by the work of Paul Anthony Samuelson, who did more than any other theorist to turn economics from a scattered selection of insights into a social science
UNDP calls for capital controls in Asia
Asian economies have been urged to put in place stronger regulatory systems to prevent asset bubbles in equity and property markets wreaking havoc in the wake of the global financial crisis
For Congress, debt vote is an unwanted gift
Unless Congress votes before Christmas to raise the US government debt ceiling from $12,100bn to nearly $14,000bn, the US government will have to stop work in a matter of weeks
FT.com - International economy
FT.com - International economy
The Best Paragraph I've Read on the State of Economics
The Best Paragraph I've Read on the State of Economics originally appeared on About.com Economics on Monday, February 8th, 2010 at 12:10:53.
Maxine Udall makes a point I've often made, though in a way I wish I had phrased it:
Now add to this the promotion and tenure policies at even second rate economics departments that require and only reward publication in journals that favor morally vacant, mathematically rigorous, theoretically obtuse existence proofs that more often than not bear no relation to reality as we know it. One is then left with an economics literature that few people, including some who have majored in economics as undergrads, can truly understand, either in its content or in its relevance to the important moral and economic issues that confront us today.
Udall, in my view erroneously, believes that a 'reality-based' economics would be more Keynesian:
Keynes, who advocated that government play a role in moderating the effects of peaks and troughs in the business cycle through regulation of investment banking and automatic demand stabilizers (for example, unemployment compensation and jobs creation through public works) became conflated (perhaps intentionally) with "socialism" and "communism."...
Which is all fine and good, except for the fact that for Keynesian fiscal stimulus to work you need to waive away a number of real world complications. Non-mathematical theories can " bear no relation to reality as we know it" as well.
Economics, mathematized and divorced from moral philosophy, was effectively neutered after WW II, at the point when its relevance to "serious economic argument" might have been established and developed. The outcome was perfectly aligned with market forces that would continue to shift the national narrative in ways that would finally succeed in convincing people that "government is the problem". It culminated in repeal of Great Depression era regulation, thereby freeing investment bankers for unfettered speculative gains supported by a seemingly unfettered single-payer credit default safety net.
Udall also states:
World War II provided the massive Keynesian stimulus needed to haul us out of depression and to cement Keynes ideas about the roles that government could and should play both during economic downturns and to prevent them.
This neglects to take into account the evidence that U.S. military and foreign spending did not go up until 2 years of rapid U.S. economic growth.
Climate Research vs. Economics Research
Craig Newmark posts an excerpt from a Andrew Simms column: Orthodox economics is based on simplifications that so distort the real world as to make it unrecognisable, yet its basic tenets are credulously repeated on an almost daily basis in national newspapers and on television news. A genuinely evidence-based approach to economic policymaking would not produce a system remotely like the one we have, the business-as-usual version that many climate sceptics seem so eager to defend. Given its task, the vast range of subjects covered, the thousands of scientists involved, and the sheer size of its reports, what's stunning about the IPCC's work is that comparing it to any economic analysis used to actually run the world is like comparing the complete Oxford English Dictionary to a guide to slang published by the Sunday Sport. Newmark's reaction? That's really a low blow. Mandatory two-point deduction. Your next foul, sir, you will have to forfeit the fight. My reaction? Simms has a point. More specifically - there is a lot of really good applied economics research out there that uses realistic assumptions, real world data and produces useful outcomes. Then there are theory papers which are nothing but mathematics posing as economics. Models with assumptions such as: That's just off the top of my head. I should crack open an issue of Econometrica and find hundreds more. A fan of Milton Friedman's The Methodology of Positive Economics would respond that it does not matter how absurd the assumptions seem. All that matters is how valid and accurate the model's predictions are. But since most economics models (particularly in macroeconomics) are not easily directly testable nor easily falsifiable, I question how much value we should place on a model with absurd assumptions. Climate Research vs. Economics Research originally appeared on About.com Economics on Tuesday, February 2nd, 2010 at 07:57:14.
Marginal Utility in Economics
Marginal Utility in Economics originally appeared on About.com Economics on Monday, February 1st, 2010 at 18:10:24.
I get quite a few questions on marginal utility, so I thought I'd create a primer for those of you who are completely new to economics. Please see: Marginal Utility in Economics.
Why Is There So Much Esoteric Math in Economics Grad Programs?
Stephen Gordon asks a question I continually asked myself as a Ph.D. student at the University of Rochester:
Why does anyone care about the distinction between convergence in probability and almost sure convergence? I'm teaching two econometrics classes this term (master's and PhD), and I just covered the parts on asymptotic theory. In both lectures, I stumbled badly at explaining the difference between these two forms of convergence: my heart simply isn't in it... I've never heard of empirical study where the distinction between the two forms of convergence made a difference... Why do we force our students to learn these things?
As an aside, undergraduates in economics are often surprised how little economics there is in graduate programs outside of fields courses such as Labor Economics and Public Finance. You need to know this math in order to be able to publish 'theory papers'. The larger question should be, "why does the economics profession put any value on this work?" Why Is There So Much Esoteric Math in Economics Grad Programs? originally appeared on About.com Economics on Friday, January 29th, 2010 at 07:56:32.
Although from an empirical perspective it probably doesn't make sense in the slightest to worry about the distinction between the two types of convergence, I am quite certain it makes a difference in theory papers. Unlike most economists, I tend to use 'theory paper' in a pejorative sense, because too many theory papers:
A Public Health Problem That Can't Be Solved With a Pigovian Tax or Sin Tax
From Reuters:
Shaving 3 grams off the daily salt intake of Americans could prevent up to 66,000 strokes, 99,000 heart attacks and 92,000 deaths in the United States, while saving $24 billion in health costs per year, researchers reported on Wednesday... Salt, which contributes to high blood pressure and heart disease, is widely overused in the United States, with 75 to 80 percent coming from processed food. Men typically consume 10.4 grams per day. For women, the average is 7.3 grams. Its use is rising. A reduction of 1 gram would prevent 11,000 to 23,000 strokes, 18,000 to 35,000 heart attacks and 15,000 to 32,000 deaths from any cause, the researchers reported in New England Journal of Medicine.
My stock answer is to proclaim Sin Tax!, however that would not work here, for a couple of reasons: I am not sure what the answer is - but here the answer is almost certainly not a sin tax or Pigovian tax. A Public Health Problem That Can't Be Solved With a Pigovian Tax or Sin Tax originally appeared on About.com Economics on Thursday, January 28th, 2010 at 15:25:37.
Income Elasticity and the Sex Trade
Income Elasticity and the Sex Trade originally appeared on About.com Economics on Thursday, January 28th, 2010 at 12:08:20.
Price Elasticity of Demand is the most well-known of all the elasticities in economics. Income Elasticity of Demand, however, is equally as important when considering how the demand for a product and service changes over time (due to economic growth or the business cycle). The Toronto Star has an unusual article on income elasticity: Recession means tough times for sex workers. (Note: article may not be safe for work).
Can Exports Get the U.S. Out of Their Slump?
From Mark Thoma:
The problem is that if (net) exports don't lead the way, then consumption or investment must fill the void if the private sector is going to take care of this on its own. But neither of those seems likely to grow fast enough to accomplish this, at least not anytime soon, and there's some question whether they will return to their pre-crisis levels, consumption growth in particular. Paul Krugman's point -- the quote is from a bit over a year ago -- was that if consumption, investment, and net exports can't support the growth we need to maintain employment, then government must use aggressive measures to bridge the gap until the private sector can make the necessary adjustments.
On the surface, this logic seems to make sense. In economics 101 we learn that the size of the economy is calculated through the following equation: Y = C + I + G + (X - M), where C = consumption If C and I cannot grow 'fast enough', then the growth needs to come from government spending (G) or exports (X) (or a drop in imports). The problem with this logic is it confuses an accounting identity for an economic model. There is an implicit ceteris paribus assumption in the Thoma/Krugman argument suggests that if X rises, it will not cause changes to any of the other variables. It is fairly straight forward to think of two scenarios where a rise in X will be offset by a decrease in another variable: To be clear - I am not suggesting that increased exports will not increase U.S. economic growth. But you cannot determine that from this analysis. Confusing an accounting identity with an economic model is an elementary mistake - I'm surprised a Nobel Prize winner would fall into that trap. Can Exports Get the U.S. Out of Their Slump? originally appeared on About.com Economics on Thursday, January 28th, 2010 at 07:58:08.
I = Investment
G = Government Spending
(X - M) = Net Exports (eXports - iMports)
Good Thing We Had All That Stimulus
Mark Thoma linked to some terrific data from the Dallas Fed which shows just how awful the labor market has been during this recession, relative to past recessions. Greg Mankiw has a terrific graph showing that the labor market is far worse than what the Obama team predicted would happen without any stimulus. It would be reasonable to conclude that the stimulus has been useless at best and counterproductive at worst which is exactly what I predicted would happen. There are, of course, other explanations. Given that U.S. labor market is in a worse position than the 'no stimulus' prediction, it is difficult to argue that the problem with the stimulus is that it was too small. Of course the usual suspects will continue to argue just that. Good Thing We Had All That Stimulus originally appeared on About.com Economics on Thursday, January 28th, 2010 at 07:47:24.
Health Costs and Medical Conditions
My colleague Mary Hartley with some data I do not believe I had seen before: On average, "obese people spend $1400 more a year on health care compared to someone of normal weight," says Eric Finkelstein, the foremost authority on the economics of obesity in the United States. And whether you, your employer, or the government picks up the tab, obesity is running up the health care bill. I know I have been beating this drum for some time, but it would seem to me that increasing taxes on "junk food" and using the revenue to decrease income taxes is as close to a free lunch as you will ever see in economics. The population will get healthier, health care costs will decrease and economic growth will rise due to lower income taxes. Now, this will not solve all of America's health care issues:
But just so you know, obesity-related health conditions account for only 9.1 percent of the $4.3 trillion dollars spent on health care last year.
I believe that reducing these expenses by 20% is not unreasonable. This would be a savings of 80 billion dollars - not an insignificant sum. But we do not have to stop there as I have argued before. Related policies include: Economics shows that we have the opportunity to increase health and reduce health care expenses - now all we need is a politician brave enough to suggest it. Health Costs and Medical Conditions originally appeared on About.com Economics on Thursday, January 28th, 2010 at 07:28:49.
Is Fiscal Stimulus Science or Faith?
A continuation of: Brad DeLong Realizes The Stimulus Didn't Work - And Draws Entirely The Wrong Conclusion. We had extensive fiscal stimulus and the economy is in worse shape than the 'here is what will happen if we do not implement fiscal stimulus' projections. That does not necessarily mean that fiscal stimulus does not work. However, can there ever be a possible piece of evidence that shows fiscal stimulus does not work? Seems to me that any outcome can be spun as showing the effectiveness (or for that matter the non-effectiveness) of fiscal stimulus. That is, the fiscal stimulus hypothesis is non-falsifiable. The true believers will never stop believing. Even though fiscal stimulus does not work in theory and there is no evidence it works in practice, trying to disprove the effectiveness of fiscal stimulus feels a little like trying to disprove that God exists. It makes me question how scientific macroeconomics truly is. Is Fiscal Stimulus Science or Faith? originally appeared on About.com Economics on Thursday, January 21st, 2010 at 12:44:45.
About.com Economics
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Wayne Allyn Root's "Lessons Obama Should Have Learned From Watching the Super Bowl"
My favorite 2008 Libertarian Party vice presidential nominee is
back with another
searing indictment of his
former Columbia classmate, with an oddsmaking twist.
Excerpt: #3) Sports gambling (and all forms of online gaming) needs to be
legalized. Our country is bankrupt. We need to use Nevada as a role
model for the nation and legalize, regulate and tax "sin," like any
other business. Legalizing medical marijuana and online gaming has
the potential to bring in $300 billion in new tax revenues. That
could pay down government debts, or allow us to lower taxes for our
hardworking American taxpayers. [...] #5) Government wastes our money. During the Super Bowl I
witnessed a perfect example of why our government is broke and
failing...and why only the private sector can save our economy. I
saw a TV ad created by the federal government. It was an
advertisement for the U.S. Census Bureau. It was stale, stupid and
ineffective. But worse, it wasted $2 million of taxpayer money.
Yes, that ad cost $2 MM of your money. For what? This is how
government wastes your money every hour of every day. It's easy to
waste a million here…and a million there, when it's not your money.
Remember that joke about the difference between Vegas and D.C. This
is a perfect example of government bureaucrats gambling and failing
miserably with someone else's money- YOURS.
#2)
Taking risks is central to success. The Saints pulled the huge
Super Bowl upset by taking a huge gamble. Their onside kick to
start the second half was the key play of the game- and one of the
most daring calls in Super Bowl history. Obama doesn't understand
how important risk-taking is to success in life. [...]
Back to the Drawing Board
In just about every speech at their 2008 convention, Democrats
promised voters that a change in the White House would, in Barack
Obama’s formulation, restore “our moral standing” in the world.
Replace the unilateralist cowboy at the top with a humbler
multilateralist, and the path would finally be cleared to fix
vexing international issues such as curbing carbon emissions and
dealing with the mullahs in Iran. Like many of the party faithful’s
long-nurtured beliefs, this hope has disintegrated on contact with
reality. “America is losing the free world,” said a January headline in
the Financial Times. While that statement is exaggerated,
the sentiment behind it has been gaining traction around the globe,
especially in the wake of the climate conference debacle in
Copenhagen. It’s not just that the less confrontational American
president has been unable to deliver results. He can’t even get his
phone calls returned. “On the last day of the [Copenhagen] talks, the Americans tried
to fix up one-to-one meetings between Mr Obama and the leaders of
South Africa, Brazil and India—but failed each time,” Gideon
Rachman wrote in the Financial Times piece. “The Indians
even said that their prime minister, Manmohan Singh, had already
left for the airport. So Mr Obama must have felt something of a
chump when he arrived for a last-minute meeting with Wen Jiabao,
the Chinese prime minister, only to find him already deep in
negotiations with the leaders of none other than Brazil, South
Africa and India.” It was easy for many Democrats to believe, during the nightmare
years of “freedom fries,” that George W. Bush alone was to blame
for the diplomatic prickliness between, say, Washington and Paris.
But the basic conditions for American foreign policy have more to
do with America’s outsized position in the world than with any
particular politicians. Bill Clinton tangled constantly with the
French, and now a visibly irritated President Nicolas Sarkozy has
gone within a year from vying for Obama’s attentions to taking (in
the words of a competing politician) an openly “anti-Obama
position.” Obama’s approach was supposed to produce a more cooperative
Tehran and Moscow, fewer terrorists in the Muslim world, and vast
new initiatives to fight global poverty. Instead, Iran has murdered
dissenters while speeding up its nuclear program, Russia hasn’t
discernibly budged even after the U.S. abandoned its missile shield
in the Czech Republic and Poland, a Muslim suicide bomber was
stopped at the last minute from blowing up a plane over Detroit on
Christmas, and global gatherings have produced even less concrete
action than usual. These developments illustrate a phenomenon that has been playing
out across a variety of public policy areas: Progressive Democrats,
after being outfoxed by Ronald Reagan, triangulated to the policy
margins by Bill Clinton, then routed under the first six years of
George W. Bush, are having many of the nostrums they championed
during the wilderness years tested in the real world for the first
time in decades. The initial results of this long-delayed peer
review have been a shock to the progressive system. The Copenhagen crackup was a dream killer in more ways than one.
Not only did the breakdown give the lie to the notion that a cranky
Texas oilman was the single greatest impediment to international
cooperation and enlightened environmental policy; it laid waste to
the argument that yoking the developing world to a “do as we say,
not as we did” policy of energy consumption will somehow prove to
be an economic and environmental “win-win.” If that’s true, the
leaders of India and China—the latter of which has been serially
praised for its green-energy initiatives by the likes of New
York Times columnist Thomas Friedman—certainly don’t believe
it. No amount of international do-goodism is going to prevent
countries from acting in what they perceive to be their own
self-interest. Obama and the Democrats have been peddling a similar win-win
line about the creation of up to 5 million “green jobs” in America,
through a combination of cap-and-trade carbon permits, home
weatherization, clean coal, higher gas mileage standards,
environmental regulation, and various renewable-energy mandates.
The “green jobs” political juggernaut has been credited to Van
Jones, who was obliged to resign as Obama’s “Green Czar” last
summer after reports surfaced that he’d signed a petition
supporting an investigation of Bush’s involvement in 9/11. What’s
interesting about Jones’ beautiful-sounding concept is that even
its chief supporters admit there’s no evidence the theory is true.
Which is hardly surprising, since most of Obama’s proposed
environmental policies involve making energy more expensive while
using more tax dollars to subsidize expensive clean energy sources.
As The New Yorker put it in a long, flattering
profile of Jones in January 2009, “the mechanics of creating green
jobs—or even what jobs should qualify for the title—have yet to be
worked out.” The debate over these phantom jobs, against a backdrop of
double-digit unemployment, will likely suck up the political oxygen
in Washington after the protracted health care debate finally
wheezes to a close. But Americans already have found empty pots at
the end of other Democratic rainbows. The $789 billion stimulus package of February 2009, thanks to a
theoretical “multiplier” that would convert federal dollars into
more than their worth in job creation, was supposed to (according
to administration economists) “create or save” 3.5 million jobs and
prevent unemployment from reaching as high as 9 percent by the end
of 2010. Instead, joblessness shot through the 10 percent barrier
before the end of 2009, and the government’s own tracking of the
jobs allegedly created or saved has become a laughingstock with its
double counting and imaginary ZIP codes. What about the lobbying scourge that Democrats (like all good
opposition parties) opposed so vociferously in 2008? Progressive
theory holds that regulation of K Street, as opposed to a cutback
in overall regulation, is the key to “change the culture of
corruption” in Washington, as candidate Obama repeatedly promised
to do. How’d that work out in practice? In December
Politico reported that “Washington’s influence industry is
on track to shatter last year’s record $3.3 billion spent to lobby
Congress and the rest of the federal government—and that’s with a
down economy and about 1,500 fewer registered lobbyists in
town.” In the truer-believing regions of the progressive political
world, the broad agenda of carbon price hikes, centralized health
care, greater regulation, increased taxes, and government-mandated
diversity in boardrooms are not just sound and moral policy. They
are inherently popular, if only the usual obstacles to
justice and reform can be neutralized or removed. Back when he was
still considered a plausible stand-in for “the Democratic wing of
the Democratic Party” (enough to win 2.7 percent of the
presidential vote in 2000, much of it from progressives disgruntled
at New Democrat policies), Ralph Nader insisted on a daily basis
that his agenda was essentially “majoritarian.” Such fantasies can serve as a salve when you live on the margins
of the policy debate. And as long as you remain on the sidelines,
the underlying proposals tend to go largely unchallenged. But now
that progressive economic thought has its first real foothold in
Washington since the 1970s, many long-marginalized ideas are being
dusted off for real-world testing, from taxing stock transactions
to “getting people out of their cars.” If we’re lucky, those
debates will take place before the ideas are cemented into law.
Better yet, maybe the growing unpopularity of central planning will
dissuade the enthusiasts from inflicting their experiments on the
rest of us in the first place. Matt Welch (matt.welch@reason.com) is editor in chief
of reason.
Reason.tv: Gary Johnson's Our America—the former NM governor's vision for a truly free country.
Former Republican Gov. Gary Johnson was the top elected official
in New Mexico from 1994 through 2002. He took office after beating
a primary opponent backed by the Republican party and won election
twice in a state that has two-to-one Democratic advantage in
registration. Born in 1953 and a one-time competitive skiier, Johnson was not
your typical governor. Instead, he governed as fiscally responsible
and socially tolerant. He didn't raise taxes at all during his time
in office and pushed through an aggressive privatization agenda
that reduced costs while improving services. He vetoed 750 bills
and trimmed the state workforace by 1,000 positions at the same
time. He was also the highest-level elected politician and one of
the most vocal proponent of drug legalization during his
tenure. Johnson is now fronting the Our America
initiative, which is dedicated to advancing the public
debate on topics ranging from immigration to civil liberties
to free enterprise to the federal deficit to the war on drugs to
Afghanistan and Iraq. He is frequently mentioned as a possible
Republican presidential candidate in 2012. Reason's Matt Welch and Nick Gillespie talked with Johnson about
the issues of the day—and what it was like to climb Mt. Everest
with a busted leg. Approximately 10 minutes. Shot by Dan Hayes and Meredith Bragg;
edited by Bragg. Note: This is a condensed version of a longer interview. For the
full half-hour version, go here. Back in 2001, Reason called Johnson "the most dangerous
politician in America."
Find out why. Subscribe to Reason.tv's
YouTube channel and receive automatic notifications when
new videos are posted!
Reason Writers Around Town: Matt Welch Talks Obama on MSNBC
On February 3, Reason Editor in Chief Matt Welch–who,
despite rumors to the contrary, is not a "Republican
strategist"–appeared on MSNBC to discuss Barack Obama's attempts to
reinvigorate the second year of his presidency in the context of
economic policies that are genuinely and increasingly unpopular.
Approximately six minutes:
The Instability of Monopolies
Yesterday's New York Times carried an interesting
op-ed from former Microsoft veep Dick Brass wondering how and
why the world's most successful company lost its way. Excerpt: While Apple continues to gain market share in many products,
Microsoft has lost share in Web browsers, high-end laptops and
smartphones. Despite billions in investment, its Xbox line is still
at best an equal contender in the game console business. It first
ignored and then stumbled in personal music players until that
business was locked up by Apple. Microsoft's huge profits — $6.7 billion for the past quarter —
come almost entirely from Windows and Office programs first
developed decades ago. Like G.M. with its trucks and S.U.V.'s,
Microsoft can't count on these venerable products to sustain it
forever. Read the whole
thing to sort out analysis from sour grapes, but I'm more
interested in a macro fact about monopolies: Namely, unless they're
either run or locked into place by government, they do not last.
And even government-run monopolies produce mass consumer
defections. (A corollary to the Monopoly Rule is the Dictatorship
Rule: totalitarianism, because it produces such unhappiness, is
inherently unstable.) Companies that grow bloated on profits
squeezed from a seemingly captive audience end up panicking when
those consumers wriggle free to buy and even create competing
products. Meanwhile, corporate cultures in (temporarily)
uncompetitive industries are the very definition of non-innovative,
even in technology companies. The same holds true for companies that aren't technically
monopolies, but are able to rack up double-digit profit margins
while not having to fend off a mirror-image competitor. Trust me,
the L.A. Times was called the "velvet
coffin" long before the "corporate bean counters" or Evil Sam
Zell showed up. Even areas where market consolidation produces
noticeably awful product--I'm thinking here of the 1990s wave of
radio consolidation--the combination of disgruntled consumers and
liberating technology are able to produce innovative workarounds
faster than you can say "theme time radio
hour." Something to think about as regulators here and abroad start
targeting Google (it's amazing to me how seamlessly Google has
replaced Microsoft as the demon
sheep of technology companies in the eyes of the
French, for example), and as the Obama administration mulls
ramping up antitrust prosecutions more generally.
Microsoft has become a clumsy, uncompetitive
innovator. Its products are lampooned, often unfairly but sometimes
with good reason. Its image has never recovered from the antitrust
prosecution of the 1990s. Its marketing has been inept for years;
remember the 2008 ad in which Bill Gates was somehow persuaded to
literally wiggle his behind at the camera?
Civility Begins in the Heart
The president gave a
talk at a prayer breakfast today, and had some words about
civility & loving your political enemy: Empowered by faith, consistently, prayerfully, we need to find
our way back to civility. That begins with stepping out of
our comfort zones in an effort to bridge divisions. We see
that in many conservative pastors who are helping lead the way to
fix our broken immigration system. It's not what would be
expected from them, and yet they recognize, in those immigrant
families, the face of God. We see that in the evangelical
leaders who are rallying their congregations to protect our
planet. We see it in the increasing recognition among
progressives that government can't solve all of our problems, and
that talking about values like responsible fatherhood and healthy
marriage are integral to any anti-poverty agenda. Stretching
out of our dogmas, our prescribed roles along the political
spectrum, that can help us regain a sense of civility. [...] Challenging each other's ideas can renew our democracy.
But when we challenge each other's motives, it becomes harder to
see what we hold in common. A few uncivil observations: 1) Why wouldn't a conservative pastor be "expected" to
want to improve the country's awful immigration system? Granted, my
knowledge of organized religion is pretty minimal, but aren't
religious leaders all about the congregation? Don't congregations
include people who are separated by bad law from their families,
and thus likely to share their pain with their pastors? 2) While recognizing that the Evangelical shift toward global
warming policy is a real and newsworthy event, I don't know why a
general sense of environmental stewardship wouldn't be "expected"
from them, either. God likes grass and clean water and lil' animal
friends, right? The Evangelicals I know aren't a bunch of common
Fred Smiths. 3) Is the "recognition among progressives that government can't
solve all of our problems" really "increasing", and is there
anything really new about lefty lectures on fatherhood and
marriage? The former is a bit of a straw man to begin with (I'm not
sure I've ever met a progressive who thought government
could solve all problems); and if you consider the
question over a matter of decades, then yes, I'd reckon the trend
lines are going in that direction. But recently? Seems to me that
government intervention is considerably more popular on the left
than it was during Bill Clinton's era, a notion captured well by
the two
very different approaches to economic policy. I like the president's call for better understanding between
people who have different ideas, and I look forward to him
embracing it more fully. Katherine Mangu-Ward wrote last week about the president's
simultaneous
calls for more bipartisanship and more GOP-bashing.
But there is a sense that
something is different now; that something is broken; that those of
us in Washington are not serving the people as well as we
should. At times, it seems like we're unable to listen to one
another; to have at once a serious and civil debate. And this
erosion of civility in the public square sows division and distrust
among our citizens. It poisons the well of public
opinion. It leaves each side little room to negotiate with
the other. It makes politics an all-or-nothing sport, where
one side is either always right or always wrong when, in reality,
neither side has a monopoly on truth. And then we lose sight
of the children without food and the men without shelter and the
families without health care.
All the President's Budget Assumptions
“Another manifestation of irresponsibility is the large budget
deficits we are inheriting," wrote President Barack Obama in last
year's budget message for fiscal year 2010 (which runs from October
2009 through September 2010). "These deficits, over time, will harm
economic growth and impose burdens on our children and
grandchildren," he continued. "For the past eight years, in a time
of economic growth, the government spent recklessly on tax cuts for
the few and hand-outs for the well off and well-connected,
mismanaged billions of dollars in taxpayer money, and failed to
honor the responsibilities we have to future generations." Given his firm grasp of the consequences of the situation, you
would have thought that the president would cut government spending
and try to reduce the deficit. Sadly, the table below shows that
you'd be wrong. Indeed, contrary to the promises Obama made last year, the
deficit grew by over 10 percent between FY2009 and FY2010. And
spending, which
was projected to go down in FY2010 to $3,552 billion from its
$3,938 billion FY2009 level, will actually climb by an estimated 6
percent. In total dollars, the deficit for FY2010 is projected by
the government to reach $1.56 trillion (last year, Obama projected
it would be $1,171
billion). 2009 – 2010
Changes And what did President Obama request in his recently released
budget for FY2011? In his
latest budget message he writes: To help put our country on a fiscally sustainable path, we will
freeze non-security discretionary Here's the rough plan in table form. FY 2011 Budget
Basics Expressed as a percentage of Gross Domestic Product (GDP), that
means total government outlays will equal 25.1 percent of GDP, the
second highest rate since 1945 (the highest was 25.4 percent for
FY2010). Federal revenues will amount to 16.8 percent of GDP (up
from its 14.8 percent level in FY2010). And the budget deficit will
come to 8.3 percent of GDP, down from its FY2010 level. To put that
number is perspective, remember that during the 1980s, a decade
known for high deficits, the deficit average was 4 percent of
GDP. The only sector where spending might decrease is the area
subject to the spending freeze (that area covers 13 percent of the
budget, but the freeze won't take effect until next year). Since
the budget came out, I have spent a long time trying to figure out
how the freeze will work and exactly what it entails. Based on the
budget data just released, however, there wasn’t enough information
available to answer that question as of this writing. So much for transparency. As economist and former Congressional
Budget Office Acting Director Donald Marron put it
on his blog after the budget numbers were released on Tuesday:
"To fully understand the trajectory of non-security discretionary
spending, you need to consider such obscure bits of budget arcana
as the obligation limitations used for transportation funding (ob
lims, to the initiated), the proposed conversion of Pell grants
from discretionary to mandatory spending, the reassignment of
bioshield from security to non-security spending, and the fact that
Census spending is particularly high in fiscal 2010 because of the
decennial census. I haven’t actually crunched the numbers, but
that’s not my point tonight. Instead, my point is simply how
hard it can sometimes be to match budget reality to budget
communications." It is also important to note the increase in defense spending
(4.1 percent). Such an increase is not surprising, given that Obama
is increasing troop levels in Afghanistan without withdrawing
troops in Iraq any faster than President Bush would have done. But
anyone who thought that Obama would be less of a hawk than his
predecessor should have realized by now that this is a myth. In
fact, this year the defense budget is the biggest in total real
dollars in U.S. history. So spending is going up. And yet the president predicts the
FY2011 deficit will shrink from its FY2010 level of $1.56 trillion
to $1.2 trillion. Better yet, the president projects that by 2014
the deficit will decrease by more than half to reach $706
billion. How does Obama hope to get there? He pencils in an 18.5 percent
increase in revenue between FY2010 and FY2011. 2010 – 2011
Changes Where will all this new money come from? First, the president
assumes revenue from letting the Bush tax cuts expire on income
earners making more than $250,000 per household. Then he assumes
revenue from closing “loopholes” on the corporate income tax sides.
(What he calls loopholes are just exemptions that were built into
the corporate income tax system to help U.S. companies competing on
the international market.) If Obama succeeds in repealing these
exemptions without reforming the corporate tax code, however, there
is no doubt that
American companies will have a harder time making a buck and
that the revenue stream they bring in will shrink. Finally, the president's revenue estimate relies on optimism.
His projected GDP growth and unemployment numbers are very rosy. In
FY2011, the president assumes that the economy will grow by 5.1
percent (see Table S-13 of the Summary
Tables). He assumes that the economy will grow by 6 percent in
2012. And he expects the unemployment rate to decline. While his
jobs programs have
failed miserably so far, he anticipates that next year the
unemployment rate will drop to 9.2 percent. Better yet, in 2012 it
will drop to 8.2 percent and will reach 6.5 percent in FY2014. Given how unrealistic these projections are, relying on an 18.5
percent increase in revenue this year is simply not credible. Which
puts the other numbers in President Obama's budget—which is already
nothing to write home about—in an even harsher light. Veronique de Rugy is an economist at The Mercatus Center and a columnist
for Reason magazine. Read her Reason archive
here.
funding for 3 years. This freeze will require a level of discipline
with Americans’ tax dollars and a number of hard choices and
painful tradeoffs not seen in Washington for many years. But it is
what needs to be done to restore fiscal responsibility as we begin
to rebuild our economy.
Big Government's Cronies
Many window-making companies struggle because of the recession's
effect on home building. But one little window company, Serious
Materials, is "booming," says Fortune. "On a roll,"
according to Inc. magazine, which put Serious' CEO on its
cover, with a story titled: "How to Build a Great
Company." The Minnesota Freedom Foundation tells me that this same little
window company also gets
serious attention from the most visible people in America. Vice President Joe Biden appeared at the opening of one of its
plants. CEO Kevin Surace thanked him for his "unwavering support."
"Without you and the recovery ("stimulus") act, this would not have
been possible," Surace said. Biden returned the compliment: "You are not just churning out
windows; you are making some of the most energy-efficient windows
in the world. I would argue the most energy-efficient windows in
the world." Gee, other window-makers say their windows are just as energy
efficient, but the vice president didn't visit them. Biden laid it on pretty thick for Serious Materials: "This is a
story of how a new economy predicated on innovation and efficiency
is not only helping us today but inspiring a better tomorrow." Serious doesn't just have the vice president in his corner. It's
got President Obama himself. Company board member Paul Holland had the rare of honor of
introducing Obama at a "green energy" event. Obama then said:
"Serious Materials just reopened ... a manufacturing plant outside
of Pittsburgh. These workers will now have a new mission: producing
some of the most energy-efficient windows in the world." How many companies get endorsed by the president of the United
States? When the CEO said that opening his factory wouldn't have been
possible without the Obama administration, he may have known
something we didn't. Last month, Obama announced a new set of tax
credits for so-called green companies. One window company was on
the list: Serious Materials. This must be one very special
company. But wait, it gets even more interesting. On my Fox Business Network show on "crony capitalism," I displayed a
picture of administration officials and so-called "energy leaders"
taken at the U.S. Department of Energy. Standing front and center
was Cathy Zoi, who oversees $16.8 billion in stimulus funds, much
of it for weatherization programs that benefit Serious. The interesting twist is that Zoi happens to be the wife of
Robin Roy, who happens to be vice president of "policy" at Serious
Windows. Of all the window companies in America, maybe it's a coincidence
that the one which gets presidential and vice presidential
attention and a special tax credit is one whose company executives
give thousands of dollars to the Obama campaign and where the
policy officer spends nights at home with the Energy Department's
weatherization boss. Or maybe not. There may be nothing illegal about this. Zoi did disclose her
marriage and said she would recuse herself from any matter that had
a predictable effect on her financial interests. But it sure looks funny to me, and it's odd that the liberal
media have so much interest in this one company. Rachel Maddow of
MSNBC, usually not a big promoter of corporate growth, gushed about
how Serious Materials is an example of how the "stimulus" is
working. When we asked the company about all this, a spokeswoman said,
"We don't comment on the personal lives of our employees." Later
she called to say that my story is "full of lies." But she wouldn't say what those lies are. On its website, Serious Materials says it did not get a taxpayer
subsidy. But that's just playing with terms. What it got was a tax
credit, an opportunity that its competitors did not get: to keep
money it would have paid in taxes. Let's not be misled. Government
is as manipulative with selective tax credits as it is with cash
subsidies. It would be more efficient to cut taxes across the
board. Why should there be favoritism? Because politicians like it. Big, complicated government gives
them opportunities to do favors for their friends. John Stossel is host of Stossel on the Fox Business
Network. He's the author of Give Me a Break and of
Myth, Lies, and Downright Stupidity. To find out more about
John Stossel, visit his site at johnstossel.com. COPYRIGHT 2010 BY JFS PRODUCTIONS, INC.
DISTRIBUTED BY CREATORS.COM
Fiscal Stimulus is Buying Trouble
This week, President Obama had the dubious pleasure of offering
a budget with a deficit of more than a trillion dollars. He could
have done something more politically attractive: unveil a plan to
curb the runaway spending of the Bush years. But to do that, the president would have had to make a different
choice a year ago, by rejecting the $787 billion fiscal stimulus
package passed by Congress. Of all the mistakes Obama has made,
that now looks like the worst. It's a big reason he's widely regarded as an old-fashioned,
big-government liberal. It's a big reason Republicans have been
able to make the public forget their horrendous fiscal record. It's
a big reason for the tea parties. All these might be a tolerable price to pay if the stimulus had
provided a crucial shot of adrenaline. But the evidence indicates
otherwise. Early in the administration, Obama's economic advisers issued a
prediction: Without a big stimulus, the unemployment rate would
rise from 7.2 percent to 9 percent. With it, the rate would peak at
8 percent. We could have the stimulus, or we could have high
unemployment. In reality, we've gotten the worst of both worlds. The stimulus
went through, and unemployment went over 10 percent. Maybe things would be even worse without all that new spending,
which is what the administration claims. But if it can't come
halfway close to predicting the effect of the stimulus, how can it
be so sure it's doing any good? Last week's official report that the effort created 600,000 jobs
certainly didn't prove anything. All the government did was count
how many jobs were paid for with stimulus funds. That ignores the obvious problem. Money the government uses to
create jobs is money that can't be used by the private sector to
create jobs. But no one in the White House is trying to count jobs
that didn't get created as a result of this mass diversion of
funds. You may not be reassured by the reasoning of Earl Devaney, who
heads the federal panel that compiled the numbers. "The people who
got the money feel this is working," he told The Washington
Post. If Devaney wants to send me a check, I might come around
too. The whole idea of the stimulus is that when the government
builds roads and bridges, it puts money into the economy, which
generates growth. But Stanford economist John Taylor, speaking
Monday at a Hoover Institution conference, pointed out something
that stimulus supporters have overlooked: Over the past three
years, there is no relationship between the amount of government
purchases of non-military items and the rate of economic growth.
Oops. The other theory was that putting more money into the hands of
consumers would cause them to go out and buy things. The
administration pursued this objective with a tax credit that
reduced withholding and thus fattened paychecks. But the evidence for this approach was also badly lacking. In
2008, President Bush tried to strengthen the economy by sending out
rebates of up to $600 per taxpayer. As Taylor documents, the amount
of cash Americans had at their disposal jumped. But their spending
didn't. He is not the only leading macroeconomist who doubts the
efficacy of such measures. But even if you accept the theory behind
the Obama plan, you have to wonder about its usefulness in the real
world. Timing is everything, and by the time Washington can pass
and implement a stimulus, it's usually too late to help. You want to stimulate the economy when it's in a recession. But
only a quarter of the money in the package was spent in the first
seven months. Most of it was scheduled for this year and next—which
turns out to be long after the economy resumed growing last summer.
In the fourth quarter, gross domestic product expanded at a
sizzling 5.7 percent rate. Applying fiscal stimulus at this point is like using a cattle
prod on Usain Bolt. Even with the encouragement, he's not likely to
go any faster. The administration could claim that the recent boost proves that
its effort worked to get the economy back on track. But in that
case, why do we need to spend $135 billion in 2011? All that funding probably won't make the economy stronger. But
for those who want to portray Obama as leading the nation off a
cliff, it should mean lasting prosperity. COPYRIGHT 2010 CREATORS.COM
Listening to Mises
Henry Hazlitt said that when he first picked up a phone in the
1940s and heard the voice of the already legendary Austrian
economist and liberal political philosopher Ludwig Von Mises on the
other end, it was the equivalent of picking up the phone and
hearing "This is John Stuart Mill speaking!" Now you can sort of emulate the fascinating experience of
hearing Mises's voice, a rare treat as he died in 1973. The Mises
Institute has just posted an mp3 of a broadcast
from the "U.S. Steel Concert Hour" from 1962, with Mises answering
the not very musical question, ""Are the interests of the American
wage earners in conflict with those of their employers, or are the
two in agreement?" (By the by, he doesn't rap once. That was more
of a Hayek
thing.) For those who prefer reading to listening, a transcript here.
Federal Spending and GDP: Uh-oh, Here We Go
A
useful new chart from Cato's Chris Edwards:
Obama's Budget Makes the "terrible mistake" of "borrow[ing] against our children's future to pay our way today"...According to Obama
Here are some
words President Barack Obama spoke yesterday when unveiling his
new
$3.8 trillion budget proposal: [W]e can't simply move beyond this crisis; we have to address
the irresponsibility that led to it. And that includes the failure
to rein in spending, as well a reliance on borrowing –- from Wall
Street to Washington to Main Street –- to fuel our growth. That's
what we have to change. We have to do what families across America
are doing: Save where we can so that we can afford what we need.
[...] That's also why we're restoring pay-as-you-go: a simple rule
that says Congress can't spend a dime without cutting a dime
elsewhere. This rule helped lead to the budget surpluses of the
1990s, and it's one of the most important steps we can take to
restore fiscal discipline in Washington. [...] [T]he bottom line is this: We simply cannot continue to spend as
if deficits don't have consequences; as if waste doesn't matter; as
if the hard-earned tax dollars of the American people can be
treated like Monopoly money; as if we can ignore this challenge for
another generation. We can't. [...] What I will not welcome -– what I reject -– is the same old
grandstanding when the cameras are on, and the same irresponsible
budget policies when the cameras are off. It's time to hold
Washington to the same standards families and businesses hold
themselves. It's time to save what we can, spend what we must, and
live within our means once again. Here are some other words President Barack Obama spoke yesterday
when unveiling his new $3.8 trillion budget proposal: The budget includes...investments that will create jobs
repairing roads and bridges, and tax breaks for retrofitting homes
to save energy. [...] [I]t would be equally wrong to neglect [our children's] future
by failing to invest in areas that will determine our economic
success in this new century. That's why we build on the largest investment in clean energy in
history, as well as increase investment in scientific research, so
that we are fostering the industries and jobs of the future right
here in America. And that's why we eliminate a wasteful subsidy to banks that
lend to college students, and use that money to revitalize
community colleges and make college more affordable. This
will help us reach the goal I've set for America: By 2020 we
will once again have the highest proportion of college graduates in
the world. These are the investments we must make to create jobs and
opportunity now and in the future. Given that President George W. Bush's first budget clocked in at
$1.9 trillion, I estimate that at current rates we will achieve
Real Existing Fiscal Responsibility by approximately 2022.
[I]t would be a terrible
mistake to borrow against our children's future to pay our way
today [...]
That's
why I've proposed a more than 6 percent increase in funding for the
Education Department. [...]
Reason.tv: Obama's Doublethink Doubletalk (State of the Union Remix)
George Orwell defined doublethink as "the power of
holding two contradictory beliefs in one's mind simultaneously, and
accepting both of them." When it comes to war, spending, and more, President Barack
Obama's 2010 State of the Union address showed that doublethink is
alive and well in Washington, D.C. Approximately two minutes. Written and produced by Paul
Feine. For downloadable versions of all videos, go to Reason.tv. Subscribe to Reason.tv's
YouTube channel and receive automatic notifications when new
videos go online.
From a Nudge to a Shove? Will Behavioral Economics Become a New Form of Coercion?
Over at Neuroworld, Reason contributor Ryan Sager looks at two
examples of applying behavioral economics to public policy. Here,
he quotes from a
Guardian piece by George Osborne and Richard Thaler (the latter
is the co-author with Obama regulation czar Cass Sunstein of
Nudge): In Sacramento, an energy company has harnessed the insights of
behavioural science, and prints information on energy bills that
allows households to compare their energy use with similar homes.
This simple change led to a fall in overall energy consumption as
homes using more energy than their neighbours quickly adjusted
their behaviour to fit in with the norm. OK, that doesn't seem too bad, right? So here's another
suggestion from Osborne and Thaler: We are working together to formulate a series of public policies
on issues ranging from the environment to financial regulation.
Because the academic literature shows the importance of a way a
decision is framed, the Conservative party is working with councils
to replace Labour’s bin taxes with schemes that pay the public to
recycle. In Windsor and Maidenhead our pilot scheme has already
increased recycling rates by 30%. OK, that doesn't seem too coercive, does it? Though it may well
be an incredible waste of money depending on how much it costs to
pay people to increase recycling rates by 30 percent. The authors
don't mention that tidbit in their col, alas, so any sort of
cost-benefit analysis is impossible. But then Sager notes what else our dynamic duo is up to: The piece also recommends a seven-day cooling-off period for
store credit cards, so that people don’t wrack up huge debts in the
heat of the moment at the checkout counter. They call this less
intrusive than banning the cards or instituting a new tax — though,
it still sounds pretty intrusive to these American ears (errr…
eyes). Yes, I'd say that's intrusive. And might well have all sorts of
effects on business, when you can officially bring back any credit
card purchase after a week. It's worth noting that many cards and
stores have return policies already. Why not allow the private
sector to work it out? Because, I assume, that wouldn't be as much
fun for paternalists.
Nonprofits Are People, Too
Buried in the middle of an interesting New York Times
story on an editorial
shakeup at Harper's magazine is a throwaway line that
I think both reflects a certain ignorance about The Rich and
provides a cautionary tale for those who see the nonprofit business
model as the panacea for print journalism's continuing crisis: The foundation model does not entirely protect a publication
from a sputtering economy. Not entirely! I won't repeat
myself here, other than to point out that, yeah, even people
who have enough money to give substantial amounts to nonprofits are
affected by economic downturns. If you sell stuff for a living, and
the economy tanks, you are now almost certainly making less of it.
Ditto if you're a non-shortseller making your money on Wall Street
during a bear market. And for those nonprofits big/smart enough to
have substantial reserves, that money, too, is susceptible to rapid
depletion via unsafe investing. Best quote in the story: "The business side is run like it's Esquire in 1968,
and the edit side is run like it's Amnesty International in 1987,"
said one editorial staff member. The site you are reading is published by a nonprofit; you can
support it by subscribing to
the print magazine, giving a donation to the Reason Foundation,
or just continuing to read, watch, comment, complain, and forward.
Thanks!
Economics
All Reason Magazine articles in the "Economics" topic.