RSSCOMPANIES: INDUSTRIES:
Forget Obama - Fear the Real State Capitalists
Ian Bremmer and Sean West
Since President Obama has taken office, a chief assertion from his critics has been that he is socialist. But there is little evidence that he wants to dramatically revise the U.S. economic system. While imprecise accusations of socialism score political points for the accusers, in listening closer to Obama's critics they seem to actually be accusing him of being a state capitalist
Imperative Need for America to Become an Innovation Nation
Arianna Huffington
On a recent flight, I started reading 'Innovation Nation,' the new book by John Kao. It was both frightening and inspiring. Frightening because of the details it provides about the ways America is falling behind the rest of the world; inspiring because Kao imbues it with a sense of optimism and great possibility. Yes, there is much to be concerned about
Jobs Bill a Tough Call for Democrats
Jessica Rettig
With the unemployment rate stuck at around 9.7 percent, a Senate vote on a bill to extend unemployment benefits and boost job creation should be an easy 'yea,' a way to win points with voters in a tough economy. But this year is different
What Soldiers at War Can Teach Us About Surviving Financial Warfare
Arianna Huffington
Right now, the perils we are facing are not as tangible and immediate as those faced by our soldiers. I don't mean to draw an equivalency to the deadly threat our men and women in uniform are bravely facing every day. Yet, This economic crisis has put into question the American Dream and threatens the very survival of the middle class as the economic and cultural engine of our country
5 Things to Know About the Newest Jobs Bill
Liz Wolgemuth
When it comes to jobs, the White House and Washington have managed to plug the leak, but they haven't yet found a way to jumpstart hiring. And that's a problem, as 15 million unemployed Americans continue to search for work, nearly 7 million of whom have been hunting for more than six months. Here are five things to know about the newest jobs bill
New Home Sales Plummet to Record Low
Luke Mullins
Home sales activity plummeted in May, as a key housing stimulus was removed from the market.
The Housing Market's Unexpected Drop
Luke Mullins
Home sales declined unexpectedly in May, even as federal stimulus efforts kept transaction levels artificially elevated.
When Obama Trades Jobs for a Higher Priority
Liz Wolgemuth
If there's one message that has tolled consistently from the mouth of nearly every White House official over the past two years, it's that 'jobs are our top priority.' But the administration's strict moratorium on deepwater drilling would seem to trade jobs for a higher priority
When National Politics and Home-State Economics Collide
Rob Silverblatt
What do a Democrat from Arizona, a Republican from Massachusetts, and a judge from Louisiana have in common? In a nod to home-state economics, all three have recently made moves to upset often-fragile compromises at the national level.
Reasons -- and Ways -- to Splurge This Summer
Kimberly Palmer
We live in an era of frugality. Splurging has become somewhat passé. Tips for saving on everything from groceries to home purchases abound. But what if we've gone too far? What if we should be spending more, not less? Some intriguing new research from the world of behavioral economics suggests that we might be better off with a slightly looser grip on our cash. So what is the "right" amount of indulgence?
What China's Currency Reform Means For Investors
Rob Silverblatt
The Chinese government's move to allow its currency, the renminbi, to appreciate against the dollar provided a big boost for U.S. stocks as investors expressed their confidence that American companies will be able to gain a firmer foothold in China's notoriously protective economy.
The Democrats' Economic Vision Problem
Jonah Goldberg
We are constantly told that the American working man is so much worse off than he used to be. And if you measure income one way, you can make that case. Indeed, the Democratic Party in recent years has become obsessed in looking at the economy only in that one negative way to justify its avocation: giving more stuff to the poor and middle class because they are falling behind. However, ...
Urban Abandonment
Jesse Jackson
America's cities are in trouble -- and desperately needed help may not be on the way. Will America's cities turn into cauldrons of poverty, desperation and fear? Or will we revive our cities and rebuild the broad middle class in the process?
Coping With China's Financial Power
Ken Miller
It is true that China's approach to economic development has turned that country into a lopsided giant, an export juggernaut with one huge financial arm. Never before has China had this much financial might, and it is now experimenting with how best to use it in its relations with other states. Although China sometimes sounds ambitious, it is being prudent.
Financial Reform's Uncertain Promise
Sebastian Mallaby
Politically, the Senate's financial reform bill is a victory for President Barack Obama. Substantively, the Senate bill could be significant or insignificant, depending on how it is implemented. Its main provisions are likely to mitigate financial risk without solving the threat posed to the ultimate insurers of the system -- governments and taxpayers.
The Way We're Working Isn't Working
Arianna Huffington
From Wall Street, to the lagging economy, to Greece and the 'euro zone,' to our broken regulatory system, to the high-speed computer trading system that might have played a role in the recent stock market mini-meltdown, to those two wars we're still in a decade later, it's clear that something is wrong.
What Gold Can and Cannot Do For You
Ben Baden
While the Euro has taken a hit, gold has shot up to all-time highs, above $1,200 per ounce. Investors must decide for themselves whether or not commodities like gold belong in their portfolio, but for those who want to know what all the fuss is about, here are a few things to know
Why Some Women Skirt the Wage Gap
Liz Wolgemuth
Take a look through the Labor Department's data on wages and you'll see an astonishing pattern. Nevermind modernity and women's liberation, men still make more than women in nearly all occupations. If a woman must work but she cannot provide the necessary level of income, her entire household suffers the cost.
The Crippling Price of Public Employee Unions
Mortimer B. Zuckerman
The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets. There is a mounting sense that taxpayers are being taken for an expensive ride by public sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay.
European Union Funding Proposal Is Only the Beginning
Ian Bremmer and Preston Keat
The dramatic European Union funding proposal is an important first step. Next comes enforcement of tough fiscal reform guidelines, which introduces a series of new political challenges and risks.
Why Wall Street's Gain Has Been America's Loss
Arianna Huffington
Jobs -- everybody is in such total agreement that we need more of them that the word is in danger of becoming meaningless, of going from tangible policy to talking point. In Washington, saying you're for jobs has become just another obligatory, perfunctory throat-clearing preamble. However, not all jobs are created equal when it comes to the economy
Euro Crisis has American Fingerprints
William Pfaff
The obituaries written of the European currency, the euro, have demonstrated the divergences in national and cultural temperaments, the European funereal and laden with gloom about the future, but unyielding, and the American and British cheerfully and self-satisfiedly shoveling earth onto a casket of euros already six feet into the ground. Defy the markets, will they, these Europeans!
Wall Street Probes: Collateralized Debt Obligations
Rob Silverblatt
Collateralized debt obligations, once hailed as the ingenious brainchildren of a Wall Street that knew no bounds, are now at the center of a widening government probe into the nation's most prominent banks. And as the focus gradually shifts from Goldman Sachs to all of Wall Street, CDOs have become the rallying cry for those who see the need for regulators to erect walls between banks' divisions
Voters See Debt Crisis. Why Doesn't Washington?
Mary Kate Cary
It should come as no surprise that politicians spend even as families have to cut their budgets. That's because to an elected official, the biggest 'toxic asset' on the books these days is the federal budget deficit. No one wants to touch it. For years, both parties engaged in pandering, finger-pointing, and overheated rhetoric on the subject of taxes, spending, and the national debt
Social Security Inflation Adjustment Debate
Luke Mullins
Should the government create a distinct consumer price index for older Americans to protect the purchasing power of Social Security checks from inflation?
European Debt Crisis Affects Investments
Rob Silverblatt and Ben Baden
Despite the initial confidence boost, a number of questions remain unanswered. Chief among them is what European Union countries will do to keep the problem from spiraling out of control after this temporary stopgap expires. Here you'll find explanations as to what has already happened and tips for what's on the horizon
Greece: Model of Socialistic Excess
Ross Mackenzie
Greece is one of the poorest kids on the European bloc. It also is one of the most carelessly socialistic, which largely explains why it is so poor. The birthplace of democracy, today it is a model of socialistic excess. Unable to reduce its debt by inflating its own currency, Greece has had to call upon other EU countries to bail it out.
Who Got Hit Worst in the Market Crash
Mark Miller
Media coverage of the 2008 market crash often focuses on investors close to retirement age. The story line is that pre-retirement investors took some of the worst hits and compounded their difficulties when they panicked and sold at market bottom. All true. But, the overall record of these close-to-retirement investors actually is considerably better than those of other age groups
Expeditionary Economics: Spurring Growth After Conflicts and Disasters
Carl J. Schramm
The United States' experience with rebuilding economies in the aftermath of conflicts and natural disasters has evidenced serious shortcomings. The economies of Iraq and Afghanistan continue to falter and underperform. Meanwhile, the earthquake in Haiti revealed deep economic problems. Yet there is a proven model for just such economic growth right in front of U.S. policymakers' eyes
Why More Diplomacy Won't Keep the Financial System Safe
Marc Levinson
The global financial crisis that began in 2007 marked the failure of an ambitious experiment in financial diplomacy. International agreements on the regulation of banking and securities did little to protect against a financial meltdown that severely damaged the world economy
Muddling through Greece's Tremors
Marc Levinson
Global markets plunged as investors continued to react with nervousness to the prospects of Greek's debt crisis spreading to other countries on the European Union's periphery. This is primarily because Greece remains in a murky situation despite its parliament's approval of tough new austerity measures linked to its bailout
Greece Financial Crisis Raises Doubts About European Union
Bonnie Erbe
The European Union's woes over Greece's financial crisis strikes me as neither odd nor unexpected
Bigger Is Better: Case for Transatlantic Economic Union
Richard Rosecrance
The 27 states that now compose the European Union will soon be accompanied by almost ten others, making Europe stretch from the Atlantic to the Caucasus. Something similar, if more gradual, has been occurring on the other side of the Atlantic as well with the formation of NAFTA. Perhaps, the time has come for establishing a transatlantic free-trade area.
European Union: A Fragile Partnership
William Pfaff
The present crisis of the European Union was inherent in the creation of the institution itself. It is a political-economic hybrid and was intended to be an alliance of mutually supportive qualities. The qualities have instead proven a contradiction
Goldman Sachs Testimony Boost for Financial Reform
Jessica Rettig
The characters were prepped and suited, props were set prominently in place and cameras went live. The 11-hour showdown between senators and top officials of Goldman Sachs may not have quite lived up its billing, but it was dramatic political theater. And it did produce political fallout: Senate Republicans dropped opposition to opening debate on financial regulatory reform legislation
A Culture of Criminality on Wall Street
Robyn Blumner
As the financial reform bill wends its way through the Senate, one has to wonder whether lawmakers understand the true nature of the massive fraud that was perpetrated on this country. They should be listening to William Black.
Greek Debt Crisis May Hurt Latin America Economy
Andres Oppenheimer
I don't want to be a party pooper, but I'm not convinced by the latest headlines projecting that foreign investments in Latin America will soar by up to 50 percent this year. If the problem remains restricted to Greece, the forecast for Latin America stands. However, if the financial crisis spreads to other European countries, especially Spain, it's a different story
Why April's Unemployment Rise Shows Workers Hopeful Again
Liz Wolgemuth
On the day following the U.S. stock market's nearly 1,000 point intraday plunge, the Labor Department reported that employers added 290,000 jobs in April, the biggest monthly gain since March 2006. While it remains to be seen what effect it will have on investors who are focused on the sovereign-debt crisis in Europe, this is good news for recession-weary job seekers.
Smart Moves for Tomorrow's Higher Interest Rates
Luke Mullins and Rob Silverblatt
As the financial system imploded, yields on 10-year treasury notes fell to 2.18 percent at the end of 2009. That was the lowest level in nearly 50 years. But as the economic recovery picks up steam, longer-term interest rates are expected to steadily march higher. Here is a look at seven moves consumers can make ahead of the upcoming rate increases
Still the Optimist
Paul Greenberg
It is difficult now to conjure up the semi-hysterical atmosphere hovering over the American economy this time last year. All was lost, the end was near. Or at least nearish. Every day brought another harbinger of doom
The Global Glass Ceiling: Why Empowering Women Is Good for Business
Isobel Coleman
When women are educated and can earn and control income, a number of good results follow: infant mortality declines, child health and nutrition improve, agricultural productivity rises, population growth slows, economies expand, and cycles of poverty are broken. But the challenges remain dauntingly large
Life in the Age of 'Much Worse Than We Thought It Would Be'
Arianna Huffington
What was just a troubling oil spill is now, according to Interior Secretary Ken Salazar, 'a very grave scenario,' and 'potentially . . . very catastrophic.' In other words, it's much worse that we thought it would be. Has there been a crisis in the last decade that turned out to be better than we thought it was going to be?
Is Latin America Booming? Not Quite Yet
Andres Oppenheimer
If a Martian had descended on earth last week and read the headlines, he would have thought that Latin America is the world's new superpower.
Some Latin Currencies May Be Too Strong
Andres Oppenheimer
Just when Latin America had come out relatively unscathed from the world economic crisis, a new threat could endanger the region's growth: its increasingly strong currencies. On the surface, the steady appreciation of most Latin American currencies has a feel-good domestic effect. But, at the same time, strong local currencies will hurt the region's exports.
Euro's Fiscal Policy Will Give Pause to Reserve-Currency Allocators
Ian Bremmer & Jon Levy
The Greek crisis is making clear a reality long ignored or glossed over: Eurozone fiscal policy is messy and opaque. This is not a short-term phenomenon, nor can any concerted action change this fact. Global central banks, sovereign wealth firms and other major entities are going to revise their currency-allocation strategies based on this new recognition.
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.
Economists Jobs & Careers Search
Find your next job as an Economist today. In one simple search, get free access to millions of employment opportunities from thousands of websites.
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.
Cities, Websites And Hotels At Odds Over Taxes
Online travel companies such as Orbitz and Expedia don't believe they need to collect taxes on the full amount they charge for hotel rooms. This has led to a big lobbying fight in Congress and dozens of lawsuits nationwide.
Pace Of Economic Recovery Slows
U.S. growth slowed to a 2.4 percent rate in the second quarter, the weakest pace in nearly a year. That compares with the upwardly revised 3.7 percent increase in the first quarter of this year.
Is Auto Recovery Here To Stay?
President Obama on Friday wants to call attention to the successes of the bailed-out companies by visiting automakers in Michigan. Micheline Maynard, who has covered the industry for more than two decades, discusses whether or not the good news in Detroit will last.
Optimism Revs Up At GM, Chrysler Plants
President Obama visits GM and Chrysler auto plants in Detroit on Friday to call attention to the successes -- so far -- of the bailed-out companies. A White House report says the industry has added 55,000 jobs, GM will stay open during its usual two-week summer shutdown and Chrysler added another production shift.
Budget Crunch Hits Atlantic City Hard
State and local governments have cut 242,000 jobs since the summer of 2008, and that number is expected to grow as many states face massive deficits. Atlantic City is trying to shore up its finances by firing cops and city workers. Nationwide, these layoffs are causing a drag on the economy.
Foreclosures Rise In 3 Of 4 Metro Areas
While it appears foreclosures may have peaked in metropolitan areas that were initially the worst hit, the crisis is now becoming much more widespread.
Mortgage Rates Hit Another Low: 4.54 Percent
Mortgage rates dropped to the lowest level on record for the fifth time in six weeks, making homebuying and refinancing the most attractive in decades for those who can get loans. Freddie Mac says the average rate for 30-year fixed loans this week was 4.54 percent, down from 4.56 last week. That's the lowest since Freddie Mac began tracking rates in 1971.
New Weekly Jobless Claims Decline To 457,000
Initial claims for unemployment benefits fell last week for the third time in four weeks but remain elevated. The Labor Department says first-time claims for unemployment insurance dropped by 11,000 to a seasonally adjusted 457,000. Analysts surveyed by Thomson Reuters had expected a smaller drop.
Bush-Era Tax Cuts Examined
Tax cuts enacted in 2001 and 2003 are to expire in January unless Congress renews some or all of them. The cost of extending them by a decade: nearly $3 trillion. David Wessel, economics editor of The Wall Street Journal, offers his insight.
Many In Gulf On Road To Uncertain Compensation
Many business owners in the Gulf, from plumbers to beauticians, are filing claims with BP. The ultimate decision about compensation is in the hands of administrator Kenneth Feinberg, unless people want to try their luck in court.
Are Public Pension Funds Sustainable?
The payout of pensions is proving financially burdensome to states and localities. So how sustainable are these pensions? To find out, Robert Siegel talks to Susan Urahn, managing director of the Pew Center on the States, who helped produce their report "The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform." Urahn says states are obligated to pay because it is a state constitutional obligation, and she says, "The likely scenario is taxes will go up to pay the promises they made."
Durable Goods Orders Down 1 Percent In June
Orders to U.S. factories for big-ticket manufactured goods fell broadly in June as the fragile recovery continued to slow. The Commerce Department said demand for durable goods dropped 1 percent -- the second straight monthly decline and the largest drop since August 2009.
Obama Makes Economic Sales Pitch; Who's Buying?
The president has been traveling the country to talk about the economy, but it's far from clear the tour is helping his cause. While the White House says it's not about boosting Obama's approval ratings, critics say the president, like yesterday's rock star, has been touring too long.
In Hard Times, Some Blacks Turn To Hustling
The national unemployment rate is about 9.5 percent, but among African-Americans the figure is nearly 16 percent. So, many African-Americans have turned to the underground economy to make a living.
Consumer Confidence Dips Amid Job Worries
Americans' confidence in the economy has eroded further amid worries about a still-stagnant job market. The Conference Board said its Consumer Confidence Index slipped to 50.4 in July, from the revised 54.3 in June. That was a steeper drop than economists expected. A separate report said home prices rose 1.3 percent in May, but such gains aren't expected to last.
NPR Topics: Economy
NPR news on the U.S. and world economy, the World Bank, and Federal Reserve. Commentary on economic trends. Subscribe to NPR Economy podcasts and RSS feeds.
Cerberus: Out of the doghouse?
After a few conspicuous flops, a private-equity firm gets back to its roots “PEOPLE were prematurely writing the epitaph of our investments and our firm,” says Mark Neporent of Cerberus, a private-equity firm and hedge fund. “Hopefully it’s pretty apparent to people that we’re back.” The firm, named after the three-headed dog in Greek mythology that guards the gates of the underworld, has spent the past two years trying to claw its way out of hell. Two of its largest and best known investments tanked. Chrysler, a carmaker, filed for bankruptcy and GMAC, General Motors’ financing arm, had to be rescued by the American government, which now owns most of it. For Cerberus, an intensely private firm, these were very public embarrassments. Some wondered whether the embattled firm would go the way of those two investments. But Cerberus’s flagship private-equity fund rebounded last year, making up for its 25% fall in 2008. (Its main hedge fund was still down by around 4% in 2009.) Its recent sale of Talecris Biotherapeutics, a blood-plasma company it bought in 2005 for $600m, to a Spanish health-care company for $3.4 billion has added to a sense of revival. Nor has the firm given up hope on Chrysler. Cerberus still has control of Chrysler Financial, the company’s finance arm, and there is talk of turning it into a diversified financial firm. Some say Cerberus may be able to recoup its money or even record a profit on its $7.4 billion investment in Chrysler if it plays its card right on Chrysler Financial. ...
Finance after the crisis: Vigilante on the move
In the first in a series of profiles of financial institutions after the crisis we look at PIMCO, a giant fund manager BILL GROSS has a dual passion for philately and philanthropy. In 2007 he gave to Doctors Without Borders the $9.1m he earned from an auction of his collection of British stamps. He has said he is happy to part with “old friends” for a good cause. But the 66-year-old shows no sign of parting ways with the company he co-founded in 1971, Pacific Investment Management Co (PIMCO), one of the world’s largest bond-fund managers and, since 2000, a unit of Allianz, a German insurer. As co-chief investment officer, he manages PIMCO Total Return, the world’s largest mutual fund with $234 billion of assets. It is as successful as it is big, returning an average 7.5% over the past five years—better than 98% of its peers, according to Bloomberg. PIMCO itself, however, is changing. Having long marketed itself as “the global authority on bonds”, it recently switched to “your global investment authority”. It is too early to claim that crown. But the asset-management industry is sure to feel the effects of any effort by its most respected—and, by many, most feared—member to diversify its portfolio of offerings into equities, exchange-traded funds, risk hedging, valuation services and more. ...
SKS comes to market: Microfight
Can microlenders serve shareholders and the poor? THE loans that microfinance companies make may be tiny but their ambitions can be vaulting. Take SKS Microfinance. Already India’s biggest microlender, with 6.8m clients and 5.8m active borrowers in the year ending on March 31st (see chart), it intends to become the world’s largest by 2012, with 15m clients. To fund this growth, it hopes to raise nearly $350m by selling a 21.6% stake in an initial public offering (IPO) which got under way this week. According to the Consultative Group to Assist the Poor (CGAP), a think-tank housed at the World Bank, the IPO is only the second by a pure microfinance institution, after the offer by Mexico’s Compartamos Bank in 2007. More may follow. CGAP reckons that SKS’s move “should set the stage for future IPOs in the sector.” The omens are good. On July 27th SKS announced that it had raised $64m from anchor investors, including JPMorgan Chase, Morgan Stanley, and India’s ICICI Prudential and Reliance Mutual Fund, at the top end of the expected price range. ...
Buttonwood: Paying the price
Time to reassess how fund managers are rewarded FUND managers have been some of the biggest beneficiaries of the financial sector’s growth over the past 30 years. Bankers may routinely earn million-pound bonuses but some hedge-fund and private-equity managers have become billionaires. Seldom has so much been earned by so few. These riches have been generated despite the ability of investors to take advantage of low-cost exchange-traded funds and index-trackers. Investors have surged off-piste in search of higher returns. In aggregate, however, they will merely end up paying higher fees (typically, a 2% annual fee plus 20% on performance), a phenomenon this column has described as “catch two-and-twenty”. ...
Correction: Big Mac index
Correction: Burger-lovers in Argentina were enjoying a special discount on Big Macs when we collected data for our index (July 24th 2010). At nornal prices the peso is undervalued by 5% not 52%. Sorry for the whopper. This has been corrected online. ...
Economics focus: A wealth of data
A useful new way to capture the many aspects of poverty WHAT IS poverty and when is a person poor? Most would agree that poverty involves not having enough of certain things, or doing without others that richer people take for granted. But what is “enough”, which goods and services really matter, and who should decide these questions—researchers, governments or international agencies—are less tractable issues. Perhaps the poor themselves should have the final word. But this presents its own problems. Tabitha, a 44-year-old woman from a slum outside Nairobi, told researchers from Oxford University that going without meals was “normal for us”. Diminished expectations are only one of the effects of dire poverty. In the world of international development, most have rallied around the “dollar-a-day” poverty line (or more precisely, the $1.25-a-day measure) and its less acute cousin, $2-a-day poverty. These World Bank measures judge a person to be poor if his income falls short of a given level, adjusted for differences in purchasing power. In principle poverty rates based on these measures count the fraction of people in a country who lack the resources to buy a notional, basic basket of goods. ...
European banks: Judgment daze
Europe’s stress tests were a mixed affair. Many banks still face an uphill struggle to finance themselves “IT’S an analyst’s wet dream,” says one banker of the European stress tests announced on July 23rd. If financial detail is what turns you on, then the exercise delivered in style with hundreds of pages of information on 91 banks’ solvency and their exposures to the bonds of under-siege governments in the euro zone. As a piece of organisation, if not quite a triumph, it was an impressive feat. But whether all that new disclosure or the tests’ conclusion—that seven European banks need a piffling €3.5 billion ($4.5 billion) of new capital—help the banks escape their funding problems remains to be seen. The initial signs were modestly encouraging. Credit-default-swap (CDS) spreads, a proxy for banks’ borrowing costs, improved slightly across Europe, according to Markit, a research firm. Banks’ share prices rose too, although that had as much to do with the news on July 27th that the new Basel 3 rules on the sector’s capital and funding would be watered down. Still, wide differences remain. Five of the seven banks to fail were Spanish savings banks (see article): many of the cajas still face CDS spreads many times those of safer firms. On July 26th Bankinter, a midsized Spanish commercial bank that just scraped through the tests, paid a record spread of 240 basis points to issue a mortgage-backed bond. ...
Spain's cajas: Thinking outside the box
Should the savings banks be embraced by investors, or avoided? SPAIN’S savings banks, or cajas, have survived for nearly 200 years without the help of shareholders. But lots of these institutions, which are largely controlled by regional politicians, are now short of capital and on the hunt for private investors. A delegation from the Confederation of Spanish Savings Banks (CECA) toured European cities this week, touting what it called the “lighthouse of a new Spanish equity opportunity”. Bad analogy. A lighthouse warns of dangers, and there are plenty of these in the cajas, chiefly political meddling and a high exposure to dud property loans. The state has already pumped €14.4 billion ($18.7 billion) into the sector, most of it from its Fund for Orderly Bank Restructuring (FROB). Five cajas failed the stress tests, and will require another €1.8 billion in capital. Another four came close, and may also need to raise funds. ...
China's financial markets: Premium puzzle
Enthusiasm for Chinese companies abroad but not at home OF THE many oddities surrounding Chinese stockmarkets, the most glaring has long been the premium mainland investors pay for shares listed domestically over what those same shares trade for in Hong Kong. Now the puzzle is why the premium has disappeared (see chart). The usual explanation for the existence of the premium ran as follows. A closed capital account and a tightly run financial system left Chinese investors with only three places to put their money: property, with its high transaction costs and manic price moves; bank deposits, offering diminutive interest; or shares, with price moves as big as property but lower dealing costs. That paucity of choices drove shares higher than in places with more options. ...
Burgernomics: When the chips are down
The latest Big Mac index suggests the euro is still overvalued Correction to this article ASK Western policymakers how they intend to squeeze growth from their sluggish economies and most pin their hopes on higher exports. That makes exchange rates an especially sensitive topic. A weaker currency improves the competitiveness of a country by making exports cheaper. It also encourages domestic consumers to switch from expensive imports to domestic goods. The Economist’s exchange-rate scorecard, the Big Mac index, shows that currencies continue to be cheap in the developing world but overvalued in Europe. ...
Banking and IT: Computer says no
Big banks need IT reform almost as badly as regulatory change WHEN Metro Bank, which claims to be Britain’s first new high-street bank for more than 150 years, opens its first branch on July 29th in inner London, customers will notice the lollipop jars and water bowls for dogs. But what really sets Metro Bank apart is its state-of-the-art IT system. New customers will be able to get their account, chequebook, debit and credit cards within 15 minutes, and all the data for each customer will be kept in one place. That puts Metro Bank in an enviable position. IT at many other Western banks is often a hotch-potch of homemade systems. Banks were the first to use mainframes in the 1960s; many are still using the original applications because it is risky to swap them out. Over the years more and more systems have been slapped on. Banks were often profitable enough to afford big IT teams, writing programs themselves rather than buying off the shelf. ...
Buttonwood: Losing confidence
Looking at the dollar in the old-fashioned way WHEN the Bretton Woods system was cracking in the early 1970s the price of a troy ounce of gold, in dollar terms, was raised in two steps from $35 to $42.22. This was, in effect, a devaluation of the dollar. The authorities then still thought it worth expressing the shift in terms of bullion, rather than against another currency like the Japanese yen or French franc. In the 1930s Franklin Roosevelt had a specific policy of devaluing the dollar against gold, pushing the price from $20.67 to $35 in the belief this would push commodity prices (and thus farm incomes) higher and reduce the burden of debt service. ...
American bank results: Surviving, not thriving
Banks’ bad debts are shrinking but so too are revenues “PEOPLE may look back at this quarter as essentially the first earnings period of the post-crisis era” for American banks, says Michael Poulos of Oliver Wyman, a consultancy. The comment is intentionally double-edged. The good news is that loan losses are easing. At JPMorgan Chase second-quarter charge-offs (of loans viewed as beyond repair) fell by 28% compared with the previous quarter, for instance. That allowed the banks to release some of the reserves set aside to cover dud loans. However, this will provide only a temporary pop to earnings. Although the worst is over, many of the forces helping banks in the boom times—such as falling interest rates and buoyant employment—are gone for years. ...
Economics focus: Agents of change
Conventional economic models failed to foresee the financial crisis. Could agent-based modelling do better? MAINSTREAM economics has always had its dissidents. But the discipline’s failure to predict the financial crisis has made the ground especially fertile for a rethink. Critics tend to agree on what is wrong with current macroeconomic forecasting. A hearing of the House of Representatives Committee of Science and Technology on July 20th targeted the “dynamic stochastic general equilibrium” (DSGE) models used by the Federal Reserve and other central banks. The hearing aimed to “question the wisdom of relying for national economic policy on a single, specific model when alternatives are available.” The Institute for New Economic Thinking in New York, which had its inaugural conference in April, has attacked many of the assumptions, including efficient financial markets and rational expectations, on which these models are predicated. These assumptions were clearly too simplistic. But there is less agreement on what should replace the old ways. ...
Fannie Mae and Freddie Mac: Unfinished business
Can the American mortgage market survive without taxpayer support? THE hefty financial overhaul that Barack Obama signed into law on July 21st (pictured) left behind one big piece of unfinished business. In 2008 Fannie Mae and Freddie Mac, mortally wounded from losses on loans acquired during the bubble, were placed in “conservatorship”, a halfway house between bankruptcy and outright nationalisation. There they remain, their losses duly covered with new injections of capital by the Treasury—$145 billion so far. Tim Geithner, the treasury secretary, has promised to address the matter of Fannie and Freddie by early next year but so far he has no answers, only questions (literally so: in April he asked the public to comment on seven of them). The hesitancy is understandable. Millstones though they are, the two firms remain critical to the economy. In the first quarter they and Ginnie Mae (which unlike Fannie and Freddie has always enjoyed the explicit backing of the state) guaranteed 96.5% of all newly originated mortgages, according to Inside Mortgage Finance, a newsletter. ...
Greece's debt auction: An uneasy calm
Panic about the euro zone has receded—for now MOST people are not satisfied with mediocrity. But Greece’s auction of six-month treasury bills on July 13th turned inferiority into a cause for celebration. The beleaguered country managed to raise €1.6 billion ($2 billion) at a yield of 4.65% in its first venture into the markets since a €110 billion rescue package from the European Union and the IMF was secured in May. That is hardly dazzling. The yield was still higher than when Greece issued similar paper in April, before the bail-out package was announced, and over three times what it was in January. Germany’s one-year bills yield ten times less than Greece’s six-month ones (see chart). Short-term bill auctions to roll over maturing debt are encouraged in the deal reached by Greece, the EU and the fund but the threat of an eventual debt restructuring makes investors unwilling to lend for long. Greece’s public-debt agency was forced to drop plans to auction 12-month bills. It is unlikely that Greece will attempt a sale of longer-term bonds before early 2012, and it may find few willing buyers even then because of the country’s increased debt burden. ...
Buttonwood: A mirage, not a miracle
The banks' contribution to the economy has been overstated THE huge sums earned by banks and their employees over the past 30 years is a recurring puzzle. How has finance done so well for itself and why haven’t its returns been competed away? Andrew Haldane, the executive director for financial stability at the Bank of England, has co-authored another incisive contribution to this debate in a chapter of a new book* published by the London School of Economics on July 14th. Analysing the recent performance of the banking industry, he concludes that it has been “as much mirage as miracle”. ...
Economics focus: Easy-money riders
An early warning about the dangers of keeping interest rates low IS TOO much being asked of central banks now that governments are embracing austerity? In its recent update on the world economy the IMF said that interest rates can and should stay low “for the foreseeable future” to mitigate the effects on aggregate demand of tighter fiscal policy. Indeed, central banks should stand ready to do more if the recovery falters—to be “the first line of defence” against renewed recession. That would mean holding interest rates close to zero as well as more imaginative measures such as purchases of government bonds. Keeping interest rates low while fiscal support is withdrawn is a natural policy mix. Central banks can adjust their policy settings swiftly to shifts in the business cycle, but politicians can take an age to agree upon and implement changes to taxes and to public spending. The costs of further fiscal easing to future taxpayers are clear enough but there is no obvious cost to easy money. The risk of rising inflation—the standard penalty for lax monetary policy—is slight given ample spare capacity in rich economies. Savers may complain but interest rates ought to be low where there is an excess of savings and spending is weak. ...
Goldman Sachs: Bombmakers bombarded
The world’s pre-eminent investment bank has more than just image problems to worry about THE chairman of America’s Financial Crisis Inquiry Commission recently suggested that Goldman Sachs had built a bomb, in the form of toxic securities, and then constructed a bomb shelter, by betting against the market. But the securities firm’s top brass, led by Lloyd Blankfein and Gary Cohn (pictured right and left), must be feeling anything but safe as its role in the crisis and—thanks to looming regulatory reform—its very business model take a pounding. Speculation is growing that the firm will have to sacrifice one of its top men if it wants to stop the bombardment. Having at first been applauded for risk-managing its way through a crisis that destroyed many of its rivals, Goldman has been recast as a villain that represents capitalism at its most egregious. It stands accused of everything from bilking the taxpayers who rescued AIG, a huge insurer to which it was a counterparty, to helping Europe’s sovereign basket-cases hide their debts. Goldman has hardly helped itself, bungling its public relations by insisting it would have survived without government support and continuing, like most other banks, to pay its “talent” unseemly sums. “The worst advice Goldman has ever given is to itself on how to manage through this,” says Mike Mayo, an analyst at CLSA, a brokerage. ...
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
Can You Impose an Externality on Yourself?
Garth Brazelton thinks so, in an argument I find somewhat persuasive: My issue is that he keeps saying 'sin taxes' are not Pigovian. I've disagreed on this point, and I disagree continually. A basic definition of a Pigovian tax is: a tax levied on a particular behavior in the market that is generating negative externalities. The idea is the tax re-aligns the real social cost with the benefits of the activity. Mankiw distorts this defintion and implies that negative externalities can only occur as an action by one group negatively affects another... The externality is there - it's not external of self at that time, it's external of self OVER time. It's correcting behavior that, if a person had complete foresight and 20/20 clarity of the totality of their life, one likely would do less of. ...And this is ignoring the very real argument that many 'sins' DO have real negative external consequences at a given point in time - consequences on family and relationships that, while often non-pecuniary, cannot be ignored.
...
Raising Revenue Through a VAT
I am a supporter of the VAT, so I was interested in reading Veronique de Rugy's anti-VAT piece The Wrong Policy at the Wrong Time. I was surprised to ...
How Much Does Public Policy Contribute to Long-Term Unemployment?
Arnold Kling quotes from a terrific piece by Eric S. Raymond:
We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it's not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can't pull enough weight to justify a paycheck; it's the marginal ones, the mediocre, and the mildly dysfunctional.
...
Oil and Ingenuity
Five years later, We Will Never Run Out of Oil is still one of my most read articles and the source of the majority of the angry e-mails ...
How to Think About Keynesian Economics?
The international trade / public policy course I teach at Ivey is quite Keynesian. Next time I teach the course I will give my students Arnold Kling's How I Think About Keynesian Economics - it is absolutely brilliant. I particularly find this part useful:
A Good But Fatally Flawed Argument For Higher Inflation
Paul Krugman makes an excellent argument based on behavior economics on the benefits of higher inflation:
I would add, however, that there's another case for a higher inflation rate -- an argument made most forcefully by Akerlof, Dickens, and Perry (pdf). It goes like this: even in the long run, it's really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts.
...
Do We Need To Rethink Canadian Monetary Policy?
A terrific post at Worthwhile Canadian Initiative - Rethinking Canadian macroeconomic policy. A good read even if you're not Canadian. Most interesting is the suggestion is for the Bank of Canada to raise the target inflation rate from 2% to 4%. I am skeptical of our ability to measure long run inflation, but in the period of a year or so we can certainly do so.
I do not believe a higher inflation rate would cause too many economic problems so long as the Bank of Canada could keep it stable between a 3 and 5% bound. I can't imagine the menu costs problem is a great deal more of a problem at 4% rather than 2%. There would be some distributional effects - the Bank of Canada would earn more in seignorage, people on fixed incomes would lose, the Canadian dollar would depreciate (assuming our trading partners did not follow the same policy), so exporters would win but imports would become more expensive.
I agree with Stephen Gordon when he states:
My point of departure is 'If it ain't broke, don't fix it'. And it's not at all clear to me that the 2% target has failed as a policy... We could probably safely trade low and stable inflation against higher and stable inflation as an insurance policy against hitting the lower bound, but it's not clear that this choice is available to us... Did we hit the lower bound, or did we just graze it? The Bank never did see fit to actually implement a policy of quantitative easing, even though it (quite rightly) laid out the groundwork to do so.
One frustrating thing through this whole recession or crisis or whatever you want to call it is how many have equated monetary policy with setting interest rates. However, that is far from the Bank of Canada's or the Federal Reserve's only policy option, despite claims to the contrary by well known economists. As someone who teaches macroeconomics, I must take my share of the blame. For a generation we taught that monetary policy was simply altering the Federal Funds Rate. Occasionally we talked about altering the reserve ratio. I guess it is not surprising that so many believe the zero bound problem is such an important one - we never taught students that there are alternatives!
Cafe Hayek on Peak Oil
Some terrific links here: We're Not Running Out Of - Or Even Low On - Sources of 'Nonrenewable' Energy. I am not a geologist, so I am not going to provide any commentary on physical reserves. What I can comment on is the bad economics behind the peak oil theory (see: We Will Never Run Out of Oil). Peak oil theorists are a lot like basketball's Washington Generals - they haven't got anything right since 1971.
Of Course There's a Case for a VAT!
Tyler Cowen asks: Is there a case for a VAT?
I'm shocked he has to ask this - of course there is! The U.S. federal government has very few options ...
Did The Stimulus Work?
King at SCSUScholars on the evidence (or non-evidence) that the stimulus package "worked": Most of what we write about the effects of stimulus are just that, "an attempt to gain knowledge." A bureaucrat writes down some numbers. Reporters and bloggers find flaws. Econometric models estimate the effects, but those models were used to propose the policy put in place. It's not likely those models would go back and say the proposed plan didn't work: Econometric models aren't built to do that: If the model has as a premise that future government spending will create jobs, it isn't going to tell you that past government spending did not. Meanwhile, those in political opposition will look to find contradictions when none really exist. (GDP growth can lead employment growth.) And people get angrier and cynical. There is nothing wrong with saying we don't know. It might have worked; it might not have. What we know is there are between three and four million fewer jobs than a year ago, and the deficit is larger. We want to know more. We are trying to know more. And if the volume of studies since 2000 of the Great Depression are any indication, we'll still want to know more a century from now.
...
About.com Economics
Get the latest headlines from the About.com Economics GuideSite.
Copy Fight
Since 2003, Clayton Cramer, an author and historian who has
written numerous books
on the right to keep and bear arms and the evolution of America’s
gun culture, has edited a website that is currently called The Armed Citizen.
With the help of another contributor, David Burnett, Cramer uses
the site as a repository for newspaper articles that document
instances where firearms owners use their weapons in self-defense.
Over the years, the pair had posted excerpts and complete text of
approximately 4,700 articles, and in doing so, they created a
unique and useful archive for researchers, activists, and people
who simply enjoy feel-good tales of homeowners protecting
themselves and their property from intruders and assailants by any
means necessary. In all that time, they say, they’d never received a single
request from a copyright owner to remove an article. Last week,
however, Cramer and Burnett were caught off-guard by a figure who
aims to establish himself as the new sheriff in the lawless wilds
of cyberspace. He was packing a .36 caliber copyright infringement
lawsuit and
he didn’t bother with a warning shot. Instead, Cramer and
Burnett only learned they were being sued after a reporter from the
Las Vegas Sun contacted them about the case. The man who brought the suit against The Armed Citizen
is named Steve Gibson. He’s the founder of a company called
Righthaven. Righthaven’s business model involves acquiring the
copyrights for specific articles originally published by the
Las Vegas Review-Journal, then filing lawsuits against
website owners who have posted those articles without permission.
In March, it filed its first lawsuit against a New Jersey company
called MoneyReign. Since then, it has filed at least 88 additional suits against
bloggers, message-board operators, advocacy organizations, and
various other websites. So far, all of the lawsuits have involved
articles published by the Review-Journal, but in a phone
interview, Gibson told me that Righthaven does have other clients.
“It will become plainly evident who they are within the next 30
days,” he exclaimed. Some of them, he added, produce content other
than newspaper articles. Cramer and Burnett are frustrated that Righthaven didn’t give
them an opportunity to remove the articles in question. “With our
e-mail addresses right there on the front page [of our site], all
it would have taken is an e-mail asking us to remove or alter the
listing so as not to infringe,” Burnett said in an email response
to my questions. “By not contacting any of the websites with a
takedown notice beforehand, they're showing they're interested in
money, not resolution.” In a recent
Wired.com article, Gibson was certainly candid about the
money-making potential of his approach. “Media companies’ assets
are very much their copyrights. These companies need to understand
and appreciate that those assets have value more than merely the
present advertising revenues,” he said. But in my phone conversation with him, he also characterized his
approach as the best way to discourage infringing activity. “There
are these folks out there who say, ‘Oh, they should send out a
takedown letter.’ But people have been sending takedown letters for
over a decade now and it’s had little or no effect on
infringements. Infringements continue to grow.” His solution is to employ the deterrent of statutory damages.
“Statutory damages are damages where you don’t have to establish
what your economic losses are,” he told Las Vegas Sun
journalist Jon Ralston in a video
interview. “The Supreme Court has made it very clear that the
statutory provision was put in the Copyright Act in order to create
a deterrent, a punitive or penalty measure, because it’s so easy to
have copyright infringement.” To file an infringement suit in court, a copyright holder must
first register the work in question with the U.S. Copyright Office.
In addition, to qualify for statutory damages, the copyright holder
must register the work within three months of publication of a work
or prior to its infringement. In the case of The Armed
Citizen, for example, the Las Vegas Review-Journal
published an article entitled “Slain Store Clerk, 77, Mourned”
in its print edition on May 17, 2010. Three days later, Burnett
posted the article in its entirety on The Armed Citizen,
minus the authors’ names but including a link back to the
Review-Journal. At some point, Righthaven discovered
The Armed Citizen’s post.
It registered the article with the Copyright Office on July 6,
2010, thus meeting the requirement that will allow it to seek
statutory damages if it can prove that Cramer and Burnett knew they
were committing infringement. While it costs at least $35 to register a work with the
Copyright Office and another $350 or so to file
a lawsuit, the potential pay-off can be huge. A single instance
of willful infringement can yield statutory damages of
$150,000. In the dozen or so complaints I read, all involved sites that
had posted articles in their entirety. In some cases, Righthaven
documented multiple allegedly infringing articles that defendants
had posted. In others, it documented just one. For example, a
pastor in Las Vegas posted a single op-ed from the
Review-Journal on his blog. A woman in Boston, who
maintained a blog purportedly written by her pet cat Artie, posted a
single article about a fire at a nature sanctuary. At Chillingeffects.org, a website that aims to protect Internet
users from unwarranted legal threats, a FAQ advises
that “the fair use doctrine, as currently interpreted by the
courts, probably would not entitle you” to “copy an entire news
article from a commercial news website and post the article on
[your] site.” In an
Online Media Daily article that reported on several of
Righthaven’s earliest lawsuits, Sam Bayard, assistant director of
the Citizen Media Law project, stated, “It’s unlikely that there’s
any kind of fair use defense for simply posting an entire article,
regardless of the motivation or beliefs about the law.” Facing the specter of imposing fines, and lacking strong
arguments for fair use, an out of court settlement is the least
nightmarish scenario for many of the individuals and mom-and-pop
organizations Righthaven has sued to date. With six full-time
employees and an annual
budget of around $1 million, NORML, the pro-marijuana advocacy
organization, is likely one of the larger entities that Righthaven
has sued. In addition, in NORMAL’s case, Righthaven was not
eligible for statutory damages because it hadn’t registered the
article it accused NORML of infringing within three months of its
publication at the Review-Journal. Even so, NORML eventually decided it made more sense to
propose a settlement than to sink time and money into what
could end up being a lengthy and expensive defense. “The cost of
paying attorneys is what firms like Righthaven rely on,” Clayton
Cramer charges. “The threat of having to spend thousands to tens of
thousands of dollars on a defense pretty well guarantees that they
can demand a settlement that is of similar scale—and get it.” Having the articles all in one place also made it easier for
researchers to use the archive while analyzing and categorizing
thousands of incidents. And, finally, one suspects, posting
complete or near-complete articles was simply easier than
summarizing them all. The Armed Citizen was a part-time
gig—had it required a lot of time or cost a lot of money to
develop, it may not have developed at all. Were that the case, the
world would have one less useful research resource, and the Las
Vegas Review-Journal would still be yearning for the good old
days when information was scarce and expensive. Which is not say there’s no place for copyright enforcement on
the web. As a freelance writer, I have a predictable attachment to
the old-fashioned idea that content creators should be able to
largely call the shots on how their work is disseminated. And a
strong desire to see those who unfairly appropriate the work of
others get their just deserts. But if the sites Righthaven has sued
to date represent the worst threats to the
Review-Journal’s ongoing viability, then the destructive
force of copyright infringement has been overstated. And if there
are more substantive threats out there, why not sue them? Surely
they can’t be any harder to find than a cat blogger from Boston who
posted a single infringing article on her site. Contributing Editor Greg Beato is a writer living in San
Francisco. Read his Reason archive here. UPDATE: David Burnett writes to clarify that it
has not yet been established if Armed Citizen's usage of
the article in question was an infringement or a fair use, and that
his statement should not be taken as an unintentional admission of
guilt.
So far, none of the lawsuits Righthaven has filed have gone to
trial. According to Gibson, Righthaven has reached resolutions with
around 30 defendants to date. Citing confidentiality requirements,
Gibson refused to divulge any details regarding these
settlements.
Granted, Cramer wouldn’t be facing the challenge of mounting a
convincing fair use case for The Armed Citizen had he
simply relied on excerpts and links to build the repository of
information that existed there until last week. (In light of the
lawsuit, he has temporarily shut down the site.) But there were
legitimate reasons he chose to reproduce, as he describes it,
“significant text” from articles. First and foremost was to ensure
completeness. Newspaper articles eventually migrate to paid
archives. Or get moved around during site reorganizations. Or are
simply purged over time.
Reason.tv: Arthur C. Brooks on the Battle Between Free Enterprise and Big Government
America faces a new culture war; a war between free enterprise
and big government. American Enterprise Institute
President Arthur C. Brooks argues in his new book,
The Battle: How the Fight between Free Enterprise and Big
Government Will Shape America's Future, that "most
Americans don't see free enterprise as just an economic matter,
they see it as kind of a lifestyle issue, they see it as the
bedrock of American culture and that's about 70 percent of the
population." Brooks sat down with Reason.tv Editor in Chief Nick Gillespie to
discuss the best way for free enterprise proponents to "stop losing
arguments," as well as Brooks' career as a professional French horn
player, and his love for Bach and Anton Bruckner. Approximately 5 minutes. Shot by Meredith Bragg, Josh
Swain and Dan Hayes. Edited by Swain. This version is an abridged. For the full length, wide ranging
interview please click here.
(Approximately 51 minutes.) Go to Reason.tv for downloadable
iPod, HD, and audio versions of this and all our videos, and
subscribe to Reason.tv's YouTube channel to receive
automatic notification when new material goes live.
More Government Means Less Trust
Writing at Forbes, University of Chicago law professor
Richard Epstein explains
how bigger government undermines the public's trust in
government: Behind the current disquiet lies an implicit marginal
calculation that makes good economic sense. Much of the modern
rhetoric, especially from the tone-deaf Obama White House, takes
this form: "We did well with the previous increases in taxation and
regulation, so why worry about the next round?" The answer is that
too much of a good thing becomes a bad thing. Yet like a bad genie,
once released from the bottle, big government is difficult to stuff
back in.... And so we can see the connection in the end. As big government
gets still bigger, the confidence ordinary people have in its
institutions grows weaker. That weakness reflects itself not only
in a political resentment to the political parties in power. It
also manifests itself in their gradual withdrawal from the market,
manifested by a greater unwillingness to consume or to invest. With
this skeptical mood, each expansionist move of the Obama
administration is like feeding sugar to a diabetic.
California Roundup: Will Golden State Fall Behind On License Plate Advertising? Cortines: No More!
* * Do tax hikes help budgets? Get your five
minutes of econ at Calwatchdog.com. It will clean out the
pipes. * George Skelton rallies the base with an
improbable warning that HPCEO Carly Fiorina (R) might unseat
Sen. Dianne
Feinstein Barbara Boxer (D). [Doh! Thanks to commenter Ron
for pointing out my Freudian slip, which in my defense I can only
say stemmed from my love of DiFi, not my disapprobation of
Boxer.] * Legislative Analysts' Office rules
on pot-legalizing Prop 19: Fiscal
Impact: "[P]otential increased tax and fee revenues in the
hundreds of millions of dollars annually and potential correctional
savings of several tens of millions of dollars annually." So
why
are the Democrats against it? * If you can randomize my license number you've got a deal:
State Sen. Curren D. Price Jr.
defends his forward-looking plan to study digital license
plates against a say-no-to-digital weigh-in by Nick
Goldberg's L.A. Times ed board.
Say it
ain't so, Ray! L.A. schools Superintendent Ramon Cortines -- like
former LAPD Chief William Bratton a whipping boy in both the
Giuliani and Villaraigosa administrations --
will quit before his self-mandated three-year tenure is up.
L.A. Times' Howard Blume reports.
Economics Am One Lesson
Art Caden presents nine
principles of bizarro economics.
"Baptists and Stoners" Unite
The Harlan Institute’s Josh Blackman highlights a Los
Angeles Times
story on Oakland’s new ordinance allowing for the industrial
production of marijuana. As Blackman notes, certain local
businesses aren't so thrilled: In a classic case of Baptists and Bootleggers, or perhaps
Baptists and Stoners in Oakland’s case, existing growers of
marijuana are displeased, and oppose the opening of these
factories. Read the rest here. And check out
Reason.tv’s great interview with economist Bruce Yandle, who
originally developed the concept of “bootleggers and Baptists” to
make sense of the strange coalitions that form around government
regulations:
Obama's Lack of Faith
With midterm elections approaching, President Barack Obama has
gone on the charm offensive, claiming Republicans are demonstrating
a "lack of faith in the American people." "Faith" often is defined as "having confidence or trust in a
person or thing." In this case, though, faith means adding another
$35 billion in unemployment benefits to the infinite
intergenerational tab—sometimes referred to as the budget—and
mailing out as many checks as possible before Election Day. Yet the jab is revealing in other ways. To begin with, what
mysterious brand of public policy has Obama employed that
exemplifies this sacred trust between public officials and the
common citizen? Was it the administration's faith in the wisdom of the American
parent that persuaded it to shut down the voucher program in
Washington, D.C., and continue the left's decades-long campaign
denying school choice for kids and parents? Or was that just faith
in public-sector unions? Was faith in American industry behind the Democrats' support of
a stimulus bill that was predicated almost entirely on preserving
swollen government spending at the expense of private-sector
growth? Is this hallowed faith in the citizenry also what compels the
administration to dictate what kind of car we will be driving in
the future, what kind of energy we will be filling these "cars"
with, and what amounts of that energy will be acceptable? Is faith in American know-how why Washington funnels billions of
tax dollars each year to its hand-picked industry favorites rather
than allow the best and brightest to—please pardon the
pun—organically figure out what the most sensible energy policy is,
as we have in every other sector? It must be that deep confidence in conscientious Americans that
persuades the left to fight against the rights of gun owners who
want nothing more than to defend life and property. The same faith in Americans surely precipitates the
administration's defense of censorship (even book banning) to
ensure that the citizenry is protected from the despicable reach of
political ads funded by corporations. People, you see, are too
gullible and too uninformed to withstand the force of Fox News—much
less Wal-Mart. Similarly, that faith has led to the 20-year explosion of
paternalistic regulations (often with the help of Republicans) that
propose to regulate everything from the size of candy to tanning
salons to fast-food restaurants to the pressure in your shower
head. A faith that the American citizen has the self-control of a
deprived toddler. It was faith in the American people that led to health care
legislation that denies you the right to buy insurance outside of
state lines or have any useful portability or even enjoy the same
tax break that corporations are afforded. The left has so much
faith in Americans that it has to force you to purchase a
government-approved plan. One only needs to propose the idea that citizens be allowed to
allocate portions of their Social Security retirement
funds—extracted from their paychecks and deposited in faith-based
government accounts—to witness the level of faith many on the left
have in your decision-making abilities. Republicans may not have faith in the American people, but in
this instance, Obama probably is confusing faith in people with
faith in power. Because as hard as one tries, it is difficult to
find any instances of choices expanding under this administration.
That's the true test of confidence in the citizenry. Then again, progressives regard government as a moral
enterprise. And in church, you gotta have faith. David Harsanyi is a columnist at The Denver Post and the
author of Nanny State. Visit his website at www.DavidHarsanyi.com. COPYRIGHT 2010 THE DENVER POST
DISTRIBUTED BY CREATORS.COM
Public Servants vs. the Public
The Manhattan Institute’s Josh Barro says public sector unions
are making life a little worse in Oakland, California: This month, Oakland laid off 80 police officers, just over 10
percent of its total force, in order to balance the city's budget.
As a result, the city's police chief says cops will no longer
respond to 44 categories of crimes, including grand theft. The
city's elected officials regret the change but say they simply
cannot afford to maintain current staffing levels. Whether that's
true depends upon your definition of "afford." At current levels of compensation, yes, Oakland cannot afford to
maintain a police department with 776 employees. That's because
total compensation for an OPD employee averages an astounding
$162,000 per year. But at a more reasonable level of pay and
benefits, Oakland could afford to maintain its force, or even grow
it.... What's going on in Oakland is an example of a phenomenon being
seen across the country: states and cities choosing between
providing services to the public or maintaining luxury compensation
for public employees. More often than not, public employee unions
have been winning this fight, forcing service cutbacks. Read the whole thing
here. Steven Greenhut explains “how public servants became our
masters” right
here.
Report: Obama Admin Bungled Auto Takeover
Via Ed Morrissey at Hot Air comes news of a forthcoming report
that finds the feds have screwed up their takeover of GM and
Chrysler. Specifically, the inspector general of the TARP program
faults the government for pushing to close so many dealerships so
quickly (and notes that GM did not apparently follow its own
guidelines for which dealers to shut down). Take it away, Cap'n
Ed: Barack Obama put Steve Rattner in charge of running his auto
bailout program, a man who had just as much experience in the auto
industry as Obama did: he drove a few cars. Rattner had to
make a quick exit after just a few months when it became known that
he was the target of a federal probe into questionable activities
regarding the New York pension fund — and his replacement had
just
as much experience in the auto industry as Rattner did. What was the main entry on Ron Bloom’s resume? He was a
union negotiator. Let’s keep this in mind when Democrats insist that government
can run industries better than the markets themselves. Not
only did the White House purposely evade bankruptcy laws in cutting
sweet deals for unions during the bailout, but they also destroyed
jobs in the process out of incompetency.
De Rugy, de Rugy, de Rugy's on Fire!
Reason's econ columnist is all over the joint today,
starting with a piece in the Washington Examiner entitled
"To
deal with debt, we have to stop lying about it." Sample: The following criteria should provide some guidance to the
National Commission on Fiscal Responsibility and Reform in
assessing the quality of the solutions it puts forward. These criteria are simple: 1. Do the recommendations really cut
spending rather than focus on cutting the deficit? 2. Do the
recommendations allow for political carve-outs? 3. Do the
recommendations fix the budget gimmicks? These criteria address the three major issues that put us in our
current state of fiscal irresponsibility. We have overspent; we
have made excuses for our overspending; and we have lied about our
overspending. She also has a new piece up at The American, about what
happens "When
Debt Flies Off the Charts." Starts like this: At a time when Paul Krugman and other Keynesians are arguing
against austerity measures and in favor of more stimulus money, it
is worth asking how bad the country's financial situation is. The
answer, unfortunately, is: really bad. De Rugy also took time out of her morning to throw cold water on
a Barack Obama Recovery Summer ribbon-cutting over at
National Review, and also sit for an interview about
stimulus jobs on C-SPAN's Washington
Journal, which you can watch below at the link. Read de Rugy's Reason archive here.
Greenspan Chair: So They Can Stop Blaming Him On Libertarians and Start Blaming Him on NYU
Curiouser and curiouser is that the endowment is coming from
John A. Paulson, Goldman Sachs's partner in the creation of the
sucker-baiting "Abacus" mortgage-backed securities. Nut
section discovered by a Ritholtz reader: “The Stern School will apply $5 million of John Paulson’s gift
to support two endowed faculty chairs. The first chair is
named for alumnus Alan Greenspan (BS ’48, MA ‘50, PhD ’77), leading
economist and former Chairman of the Federal Reserve Board.
Dr. Greenspan was Chairman from 1987-2006, and was the first person
to be appointed to five consecutive terms through a period covering
four presidential administrations. Daily Markets' Cam Hui
says, "The news of the Alan Greenspan chair at NYU is just
another sign of denial." My view: 1. Fer fook's sake, there should be something named for
Greenspan at NYU -- where, as noted above, Greenspan received his
three most important degrees. (News to me: Before that he was a
clarinet student at Julliard, but dropped out to tour with Stan
Getz! How many millions would be alive today if a time traveler
could just go back and convince young Greenspan to live out his
jazz/woodwind dreams?) 2. Calling somebody "notorious" is a crafty way of saying "He
didn't really do anything wrong, but I disapprove of him anyhow."
Paulson may have been mixed up in the story, but he had no moral,
legal or even charitable obligation to Goldman Sachs's customers.
Goldman may have misled its customers about Abacus, but John
Paulson, as I have noted
before, is guilty only of gauging the economy accurately --
something the government and its various monopoly franchises should
have been doing anyway. 3. Never again will I back down when somebody tries to hang this
lapsed-Objectivist albatross around the neck of classical
economics. Greenwich Village, not Chicago, must answer for Alan
Greenspan. 4. It looks like John Paulson's magic touch has
gotten soft lately. Ridin' high in April, shot down in May...
How can it be? I thought these rich bastards always had everything
figured out...
Barry Ritholtz drops the stunning news that
former Federal Reserve Chairman and exuberant irrationalist Alan
Greenspan will have a chair named after him at New York University.
(I hope it's a nice chair.)
Salon's Andrew Leonard
points a finger at Paulson: "He is notorious for convincing
Goldman Sachs to create such securities, backed by the riskiest
mortgages Paulson could identify, simply so he could bet against
them -- an astonishing act of irresponsibility that succintly
captures, all by itself, the moral bankruptcy of Wall Street during
the last decade."
Policy is Policy, Economy is Economy, And (Sometimes) The Twain Shall Meet
Economist Arnold Kling gets
skeptical about the extent to which monetary or fiscal
policy can have predictable and expected effects on the
macroeconomy: The empirical basis for the belief that government can do
something about output and employment is quite thin. If you really
want to believe that, say, fiscal policy works, you can focus on
those examples where it appeared to work (say, military spending in
World War II and the Kennedy tax cut in the early 1960's) and try
to explain away all the examples where it appeared to fail (which
is pretty much every other time and place that it has been
tried). My father used to say that the First Iron Law of social science
is, "Sometimes it's this way, and sometimes it's that way." My
reading of the record on fiscal and monetary policy is that it
follows the First Iron Law. Sometimes, we see economic improvement
when fiscal expansions are attempted. Sometimes we don't. The same
with monetary policy expansions. I think it is reasonable to read
history as saying that economic outcomes are pretty much orthogonal
to macroeconomic policy moves, which is a fancy way of saying that
the economy does what it does without regard to fiscal and monetary
policy. The economy (that is, five billion people's decisions about what
to do, choose, work at, save, invest, consume): shockingly, it's
complicated stuff.
Moving the Employment Goalposts on the Stimulus
Christina Romer went so far as to claim that the 3.5 million new
jobs that she promised while the stimulus was being debated in
Congress will arrive "two quarters earlier than anticipated." Yup,
the official White House line is that the plan is working better
than even they had hoped. We almost feel sorry for Ms. Romer having to make this argument
given that since February 2009 the U.S. economy has lost a net 2.35
million jobs. Using the White House "created or saved" measure
means that even if there were only three million Americans left
with jobs today, the White House could claim that every one was
saved by the stimulus. [...] Mr. Obama said recently in Racine, Wisconsin that the economy
"would have been a lot worse" and the unemployment rate would have
gone to "12 or 13, or 15 [percent]" if government hadn't spent all
of that money. This is called a counterfactual: a what would have happened
scenario that can't be refuted. What we do know is what White House
economists at the time said would happen if the stimulus didn't
pass. They said the unemployment rate would peak at 9% without the
stimulus (there's your counterfactual) and that with the
stimulus the rate would stay at 8% or below. [...] In other
words, today there are 700,000 fewer jobs than Ms. Romer predicted
we would have if we had done nothing at all. If this is a job
creation success, what does failure look like? Whole thing
here. I don't know about you, but government propaganda really
irritates the hell out of me. Reason has been unpacking
such efforts around the stimulus from the get-go.
As
the administration's Bullshit Recovery
Summer dog-and-pony show lurches along, the Wall Street
Journal editorial board
checks in on yesterday's
claim of around 3 million jobs created or saved. Excerpt:
Let Me Take My Chances on the Wall of Debt
A massive wave of borrowing will start cresting this year when
the U.S. and European governments sell an estimated $4 trillion in
new bonds. The surge will course through the world financial system
for several years as countries, corporations and banks borrow
record amounts of money to repair the damage from the financial
crisis and pay back loans from the boom that preceded it. One crucial concern about the nascent economic recovery is
whether markets can smoothly absorb that new debt, or whether it
will force less-creditworthy governments into a Greek-style crisis,
push weaker banks and corporations into default, and possibly
trigger another downturn. Analysts are split on the prospects. Large amounts of cash
around the world and the expectation of continued low interest
rates have some predicting a trouble-free outcome, while the sheer
level of debt involved has others spooked about a destructive
competition for credit. But that wall of debt has become a source
of concern among economists at the International Monetary Fund and
others who are trying to anticipate where the next crisis might
arise. Whole thing
here; link via the Twitter feed of Rep. Paul Ryan.
The Washington Post today
lays out one of the biggest dice-rolls of our times:
Spending Can Be Cut
When times are hard financially, families frequently let their
credit card balance expand. But they also slash expenses to meet
their new financial situation. They stop going out for dinner, for
instance, or take their vacation locally instead of abroad. They
might even downsize their house. When economies fall into recession, gov-ernments too tend to let
their “credit card balances” expand: Their budget deficits explode.
Slashing spending, though, is regarded as a step too far. The U.S. government is not the exception that proves the rule.
During the economic crisis of the past 18 months, Washington has
increased its deficit fast and hard. According to the Congressional
Budget Office, the deficit grew from 1.2 percent of the Gross
Domestic Product (GDP) in 2007 to 10 percent in 2010—roughly $1.4
trillion. Meanwhile, the consensus on both the right and the left
seems to be that cutting spending is simply impossible. In May, House Whip Eric Cantor (R-Va.) unveiled the GOP’s YouCut
website, which includes five possible spending cuts for citizens to
vote on. Rep. Cantor promised to take the winning cut to the House
floor next week for members to consider. The average price tag of
each reduction would be just $638 million in annual savings. That’s
less than 0.02 percent of the $3.7 trillion federal budget, or just
0.04 percent of this year’s federal deficit of $1.6 trillion. In
the big picture, the cut would basically be meaningless. On the Democratic side, President Barack Obama’s recent budget
request promises to freeze discretionary spending (excluding the
Pentagon and homeland security) to save $250 billion over 10 years.
Our annual deficits are $1 trillion or more. Again, the reduction
is essentially meaningless. Also on the left, a recent study by the Center for American
Progress, called “The New Deficit Commission’s 2015 Targets,”
argues that the bipartisan commission tasked with reducing the
deficit may have no choice but to recommend tax increases. You’d
need $250 billion in across-the-board cuts—6.8 percent of
spending—to make total government expenditures (minus interest on
the debt) equal total government revenues; and that, the study
concludes, is just too much. “Not only,” the authors write, “does
such a policy not make much sense (surely some kinds of federal
spending are more important than others), but it also doesn’t pass
the political reality test. There is simply no conceivable way
President Obama and Congress—not to mention the American
people—will allow cuts of this magnitude to be applied equally to
all parts of the budget.” Well, we’d better hope big cuts are conceivable. A
recent International Monetary Fund (IMF) study, “The State of
Public Finances Cross-Country Fiscal Monitor: November 2009,” shows
that the United States has one of the largest structural deficits
in the world, almost as large as that of Greece. And we know how
well things are going in Athens. To get our national debt back down
to 60 percent of GDP (the number that economists use as the limit
for fiscal sustainability) by 2030, the U.S. would need to
undertake a major fiscal adjustment, equivalent to 8.8 percent of
GDP. That could entail cutting spending, increasing taxes, or
both—but no matter what, the money involved will be significant.
Whether or not the number is exactly correct, the basic message is
true. Yes, cutting public spending can seem challenging. Entitlement
spending increases automatically in a recession and as the
population ages. Meanwhile, military actions in Afghanistan and
Iraq and the ongoing threat of terrorism all help lawmakers claim
that those parts of the budget are off limits. Lawmakers tend to be
wary of spending reductions in general, as they believe their
political survival rests on rewarding their supporters with jobs or
subsidies. Yet there is evidence that Congress can cut spending—and cut it
by a lot. First, consider a new Goldman Sachs Global Economics
study by Ben Broadbent titled “Fiscal Tightening Need Not Be
Electorally Costly, But It Will Test Government Unity.” Broadbent
shows that spending cuts can actually be a good thing
politically. “It is commonly assumed that cuts in government
spending will be both economically painful and electorally costly,”
he writes. “Neither is borne out in the data. We’ve written before
about the limited (and sometimes positive) effects of spending cuts
on economic growth, at least in open economies. Here we add some
simple analysis on the electoral consequences and, like others,
find no evidence that spending cuts reduce support for the
incumbent government. If anything the opposite tends to be true.”
Among other evidence, the paper cites the three governments that
executed the most high-profile expenditure-based deficit reductions
in recent history and yet were re-elected: Ireland in 1987, Sweden
in 1994, and Canada in 1994. Broadbent’s empirical study complements a 1998 Brookings
Institute study by the economists Alberto Alesina, Roberto Perotti,
and Jose Tavares. The trio found “no evidence that looser fiscal
policy implies longer political tenure.” They also show that “cuts
in the government wage bill do not increase the probability that
the government will collapse…nor does the popularity of the
government fall in the immediate aftermath of fiscal
adjustments.” Nor is every governmental expense as politically risky as
Medicare or the Pentagon. According to the Government
Accountability Office’s “U.S. Government Financial Statements,
Fiscal Year 2009 Audit,” overpayments by the federal government
alone are estimated to be at least $98 billion each year. That’s
$500 billion over five years. Certainly that would never fly at the
individual level: Imagine paying your mortgage twice, or coughing
up cash for stuff you never received. Other countries have managed to cut spending. According to the
IMF study, over the last 30 years nine developed nations have cut
their structural deficits by at least 10 percent of GDP. Ireland
reduced spending by 20 percent from 1978 to 1989. Sweden and
Finland both achieved cuts of 13 percent from 1993 to 2000, and
Sweden pulled off another 13 percent cut from 1980 to 1987. Denmark
managed a 12 percent reduction from 1982 to 1986; Greece, 12
percent from 1989 to 1995; Israel, 11 percent from 1980 to 1983;
Belgium, 11 percent from 1983 to 1998; Canada, 10 percent from 1985
to 1999. And in the past few months, faced with rising deficits that
threatened to bankrupt the country, Lithuania took some drastic
austerity measures meant to produce savings equal to 9 percent of
GDP in one year. Among other reforms, the government cut public
spending by 30 percent, slashing public sector wages 20 to 30
percent and reducing pensions by as much as 11 percent. If they did
it, why can’t we? According to the Bureau of Labor Statistics, in 2008 the average
consumer unit (2.5 persons) earned $63,563 and spent $50,486. Of
these expenditures, $21,533 was devoted to essential spending—that
is, clothing, shelter, transportation, and health care. Out of the
remaining $28,953, spending on entertainment consumed an additional
$2,835 and $5,113 was devoted to miscellaneous items. So if the average family were seeking to trim its operating
costs, there are 28,953 non-essential dollars, well over 50 percent
of total spending, that could hypothetically be cut. The federal
government could do it as well. I don’t think citizens concerned
about the nation’s economic future will accept arguments that
spending can’t be cut when we taxpayers can and do cut our personal
spending during difficult times. I also doubt that 0.02 percent is
all that can be trimmed from the budget. The cuts we need and
should demand are more like 10 percent, 20 percent, 30 percent, or
more. It’s time for lawmakers and the policy community to start
acting like real people with real money and to start excising those
billions from the nation’s bloated budget. Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is
a senior research fellow at the Mercatus Center at George Mason
University.
Economics
All Reason Magazine articles in the "Economics" topic.