Our Uncertain Economy
I think this WSJ Op-Ed is worth reading. Edmund Phelps, the 2006 Nobel Prize winner in Economics, covers a lot of ground and makes for a good week end read He touches on interest rates, uncertainty, subprimes, inflation, macro policy and the Fed.
Just as interesting as the Op-Ed are these two different takes on it.
First, we have the liberal economist Mark Thoma at Economist's View .
Then we have libertarian economist Steve Horwitz at The Austrian Economists .
Enjoy.
Submitted by John on Fri, 2008-03-14 23:06
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Purely rhetorically
The 'collapse', bankrupting or restructuring of the economy under Bush has been predicted by many, under the premise of destroying social security and medicare in favor of military spending.
A sort of Texas 'f*ck' you to democratic policies, specifically the much hated FDR and a spiteful middle finger to tree huggers for forcing Tom Delay to go out of business by outlawing poisonous pesticides. (He will never forget)
The benefit of cost plus private contracts is that liability is hard to determine. Tax payers support of private contractors such as Blackwater, who are held to no law, and suffer no consequences for their actions avoids any threat or cost of litigation.
While Bush mouth's the words that he supports a strong dollar (Reagan's mantra) his actions say something else.
If you think Bush cares about the little people think again. If you are suffering pain, then clearly you deserve it. Look no further than New Orleans, or the underfunded VA for evidence of 'the shock and awe' of Bush economics.
Which comes first, inflation or recession? I say inflation causes recession. In the last year the price of bread, eggs and milk have increased at least 20%.
Once the cycle of stagflation, high inflation and a weakening dollar, gets rolling it is difficult to control.
It is the economy, stupid.
That's depressing
He doesn't sound very optimistic about immediate prospects, or about the course of action being pursued by the Fed:
So basically, if I follow, he's saying we shouldn't try to artificially lower unemployment by slashing rates.
Wasn't there a discussion here a while back about having the fed rates set by a computer? This article seems, to me, to cast doubt upon the feasibility of such a scheme ("the medium-run natural unemployment rate and the natural interest rate are anything but certain"). Although I suppose one could argue it would still be better than humans, who come with biases and blind spots.
He's not a big fan of the quants I gather =) Granted one can oversell the degree of usefulness of such analysis, but there's definite mathematical foundations underpinning it anyway. I think the methods they use are interesting even though I have little interest in the ends towards which they apply them.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Don't forget Reich
He's right
, as usual:
Its a shame we don't manufacture anything anymore or else a weakening dollar might not be a problem.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Think again
I'm not so sure manufacturing levels are what you think they are.
I saw a stat that said are total exports are the highest they've ever been.
And "manufacturing things" per se isn't exactly that wonderful anyway. It depends what is being manufactured and besides, products, I would think, need to have a value that justifies their production here. This is a global economy.
Our economy is transforming all the time. It doesn't do much good to bemoan the change. We need to adapt and consider the bigger picture.
Consider our export stats
. Scroll down and look at totals and by country. Healthy increases across the board.
and further on "we don't make stuff anymore"...
well, it was the exact title of a post over at Cafe Hayek
.
Russ Roberts makes the case that if you believe that, then you're mistaking employment for production.
Employment in the sector has languished....
while output has increased fairly steadily (dipping only during periods of recession)....Clearly, we still make stuff.
Rational Expectations
While it's not correct to apply a completely efficient market hypothesis to Fed Actions, it's efficient enough to know that the Fed's emergency actions of introducing all this liquidity to avert a financial meltdown is going to result in some serious inflationary implications.
Rising Energy costs and food costs, a declining dollar in our consumer economy, and very tight,tight consumer and business credit crunch is going to be extremely painful.
The Mortgage credit market has been virtually "nationalized" at this point.
Jim Rogers is right, agriculture is the place to be. The government corn ethanol subsidies/mandate
is (going to cause)/cause beef prices to skyrocket.
Government is NOT THE SOLUTION, it is the very cause of this mess we have now.
Socializing the Loses and Privatizing the Profits
See Feds coming to the rescue with cash infusions to save the no risk is too big leverage junkies at financial institutions.
(Or how to promote self interest and deregulation as a mask for profit taking.)
The People or the Leaders in the government are the problem not the government per se: I will acknowledge that our government on a national level seems broken. (Damn government)
The government could offer leadership and a solution, which would really be quite simple.
Create jobs. Create jobs. Create jobs.
Our infrastructure needs attention. Isn't the answer obvious.
(Throw Eliot Spitzer's resignation into the mix, the watch dog of Wall Street, and you have the whispers of a good conspiracy theory.)
It is the economy, stupid.
Privatized Profits, Socialized Costs
That's the title coincidently of this short post
on subprime.
Thought you might find it worth a look.
Another good title, Socialized Costs, Privatized Profits
Isn't this exactly what Sports franchises do when they ask tax payers to fund a new stadium so that the elite can have a more lavish private sky box.
When will folks catch on to this little scheme.
It is much less about 'free lunch' for the poor lazy folks, (see redistribution of wealth) than is about a 'free lunch' for the more well off.
And folks wonder why people are angry.
It is the economy, stupid.
Monday will be a very important day to watch the world markets.
Friday's events; Bear Sterns (which actually seems to have owned a big stake in the Carlyle Capital Group that defaulted), JP Morgan & the Fed's actions came late in the day for the world. The Big Picture
puts it as a worldwide credibility problem:
"Still, it strains credulity to think that a bank as large and sophisticated as Bear Stearns detected no warning signs whatsoever that a liquidity problem might be in the offing. And even if the market has gotten panicky, and thus endangered companies which by all rights should be fine, this is something that's been building for months. Shouldn't a reasonable company have taken steps by now to reduce its exposure to these violent dips in the market? In short, when companies contend they're blameless for the way things unfolded, and shouldn't be held responsible for things they said that turned out not to be true, they may not be entirely, uh, credible."
What's worse though is:
"What's interesting to me about this is that its not just Bear: Thornburg Mortgage, CountryWide, S&P, Moody's all have lost much of their credibility. Think back to the originally announced write-downs of Citibank, BoA, Morgan Stanley, Merrill, UBS -- then look at what was actually written down: You get even more credibility issues. Nothing to see here, move along. "
And that's what we've all been treated to on many planes for some time now. Politically our Administrations pitifully tries to insist that they can and are in control of events.
The Financial markets seem to have taken their cues from the era we live in. Not only can they run everything on the sketchy but they can bald faced lie and say they knew nothing about any short comings. All the while the upper echelon still pocketing amazingly high dollars.
All this happened late on Friday. How the world reacts, Monday & near term I fear will be a bumpy ride.
Factoid Dramatica
No one would do business with Bear Sterns. Why? Trust. They don't trust what this too sophisticated financial giant had on it's books. Bad paper leveraged to the max, with the high leveraged risk spread around the globe. (Enron accounting anyone.)
Of note: There are good banks and financial institutions out there. Stay away from banks that are caught up in sub-prime goo.
It is the economy, stupid.
Alan Greenspan weighs in
Greenspan Blathers On
With lots of words, he says risk isn't complicated enough........ huh?
Right Alan. It needs to be more complicated than 32 leverage SIVS and CDO's based on opaque risk.
Bottom line...... humans screwed up his perfect economic model. Yes Al. That's why we have rules...... they are called regulations. Following basic regulations would have avoided this whole economic mess....... including your ridiculous insistence on easing interest rates as bait for speculators.
Greenspan's burbling gem: This, to me, is the large missing “explanatory variable” in both risk-management and macroeconometric models. Current practice is to introduce notions of “animal spirits”, as John Maynard Keynes put it, through “add factors”. That is, we arbitrarily change the outcome of our model’s equations. Add-factoring, however, is an implicit recognition that models, as we currently employ them, are structurally deficient; it does not sufficiently address the problem of the missing variable.
Yes dear, the missing variable..... greed and your own irrational fear of good government.
It is the economy, stupid.
Including?
Nah. I'd say that's pretty much it....at least on his end.
I say he has
an irrational fear that government equals socialism.
Odd that the European economy is now surpassing ours. And if you want a good interest rate for your money, you have to go overseas. Disincentivising (sp?) savings in America. I would label his actions treasonous at best, and social engineering at worst. But that's just my opinion.
We have seen this economic model of societies intentionally burdened with debt, in order to 'gain the upper' hand so to speak over resources, and turn the people into indentured servants.
It is the economy, stupid.
Nah, I just think he's proud to the point of being dishonest
about how much he really understands. He understands quite a bit but you wouldn't know it by how he carried himself at the Fed.
Mr. Greenspan would know full what I'm talking about if he were to read it.
He understands the problem of setting interest rates and basing it all on suspect data. You know this by what he says about interest rates and the Gold Standard if someone is bold enough to ask him...like John Stewart did. That doesn't mean he would advocate an all out Gold Standard (neither would I)...but he understands the logic AND what it would help avoid.
Sadly, once in power, he viewed things differently. I guess "it just wasn't that simple". But once out, he sees this basic issue so much more clearly.
Greenspan is a fraud in libertarian circles because we know he knows better but once in power, he didn't show it.
It's like an MBA ignoring what he knows and running a business into the ground and then proceeding to speak clearly about it all to the new managers once he's on the outside looking in.
Yes he knew better
His actions were intentional. He supported the War in Iraq and the housing bubble was created to inflate the GDP, increase state property taxes to take the burden off the federal government, to make the Bush tax cuts have the illusion of stimulating the economy. You do not cut taxes during a time of war.
In my view he has an irrational fear of government. He didn't want a US central government with extra money laying around. Stupid in my view..... especially in light of the needs of the baby boomers. But of course his ideal was to get rid of social security.
He will feel no pain. I hope he has some vague guilt and empathy for the mess he helped create.
It is the economy, stupid.
See, that's where we differ
I'm being very precise and rifle-like in my criticism. You are being like shot gun....scattering beebee's everywhere.
He knows the theoretical underpinnings of sound currency all too well. He understands the dangers, the inherent problems and risks and the mess it can cause....messes that have no easy fix.
That's why he double talks and speaks in evasive blather. He knows handling of interest rates triggered bad investments and consumer and lender hubris. But he won't admit it. But then, he knows that the policies he generally opposes under normal circumstances won't fix it, so he argues and cautions against them....and he's right but in a very dishonest way.
As for all your motivational reasons. I don't know. I'd rather not venture there. I know he supported the war initially but then changed his mind....like a lot of other people who got caught up in the nonsense.
How ever, if those dark and deceptive reasons ARE true, it's all the more reason to remove the arbitrary power over interest rates from a central bank like the Fed. And that is something I wholeheartedly support.
Austrian Economists two basically different ways of addressing this idea: Gold or some use of it or free banking. I a little warmer toward the latter but I don't understand it that well. What both have in common is removing the power over money from the capricious hands of someone like Greenspan and now Bernake...who is doing incredible damage as we speak. He thinks he knows better...I don't see it.
Bernake is trying to keep the ship afloat
after Greenspan filled it full of holes. As to Greenspans motivation, these are tidbits I have gleaned from listening to his interviews after he retired.
Interesting that he comes out NOW with explanations, or excuses.
I see a conflict here. I don't think the Bushies want a strong dollar. I think Bernake does. He is being pressured to cut rates to avoid a global crash of some of the US financial markets.
You can't grow your way out of inflation, which is Bush's philosophy.
It is the economy, stupid.
This should be one of those light bulb moments:
bernake is trying to keep the ship afloat by doing the same thing that Greenspan did. (LIGHT BULB!)
And if Bernake wanted a strong dollar, he wouldn't flooding the markets with more dollars and just let things crash. Sorry. It's gonna happen sooner or later. It's that simple. HE CAN'T STOP IT. The idea that he can is an illusion. The Fed basically caused it but they can't fix it. Nobody can. But people don't want to buy that unsatisfying diagnosis....including the Fed. It makes us feel helpless...but WE ARE. The only cure is prevention....and that means a Fed that doesn't do what the Fed does.
He's giving heavy amounts of methadone to the heroin addict. There's no recovery.
I don't Bush has a philosophy on inflation.
There is another cure......
having an ethical clear vision of what government is, and what the Fed's role is as it pertains to government. Ronald Reagan made Government the bogey man. Who hates (an intergrated) America, Ronald Reagan who pro-claimed that the government that revolutionaries fought and died for was bad. Our government in the country we love...... Ronnie told us it was bad.
There will always be some corruption, but it doesn't have to be this pervasive and this criminal.
This is George Bush's version of his little brother Neil Silverado Savings and Loan Crises, no fault tax payer funded bailouts. As mentioned previously Socialize the Risk for Private Profits.
This is the culmination of the Republican economic model that likens government regulation and interferance with business and capital free markets as akin to Islamofascism.
Yet we all have to pay the price for these fools.
When George leaves office I swear to God, the whole country is gonna party, that is if they have any money left to throw one.
(Yes I get that trying to prevent a recession will only prolong the pain. (Bernanke) But it is beyond that now, they are trying to prevent global capital markets from freezing up.) And frankly this would be one way of restructuring our priorities, so you could see it as an opportunity for the good to spur more reliance on local markets and stop this costly shipping of everything around the world.
It is the economy, stupid.
MissL
I'm talking about the Fed. This is not a meta-argument about the GOP or the virtues of good government or it potential if we can get it to be all it can be.
Scatter Guns, Scatter Guns. Come on.
I'm glad you finally got back to the matter in (parenthesis) at the very end. :)
We're not beyond it. We're still dealing with and will continue until the downward market forces overwhelm Bernake's little bag of tricks. Then we'll start anew and sadly begin building toward another bubble.
Or like an MBA running a business
into the ground to sabotage it for other business interests, like a stateless global economy, free of all regulation. Who knows. It's hard to believe that he was unaware of the consequences of his actions given all of his talk about irrational behavior.
It is the economy, stupid.
that's not really what I meant with that analogy
It was simply that someone is principled and knows better going in, changes his tune once in power, and then is quick to offer some right and/or honest answers once he's out.
Sh*t.....
The Feds took the unusual move of cutting rates on a Sunday!!! Plus a 30 Billion cash infusion to seal the deal. Sigh.
The Asian markets must look bad or something.
They are trying to avoid a run on the banks.
Tomorrow might be a good day to buy gold. :-)
It is the economy, stupid.
too late
gold has practically tripled over the past few years. I goes up every time Bernake mentions a rate cut.
Crazy as it sounds
I think gold will double again, and is a good investment even at a thousand dollars an ounce.
It is the economy, stupid.
Could be smart to buy gold
But then again, could be dumb. Personally, I'm just fundamentally unwilling to pay $16,000 a pound for an elemental substance merely based on how many protons are contained in the nuclei of the atoms of that substance, especially when they just keep digging more of that substance out of the ground over time.
I'd rather start looking to find values in the stock market at this point. Buy low, sell high! Starting to be some good values out there, just ask JP Morgan! I'm invested in one company, for instance, that has a stock price under $10, even though it has over $6/share in cash on the books, no debt, and a solid, profitable manufacturing business with great cash flow that allows them to currently pay a dividend of around 9%. I'm either a vulture picking over a tasty carcass at the side of the road, or a vulture picking at a tasty carcass in the road, oblivious to a Mack Truck fast approaching in my lane. That's the fun of the market if you have the gambling spirit :-)
skymutt: wise and powerful... enlightened...
This message brought to you by moderate investment services!
If there is one thing you are good at skymutt, it is covering your bases. :)
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
The last time I gave a stock tip was 5 years ago
I tipped off a buddy of mine to pick up some WorldCom shares on the cheap. I mean heck, I had my long distance thru them, paid my bill every month, figured they had to be on the level, right? Major accounting fraud announced not more than a few days later, obviously, my stock and my buddy's stock goes to zero. We're still friends, but I still apologize every now and then. So maybe that explains why I'm sitting on the fence here? :-)
Overall, I stand by my record as a stock picker, but I've had some spectacular failures too. I was fully invested in stocks with 2x margin on 9/11, mostly tech stocks... I got margined out, lost $15,000 from a stock account that had less than a $40k balance to start with. That smarted a bit :-p
skymutt: wise and powerful... enlightened...
Your record can't be worse than mine ...
I have never come out ahead on the market, but I don't put in the time required to stay on top of things.
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
I would be no stocks right now
But I think gold is going to double, or perhaps triple in value in that not too distant future.
You will also soon need a wheelbarrow full of money to buy a loaf of bread.
It is the economy, stupid.
Jeez I hope not
Sounds like a good time for me to go on a diet! I do a bit of vegetable gardening though, plus I've got a couple pear trees and an apple tree in the back yard, so I'm hedged a bit in the food department-- maybe I should plant a bit more of the South Forty (backyard) this year ;-)
skymutt: wise and powerful... enlightened...
I bought my first bonds a couple of weeks ago....
buying municipals before Bill Gross made it cool.
Fundamentals seem pretty good though the technicals are as bad as you can get. The problem is that if you languish in bad technicals for too long, they can become the fundamental.
So why don't you borrow a bunch of that cheap money
and buy gold with it?
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
Interesting thought......
It is the economy, stupid.
Ben Stein's thought provoking view on Spitzer
It is deeply scary to me that a few employees of the federal executive branch can start a train rolling that has such immense effects on the electoral process. Basically a few career civil servants have nullified the will of the voters of the Empire state, over something clearly wrong, I don’t doubt that, but it’s not a political crime, not treason, not terrorism…”
It is the economy, stupid.
So this makes it OK?
No, you're not a liberal apologist are you? Nope, not you or, in this case anyway, Ben Stein.
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
I should start counting the times
that you use the word liberal as a perjorative. It seems like every post. Broaden your vocabulary.
Ben Stein is hardly a 'liberal'. He is an interesting man, with interesting views. He is quite to the hard right on most things, but he does believe that the government is a contract with the people. Unlike some who think that the US government is 'evil', while at the same time beat their chests about how much they love America.
It is the economy, stupid.
Ben Stein is a conservative
I'll repeat myself ...
and highlight the significant part of that statement. :)
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
Yes, yes, deary.
Just not this one, apparantly. Hence my use of the phrase "in this case".
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
P.S. Is there another way to use it?
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
Absolutely yes
Do you or do you not want Saudi Arabia to become a more liberal government.
Do you or do you not want the Iraqi government to have a more liberal policy to head covering for women.
What's your answer?
Odd, how conservatives preach for conservatism in the US and want foreigners to become more liberal. We can assume then that liberal is the ideal. :)
It is the economy, stupid.
Add Ron Paul
...to the list of liberal apologists
.
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
Ditto what Paul said for me
Personally, I haven't been able to muster up any interest for the Spitzer story. It's just not the kind of crap that grabs or holds my attention. But Paul managed to capture what I and probably many people think about this.
And I confess, I feel so informed about all this, all this time, I thought Spitzer was a Republican!!LOL. After I saw the (D) by his name, I vaguely recalled that is was the previous governor who was a Republican and NOT Spitzer. Oh well, it's a of little consequence I suppose. :)
But feel I should have known that considering he's the governor of the neighboring state to my own.
If Spitzer HAD been a Republican ...
the MSM would have made sure that Republican was every other word in every story. If they DON'T mention the party you have a better than 90% chance that they are a Democrat.
Republican Maverick at Large
-4:Strongly Disagree; 0:Meh; +4:Strongly Agree
If Spitzer HAD been a Republican
FOX News would still call him a Democrat
.
Would you like a cork with that whine?
Do all True Patriots wallow in self pity and marinate in their own victimhood like this?
skymutt: wise and powerful... enlightened...
Am I going to be moderating lunch? ;-)nm
nm
I'm gonna be on *my* best behavior
You'll have to ask GoRight if he is willing to match my example. </sanctimony>
skymutt: wise and powerful... enlightened...
Right
The only thing about the Spitzer affair that I had a problem with is that he made a name for himself by going after prostitution rings (to name one) as an AG. I don't think it's wrong to pay for sex, and whatever happens between him and his wife regarding this isn't my business.
Have we come to a consensus why Spitzer should resign over this but the gentleman from Louisiana shouldn't? Both men are equally hypocritical in this regard.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
If you are a conspiracy theorist
You can ask why Spitzer was forced to resign, right before a deal was cut for Bear & Sterns, and the Feds, started rumaging around to adjust the markets.
What is bizarre in my mind, is that analysts are saying that B$Sterns was worth 20 Billion, yet the markets around the globe have all dropped by large percentages. Is this an indication of the vast amount of gerrymandered and creative risk taking. It makes no sense to me.
Bear Sterns was one of the banks that survived the crash of 29. A bohemoth dies.
This is going to put a lot of stress on NYC economy.
It is the economy, stupid.