Saturday, February 28, 2009
Chernin recently announced he is leaving News Corp. Perhaps he is frustrated being the prime minister when only blood relatives can aspire to be king or queen. Mr. Murdock's generation of heirs through serial monogamy might have contributed.
Not everybody's golden parachute includes the start up of your own independent production company.
Saturday, February 21, 2009
Why is Africa such an economic basket case? Is there hope for the Dark Continent? Are Hollywood celebrities and foreign aid destroying Africa? For a non conventional answer listen to Dambisa Moyo, an economist with degrees from all the right places and until recently a Mistress of the Universe for Goldman Sachs (no she doesn't resemble Sherman McCoy or Tom Hanks who was physically miscast as him in the movie. The movie still worked in its own right.) Dambisa Moyo says no aid, no celebraties, and if you want to finance jobs, cut out the middlemen and women through microfinance like kiva.org.
"I wish we questioned the aid model as much as we are questioning the capitalism model. Sometimes the most generous thing you can do is just say no."
Monday, February 16, 2009
The administration's economic policy is a three legged stool. The first leg is the new bank rescue package; the second is its trade policy; and the third is the stimulus package. By the end of last week it already seemed a bit wobbly.
Treasury Secretary Timothy Geithner has the lead on the first two and he had a rough week.
Preventing a banking collapse is crucial. How do we prevent the debacle on Wall Street from destroying the banking system which must fund economic recovery? It was the collapse of the banking system that was the biggest reason an ordinary recession in 1929 turned into the Great Depression.
Geithner introduced the administration’s bank rescue plan on Tuesday and how did security markets react? They dropped like a rock. The stock market fell 4.6% in the first half hour after his speech was released. Bond prices fell. Markets around the world followed suit. Martin Wolf, the associate editor and chief economics commentator at the Financial Times (London), asked "Has Barack Obama’s presidency already failed?" Geithner’s plan lacked specifics and gave no indication that it would work.
Back to the drawing board.
The second leg is trade policy. Protectionism is a monster that must be caged. Trade is so crucial, but seems to be the most backburner of issues in the news. How do we avoid a return to the trade wars of the 1930s? The collapse of world trade was the second most important reason the 1929 recession turned into the Great Depression. The U.S. passed the Smoot-Hawley Tariff in 1930, Canada promptly retaliated before the law was even enacted. One nation after another tried to steal trade from the others by devaluing its currency and/or raising tariffs. As each tried to pull itself up by pulling down its mates, they all crashed to the floor. The nineteenth century's great age of globalization came to a final end. Will we learn from the past? For as Ben Franklin put it, "We must all hang together, gentlemen...else, we shall most assuredly hang separately."
America must lead the battle against protectionism. So far the new administration has been more a source of worry than leadership. As candidate Obama, the President advocated protecting American jobs on the campaign trail. That doesn't help. Congress tried loading the stimulus package with "Buy America" provisions. Even before being confirmed as the new Treasury Secretary, Geithner started out bashing China, but then had to backpedal when the finance ministers of the G-7 (i.e., the main economies) met in Rome. Peer pressure? After all, China's $581 billion stimulus package might do more to help slow the global downturn than Congress's many headed monster. Japan's decline at a double digit annual rate (see yesterday's posting) emphasizes how this is a global economic downturn with each country's decline feeding its falling domestic demand back to its trading partners.
And the third leg is the stimulus package: How do we get the economy jump started? Here the administration left the job of putting a stimulus package together to Congress, an institution whose approval ratings rank below those of former President Bush and used car dealers. The result is a package many people doubt will do the job but will blow up the deficit. It managed to unite the Republican opposition, no mean feat.
So even as the President basks in his Congressional victory on the stimulus package, his economic team is licking its wounds after a tough week. Managing economic policy is proving more difficult than campaigning against the status quo.
Monetary Policy: Meanwhile the Federal Reserve faces the daunting task of being ready to turn on a dime once (should I say "if") normality returns to financial markets. The explosion of the Fed's balance sheet poses major threats to its ability to conduct policy. When it turns the corner of the banking crisis and maybe sooner, the Fed faces the Sylla of a run on the dollar and the Charybdis of exploding inflation. That we should have a Ben Bernanke as Fed Chairman at this peculiar time and place seems providential. I do not envy him.
I must add Ben Bernanke to my ever lengthening list of causes to pray for.
Sunday, February 15, 2009
GDP declined for the third straight quarter as the world economy pulled Japan's economy down: "Exports plunged 13.9 per cent from the previous quarter as demand for Japanese cars, electronics and other goods slumped in recession-hit overseas economies."
Saturday, February 14, 2009
Note Keynes was an inflationist only in the starkly deflationary post-World War I Britain which returned to the Gold Standard at the pre-war parity. This policy forced Britain into a difficult deflation of prices and a real economic adjustment of heart wrenching dimensions. The alternative was to have Britain devalue the pound, undermine London's position as the world's capital market, and effectively default on its war debt (i.e., "Here we will pay you back the war debt, but with pounds that buy less in gold.") Britain chose economic and human disaster over financial disaster, although the choice was less obvious than my words suggest.
Why is inflation bad? It creates arbitrary redistributions of wealth and it distorts incentives. The lesson our current financial custodians fail to understand is that over expansions of credit sometimes result in the inflation of asset prices rather than the inflation of commodity prices: it inflates the prices of stocks rather than flows. But that also is unfair. They may perceive that positive conclusion. What they may fail to understand is its normative implication that asset price inflation is bad: that it too creates arbitrary redistributions of wealth and distorts incentives. Anyone who doubts that should look to the asset price bubbles of the late 1980s (house prices in New England and California); the dot com bubble of 1995-2000; and the housing bubble of 2004-6. Each created arbitrary redistributions of wealth. Each distorted incentives and created a misallocation of resources. Misallocations of resources can not be undone without pain.
In 2002 through 2004, Alan Greenspan worried about deflation: Commodity prices might fall! As the comedian in the Catskills might say, "We should have been so lucky already!"
Corrections made 1/31/2011
Friday, February 06, 2009
Surprise, surprise, the BLS revised their estimates of payroll jobs in 2008 by about 350,000! The BLS's method for truing up the jobs data can not help but fail during recessions. Accuracy when the economy is in trouble does not appear to be high on its priority list. The latest revisions do not appear to have changed the timing of the recession as recorded in the data. The unemployment rate hit bottom in the spring, 2007 and payrolls peaked in November/December, 2007. When we can lay our hands on more details than are available in the press release, we can be more precise.
Closer to home, aerospace employment fell some 9,000 in January. This does not necessarily reflect the flood of layoffs announced in general aviation this past week (Cessna, Hawker-Beechcraft, and Bombardier.)
Thursday, February 05, 2009
You can also read his "What Austrian Economics Can Teach Historians" on the Ludwig von Mises Institute website.