Friday, November 17, 2006

"Booms, Technological Bubbles and Busts."

Milton Friedman died yesterday.

When I was in graduate school in the late 1960s, many of my peers were disciples of Mao and romanticized that thug Che Guevara. They carried around with them The Thoughts of Chairman Mao (
"The Little Red Book") as if it were a badge of honor. I vividly remember the ugliness at the American Economic Association meetings when Friedman gave his Nobel Laureate lecture amid angry prrotests and demonstrations.

The "Little Green Book" (his Capitalism and Freedom) was the first book that made me think critically and creatively in economics. From today's vantage point, it appears to have won the long war with "The Little Red Book." His ideas have seized the commanding heights.
It is a great irony that the best words to put on his tomestone would be those of John Maynard Keynes, the dominant intellectual force in economics from 1936 to the 1970s and the king whom Friedman deposed:

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood . . . Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

- J.M. Keynes, General Theory, ch. 24.

Today's Wall Street Journal is a must read. Not only is there a lead editorial on Uncle Milton (no surprise) and a front page article, but they published a new article by Friedman himself ("Why Money Matters") on the editorial page that is a gem. It could as easily have been titled "Booms, Technological Bubbles and Busts." Personally, I can't imaging still writing so lucidly and perceptively at 94. In fact, still breathing would be an accomplishment.

Fellow economist Michael Boskin leaves us with the image of Milton and Rose dancing at her birthday. The perfect signature on a full and fruitful life!

Pray for his soul and the wife who has lost a soulmate. May he be smiling down at us from the true commanding heights.

Wednesday, November 08, 2006

Borrowing by Consumers Eases, But Credit-Card Balances Jump

The Wall Street Journal reports that American consumers' debt fell somewhat in September despite a rise in credit card debt. Yet debt burdens are rising as consumers rely more heavily on morgaging their homes and reduce their exposure by pulling back on credit card debt. The Wall Strret Journal reports, "As of the second quarter, mortgage payments had reached 11.6% of disposable income, the highest level since at least 1980. Consumer-debt payments had fallen to 6.5% of disposable income, the lowest level since late 2000."

As houses become more difficult to sell in the previously hot real estate markets, less mortgage financing will bleed through to consumer spending. A slowdown in both consumer spending and new housing is translating into slower U.S. growth. Will the housing bubble burst into a recession? It is too early to make that call.

Wednesday, November 01, 2006

Wichita Unemployment Rate Falls Below the National Average

The Wichita unemployment rate dropped to 4.4 percent in September. September's jobless rate was below the national average of 4.6 percent. This news was contained this morning's Bureau of Labor Statistics metropolitan area report.

There were forty eight hundred more jobs in the Wichita metropolitan area in September than a year ago.

Monday, October 30, 2006

Demographic Doom: Competitive Advantage and Age Cohorts

The German Mittelstand and the Japanese Keiretsu were once lauded in the Economist and evangelized by management consultants as the powerhouses of international capitalism. These were held up as international paragons of economic virtue. The gurus proclaimed that the secret of economic success was not the slave to Anglo Saxon individualism and the sterile building blocks of economic theory. Here were genuine indigenous recipes for success that were not out of the bland cookbooks of neoclassical economics.

Yet time proved a cruel critic. Japan went into its long night's journey, the nerve rendering recession of the 1990s. Germany's Wunderkind economy suffered indigestion from absorbing the formerly communist East, then ate its way into Eurosclerosis.

Economic journalists are bitter when their stories prove false. Keiretsus and the Mittelstand have now become examples of what countries should avoid on the path to economic triumph. No kind word is now written of these discredited economic pariahs.

Not having invested any journalistic prestige into these two national economic phenomena, I find that both the German Mittelstand and the Japanese keiretsu were worthy institutions that were efficient and effective for their respective economies. Both had elements which could be properly emulated elsewhere. Both were victims of a common disease: demography.

Both economic phenomena were post World War II responses to the structure of their countries' capital markets when they faced the daunting task of rebuilding economies leveled by the wrath of Mars. Both had a common time bomb ticking from their creation. As the rebuilding generation aged, its vitality was sapped and it was not adequately replaced.

Wednesday, October 04, 2006

Have Business Conditions Turned Down For Kansas?

The Wichita Business Journal reports that the "Business conditions index turned down in Kansas."

Do misinterpret the headline: this does not indicate that business is declining in Kansas. Creighton University economist Ernie Goss surveys supply chain management managers and reports how many are expecting production and other economic quantities are going to be higher.

In September the overall index fell from 68.2 to 58.6 in August. The index also fell in August.

How should you interpret that number? A reading of greater than 50 per cent means positive growth is expected. The September reading simply means this: those closest to the production progress expect continued growth, however, they are less sanguine than the very high readings of August and July indicated.