Ten Economics Paragraphs: December 13, 2009
Worth reading:
Jonathan Leake on the Younger Dryas: Climate change catastrophe took just month: Six months is all it took to flip Europe’s climate from warm and sunny into the last ice age, researchers have found. They have discovered that the northern hemisphere was plunged into a big freeze 12,800 years ago by a sudden slowdown of the Gulf Stream that allowed ice to spread hundreds of miles southwards from the Arctic. Previous research had suggested the change might have taken place over a longer period — perhaps about 10 years. The new description, reminiscent of the Hollywood blockbuster The Day After Tomorrow, emerged from one of the most painstaking studies of past climate changes yet attempted...
Jim Hamilton: Should the Fed be the nation's bubble fighter?: It is hardly the role of the Fed to be deciding that it knows better than the market what the price of every asset should be. Nevertheless, I think it is necessary for the Fed at least to be forming an opinion about what's driving asset prices as one input into the Fed's decision making. Booming U.S. real estate prices were accurately signaling that there was a problem with both the interest rate target and financial supervision, and it's desperately important to ensure that this same mistake is never repeated. Of course, it's easy enough to say what should have been done in 2004. but the real challenge is figuring out what to do in 2010. Are commodity prices experiencing a bubble right now?... [O]ther economic objectives take precedence at the moment, and it is too early to start raising rates yet. But it is not too early to remember that there are limits to how much you can help the U.S. economy by keeping interest rates low...
Paul Krugman: Paul Samuelson, R.I.P.: Oh, my. Paul Samuelson has died. He had a long, good life; yet he will be sorely missed. It’s hard to convey the full extent of Samuelson’s greatness. Most economists would love to have written even one seminal paper — a paper that fundamentally changes the way people think about some issue. Samuelson wrote dozens: from international trade to finance to growth theory to speculation to well, just about everything, underlying much of what we know is a key Samuelson paper that set the agenda for generations of scholars. And he was a wonderfully down-to-earth human being besides. For a number of years I shared an office suite with him and Bob Solow; he always had time to talk...
Christie Romer: Obama economic adviser pitches job stimulus: WASHINGTON – A White House economic adviser says it would be "suicide" for the government to focus exclusively on the deficit when the economy is sorely in need of jobs. Christina Romer says money freed up from the repayment of financial bailout funds gives the government the leeway to boost try to employment while seeking to control the deficit over the longer term. She says "no one is talking about raising taxes" during a recession to pay for the proposed new stimulus plan. Romer, who heads the White House Council of Economic Advisers, was asked Sunday on NBC's "Meet the Press" whether the recession was over, She said it might be over in official terms, but that it's not truly over until unemployment goes back down to normal levels, in the range of 5 percent...
Iris J. Lav, Nicholas Johnson and Elizabeth McNichol: Additional Federal Fiscal Relief Needed to Help States Address Recession’s Impact: Without It, States’ Steps to Balance Their Budgets Could Cost Economy 900,000 Jobs Next Year: States — which continue to face huge budget shortfalls that they must close — are taking steps now to plan their budgets for state fiscal year 2011, which starts on July 1, 2010 in most states. Governors will send their budget proposals to their legislatures between next month and February 2010 in almost all states. The legislatures will have to pass budgets as early as March or April in some states and by the end of June in almost all states. If states do not know they will receive additional federal fiscal relief, they will begin implementing new budget cuts and tax increases by this summer, at the latest. Presuming they will get no more fiscal relief, states will have to take steps to eliminate deficits for state fiscal year 2011 that will likely take nearly a full percentage point off the Gross Domestic Product. That, in turn, could cost the economy 900,000 jobs next year. [1] Mark Zandi, Chief Economist of Moody’s Economy.com, recently warned that these state budgetary actions “will be a serious drag on the economy at just the wrong time.” For economic and other reasons, federal policymakers should provide some additional fiscal relief, so that such relief is extended or phased down after 2010 rather than ending abruptly. That would constitute one of the most effective uses of additional federal dollars to boost the weak economy and preserve or create jobs.
Dean Baker on Brady Dennis of the Washington Post: The Post Flacks for the Financial Industry #43,875: Thirty Democratic members of the House voted against the creation of a consumer financial products protection agency. The Post told readers that these members were "moderate," and that "like-minded" Democrats in the Senate hold far more power. How does the Post know that the these members voted against a consumer protection agency because they are "moderate," and that their compatriots in the Senate are actually "like-minded" as opposed to both being under the influence of the financial industry? The Post would have as much justification in righting 30 Democrats in the House with strong ties to the financial industry voted against the bill and then warning readers that Senators with close industry ties have much more power in the Senate. It may not be possible to determine with certainty that these members of Congress cast their votes in ways that serve their political backers, it surely is not possible to determine the opposite, as the Post implies...
Jon Hilsenrath: Economists Revising Up Fourth Quarter Growth Projections: A string of stronger-than-expected economic reports provoked several analysts to revise up their projections for fourth quarter gross domestic product. The reports show that businesses are rebuilding inventories at a faster pace than many economists thought, consumer spending has been firmer than expected and the U.S. trade deficit narrowed. GDP expanded at a 2.8% annual rate in the third quarter. Now it looks like it’s going at a fast pace in the fourth quarter. If it’s sustained, that could help to bring down the unemployment rate. Here’s a sampling of revisions we’ve picked up so far for the Q4 growth rate: RBS Securities: 5.0% from 3.7%. J.P. Morgan 4.5% from 3.5%. T. Rowe Price:3.8% from 2.7%. Macroeconomic Advisers: 4.2% from 3.8%. Nomura Securities: 3.3% from 3.2%. Aladdin Capital: 3-3.5% from 2.8%. Action Economics: 2.8% from 2.3%...
Tony Barber and George Parker: EU leaders urge IMF to consider Tobin tax: European Union leaders urged the International Monetary Fund on Friday to consider a global tax on financial transactions in spite of opposition from the US and doubts at the IMF itself. In a communiqué issued after a two-day summit, the EU’s 27 national leaders stopped short of making a formal appeal for the introduction of a so-called “Tobin tax” but made clear they regarded it as a potentially useful revenue-raising instrument. In a separate initiative, Mr Brown and Nicolas Sarkozy, France’s president, suggested that revenues from the Tobin tax could be devoted to the world’s fight against climate change, especially in developing countries. They suggested that funding could come from “a global financial transactions tax and the reduction of aviation and maritime emissions and the auctioning of national emissions permits.” However British officials later argued the main point of a financial transactions tax would be provide insurance for the global taxpayer against a future banking crisis. European support for the Tobin tax, named after the late US economist James Tobin, has grown since the world’s financial system plunged into crisis 15 months ago, forcing governments in the US and Europe to rescue and recapitalise banks to the tune of hundreds of billions of dollars. But Tim Geithner, the US Treasury secretary, said last month at a meeting of the world’s 20 main advanced and emerging economies that the US was unwilling to back a tax on daily financial market activity. Opposition was also voiced by Dominique Strauss-Kahn, the IMF managing director, who said the Tobin tax was “a very old idea that is not really possible today”. The EU statement drew attention to “the importance of renewing the economic and social contract between financial institutions and the society they serve”...
STUPIDEST THING I HAVE READ TODAY: Stephen Bainbridge: The Demise of Newspapers: A Market Failure? I Don't Think So: I'm puzzled. What exactly is the market failure here? Welfare economics classically recognizes four basic sources of market failures: producer monopoly; externalities; the good to be produced is a public good; and informational asymmetry between producer and consumer... [As an exercise, readers are urged to tell Professor Bainbridge why there is necessarily a market failure involved in the production of commodities--like both breaking news and in-depth investigative journalism--that are non-excludible. For extra credit, your explanation should cite Sanford J. Grossman and Joseph E. Stiglitz (1980), "On the Impossibiility of Informationally-Efficient Markets." This isn't rocket science, people. This isn't even cutting edge.]
FROM THE ARCHIVES: Brad DeLong (August 1, 2002): Glassman and Hassett's Dow 36000 Once Again: I see that James Glassman and Kevin Hassett are writing in the Wall Street Journal today, lying about what their Dow 36000 book says. There are two different Dow 36000 books that they could have written. The first would say four things: (i) It looks like stocks held for a very long periods--30 years or more--are no riskier than bonds. (ii) If you valued stocks on the same cash-flow principles as you valued bonds, the Dow would be valued at 36000 (if you get your math wrong.) (iii) As long as you are planning on holding stocks for a very long time--more than 30 years--the overwhelming bulk of your returns from holding stocks come from the cash flows you receive, and the fact that stocks have not historically been valued on the same cash-flow principles as bonds will not greatly diminish your return. (iv) Thus if you have a long time horizon--can afford to let your investments ride for more than 30 years--you should realize that buying-and-holding a diversified market portfolio of stocks will be superior to a bond-based portfolio as long as stocks are cheaper than the Dow would be at 36000. The second book would say: THE DOW SHOULD BE WORTH 36000 NOW!! THE DOW WILL BE WORTH 36000 SOON!! IF YOU DON'T BUY STOCKS NOW, YOU ARE MISSING THE ALMOST-CERTAIN OPPORTUNITY TO TRIPLE YOUR MONEY OVER THE NEXT SEVERAL YEARS!! Which book did they write?.... Which book are they now pretending that they wrote? I leave that as an exercise to the reader...
