Monday, March 30, 2009
Sunday, March 29, 2009
Economics and Politics - Paul Krugman Blog - NYTimes.com
Economics and Politics - Paul Krugman Blog - NYTimes.com: "[The graph shows] discount rates in the US, Britain, and Germany in the late 20s and early 30s, and highlights the way attempts to defend the gold standard led to perverse monetary policies"
Saturday, March 28, 2009
The Geithner plan, as viewed from Oz — Crooked Timber
The Geithner plan, as viewed from Oz — Crooked Timber: "What does the Geithner plan mean for Australia? On the whole, it is probably a positive. The fact that it is a bad deal for US taxpayers is less important to us than the magnitude of the stimulus involved. And the decline of confidence in the US dollar, while not helpful to exporters competing with US suppliers, will probably make allow the Australian government, and Australian banks, to borrow on more favorable terms.
The biggest risk is that the failure of the plan could discredit the Obama Administration and produce a leadership vacuum. That would be a disaster for the entire world. The US led us into this mess, and, like it or not, the US must lead us out."
The biggest risk is that the failure of the plan could discredit the Obama Administration and produce a leadership vacuum. That would be a disaster for the entire world. The US led us into this mess, and, like it or not, the US must lead us out."
Interactive Map: More Job Losses in Every State
Interactive Map: More Job Losses in Every State: CAP’s got a nifty interactive map showing the rising unemployment on a state-by-state basis.
Tuesday, March 24, 2009
Economic Indicators by Report Date and Reporting Body
Economic Indicators by Report Date and Reporting Body: "Economic indicators are those important, mysterious numbers that get reported almost every day, but are somehow not put into context very often. Here are some of the most useful ones, listed twice: first by their reporting date in a typical month, and second by their reporting organization."
I - Indicators by Approximate Monthly Reporting Date
Links are to external sites; also see the second list, below, for glossary links to additional information about the indicators themselves.
| M | T | W | T | F |
| | FOMC Meeting (every 6 weeks) | Unemployment Rate | ||
| | Consumer Sentiment Index | Retail Sales | PPI | |
| CPI | | Balance of Trade | Manufacturers' Orders | |
| New Home Sales | Consumer Confidence Index | | Quarterly GDP (Apr-Jul-Oct-Jan) |
II - Indicators by Reporting Body
Sunday, March 22, 2009
Matthew Yglesias » Home Page
Matthew Yglesias » Home Page: "why on earth would anyone believe that Ricardian equivalence holds?"
Friday, March 20, 2009
Helicopter Ben finally hauls out the helicopter :: The Curious Capitalist - TIME.com
Helicopter Ben finally hauls out the helicopter :: The Curious Capitalist - TIME.com: "As the federal government issues trillions in new debt to finance stimulus spending and the daily operations of government, the quasi-governmental Fed will now be buying hundreds of billions of it, in the process creating new money out of thin air (the Fed doesn't actually have money set aside to buy stuff; when it buys something, the money suddenly, magically exists).
It's a very weird, somewhat circular transaction, and it was last done in a big way during World War II. At the time the Fed wasn't so much making monetary policy as doing its patriotic bit to finance the war (it was a de facto division of the Treasury Department at the time), but it worked on both counts: The deflationary tendencies of the 1930s were finally fully expunged from the economy, and we beat the bad guys. Later on, Milton Friedman described this kind of transaction as the functional equivalent of a 'helicopter drop' of money, and after Ben Bernanke mentioned this in a speech in 2002 he became known as Helicopter Ben. Now he's finally living up to the name."
It's a very weird, somewhat circular transaction, and it was last done in a big way during World War II. At the time the Fed wasn't so much making monetary policy as doing its patriotic bit to finance the war (it was a de facto division of the Treasury Department at the time), but it worked on both counts: The deflationary tendencies of the 1930s were finally fully expunged from the economy, and we beat the bad guys. Later on, Milton Friedman described this kind of transaction as the functional equivalent of a 'helicopter drop' of money, and after Ben Bernanke mentioned this in a speech in 2002 he became known as Helicopter Ben. Now he's finally living up to the name."
Thursday, March 19, 2009
Punter of last resort | vox - Research-based policy analysis and commentary from leading economists
Punter of last resort | vox - Research-based policy analysis and commentary from leading economists: "the shortest-term interbank lending rate for which data are available (on a consistent basis) from before and after the founding of the Fed.2 Figure 1b shows the month-to-month changes in this interest rate. The only reason this rate is now viewed as ‘risk-free’ is that the Fed takes away the risk."
Monday, March 16, 2009
William Easterly Blog
When Will There Be Good News? Does it Help There Already Was Some?
By William Easterly
In the midst of the general doom and gloom, fears about how the crisis will affect poor countries, and fierce criticism of markets, states, and aid agencies, perhaps it’s healthy to step back to the big picture, to recognize there has already been some very real good news. The graph below shows some overall statistics for the developing world:
This graph has a mixture of good news that all of the much-criticized triad of markets, states, and aid can take partial credit for. Markets obviously get at least some credit for the reduction in global poverty and increase of global average income. States supply public goods like education, water, and health, and there has been progress on all of these. Aid deserves some credit for successes in health, as already stressed in a previous blog post.
One group that doesn’t deserve much credit is “development experts,” because there is a terrible crisis of confidence in development economics now, where we all freely confess we don’t really know what to advise governments on how to speed up development.
Positive stories are also important to correct unbalanced stereotypes, like the one discussed a couple of days ago by June Arunga on this blog about the rich American woman who couldn’t believe Africans had cell phones. The figure below shows the huge cell phone boom in Africa (the world’s most rapidly growing cell phone market). This one is a success for resourceful African entrepreneurs, like Alieuh Conteh who started a cell phone business right in the middle of the civil war in the DR Congo, with makeshift cell phone towers made out of pieces of scrap metal welded together. He got millions of subscribers and eventually sold the company for a ten-figure sum.
Yes, there is a terrible crisis now, not to mention that all of these indicators are still deeply unsatisfactory, so we all keep criticizing and holding accountable the market, state, and aid actors who fall so woefully short. But let none of us forget how much development already happened over the last half-century, which may inspire us with hope that more step-by-step improvements in markets, states, and aid could make even more development possible.
Friday, March 13, 2009
More on macroeconomic imbalances and the current recession
As a follow up to our earlier entry in this blog, the US Federal Reserve released today the flow of funds accounts of the United States (you can find the release here). These data provide an overview of the assets and liabilities of both the private and public sector in the US. The data reveals that all the increase in wealth that households had experienced over the 2002-2006 period is gone. In fact, the ratio of household wealth to GDP has gone down to a level which is consistent to the historical average (somewhere around 350%), very far from the peak of 2007 of 450%. The (perceived) increase in wealth in the 2003-2006 period was one of the factors behind the increased in US spending, consumption in particular, that we have documented in our earlier entry. If you want to know more, the blog calculated risk has a detailed note on this issue. You can find their chart of household wealth to GDP here.
Macroeconomic imbalances and the current recession
While there is no doubt that the current recession is fundamentally linked to excesses in financial markets and asset prices, there were still some classic macroeconomic imbalances that preceded the crisis. For years we have been talking about global imbalances and how certain advanced economies (the US in particular) were building large deficits. A current account deficit is simply a measure of the difference between spending and income for a country. The source of spending can be many (government, companies – in the form of investment- or consumers). In the case of the US, consumption grew to levels that we had never seen before. The chart below displays household consumption as a ratio to GDP for the US and four other advanced economies.
This is a ratio that we expect to be fairly constant for a country with stable growth rates (as it is the case for these economies). In fact, in the cases of Germany, France and Japan, consumption remains fairly stable during the sample, as we expect. It is true that in the case of Japan we see the ratio increasing in the 70s but this has an explanation: as convergence in living standards materializes, the country’s saving rate goes down from the very high rates of previous decades; rates that were needed to sustain the very high growth rates of Japan in the 50s and 60s.
The US, and to a much smaller extent the UK, have seen consumption increasing at rates much faster than GDP for the last two decades. In the case of the US the ratio reached a peak of almost 72% in 2007. How could this trend be justified? For this number to go up, a combination of these things should happen:
- Lower taxes (current or future) that increase disposable income
- Expectations of larger future income (through faster productivity growth
- Related to the previous one, expectations of more productive investment which reduces the need to save and invest to generate the same amount of future income
- A demographic transition that makes the future (income or wealth) look “better” than the present.
While one can always debate about whether some of these assumptions were reasonable during the last decades, overall one finds more arguments that go in the opposite direction and might have justified a lower consumption rate. An aging population and a growing government debt make the future look worse than the present. If any, there is the need to increase saving (i.e. reduce consumption). In terms of productivity growth while the 90s looked good, there is no consistent signal that productivity growth is accelerating dramatically in the US or UK economies.
How can it be that in the light of such strong evidence of a macroeconomic imbalance very little was done about it? During those years asset and housing prices were booming and this was used as a justification for the consumption increase: as a ratio to wealth (not income or GDP), consumption was not growing that fast. Of course, for this to be true those asset prices had to be sustainable and this could only happen if one of the arguments above was true (for housing prices to remain as strong as they were before the current crisis one had to assume very high future demand for houses because of large income or population increases).
Today’s perspective is, of course, very different as asset prices have collapsed and consumption looks also very high relative to wealth; it is clear that these imbalances need to be addressed. Unfortunately, this is the wrong time to address such an imbalance. In the middle of a deep recession, economic policies work to stimulate consumption, not depress it. If consumers starts saving now they will make the recession even worse and this will reduce income and wealth even further, a recipe to make the adjustment even more difficult. No surprise that policy makers, such as Larry Summers today in an interview with the FT, are making the arguments that this is not the time to save. Point taken but let’s make sure that when we are out of the recession we look back at this chart and make a conscious decision to avoid these growing imbalances reappear again in the future.
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