Posts Tagged ‘Economics

03
Mar
09

did we have it right after all?

A great column discussing how the so called slacker generation may hold the key to a more sustainable economic future. Not recession proof, but recession-resilient.

WE MOVED to San Francisco and Brooklyn and Mission Hill. We jumped from job to job. Put off marriage. Never bought a place. And we never heard the end of it. We were drifters, they said. Layabouts. No respect for work and real estate or the value of a good pair of cufflinks.

You see, while Alan Greenspan and Countrywide Financial were creating a capitalism of disastrous excess, we were busy working on a more workable model. We brought you the Internet, worked on green technology, and filled the ranks of Teach for America. We crossed the color line, ate local produce, and bought secondhand clothing. We lived in smaller spaces, drove smaller cars, and took the subway to work.

As we begin to rebuild our tattered economy it may be time well spent studying how the  slacker generation managed to live within their means. Read on via Boston Globe.

Penelope Trunk’s 5 emerging trends..I’ve already begun to notice the increasing backlash against baby boomers.

08
Jan
09

Ride the real estate roller coster

Vodpod videos no longer available.

04
Jan
09

Tullock, Blagojevich, and rent-seeking public officials

Eminent economist, Gordon Tullock, takes on the topic of Gov. Blagojevich and the rent-seeking behavior of elected officials. Tullock has a deep understanding of the systematic actions politicians harbor and how they ultimately effect us in a negative fashion.

The income derived from possessing a special privilege is called “rent” (which, by the way, has nothing to do with the monthly payments that tenants make to landlords). Rents themselves are just a transfer of value from some people to others.

Such lobbying can reap advantages worth millions. So it’s understandable that companies spend considerable effort courting politicians who can bestow such privileges. That’s wasteful. Time, energy, and other materials that could be used to expand the output or improve the quality of goods and services are instead used to lobby government for narrow benefits that may harm society at large. And the larger the potential gain from being granted such a privilege – that is, the larger the rents – the more intense will be rent-seekers’ incentives to chase after them. That puts tremendous pressure on – and gives tremendous leverage to – politicians.

Read Donald Boudreaux’s Op-Ed here.

Donald J. Boudreaux, a professor of economics at George Mason University, is the author of “Globalization.”

21
Dec
08

Printing…just a figure of speech

With Obama’s looming titanic fiscal disaster which path will the Fed decide to take? Central banking or central planning?  The Fed has announced that it will continue to print notes in order to trim its funds rate, if need be, all the way to zero. All bodies in Washington seem to think the wholesale printing of money is the answer to the nation’s economic woes.

Yes, today’s policy makers allow, there are risks to “creating” a trillion or so of new currency every few months, but that is tomorrow’s worry. On today’s agenda is a deflationary abyss. Frostbite victims tend not to dwell on the summertime perils of heatstroke.

Our troubles, over which we will certainly prevail, stem from a basic contradiction. The dollar is the world’s currency, yet the Fed is America’s central bank. In the boom, a superabundance of mispriced debt led countless people down innumerable blind investment alleys. E-Z credit financed bubbles in real estate, commodities, mortgage-backed securities and a myriad of other assets. It punished saving and encouraged speculation. Imagine a man at the top of a stepladder. He is up on his toes reaching for something. Call that something “yield.” Call the stepladder “leverage.” Now kick the ladder away. The man falls, pieces of debt crashing to the floor around him.

One final question for which Mr. Bernanke will have to put himself into the shoes of a foreign depositer:

“Tell us, Mr. Bernanke, if you had the choice, would you hold dollars? And may I remind you, Mr. Chairman, that you are under oath?”

Sink your chops in here, via WSJ.

27
Nov
08

Paradox of thrift

Barely a year ago cash was considered dangerous to accumulate: investors urging board members for returns in dividends or reinvestment. We have thus seen a reversal of public opinion in recent months as companies are off in a mad scramble for any available operating cash.

No longer. For many big American companies, the day of reckoning came two months ago when the deepening financial crisis brought about the abrupt closure of the overnight commercial-paper market. This briefly sent even the most solid companies into a desperate scramble to find money to meet such basic obligations as paying their staff. Since then, the guiding principle for managers everywhere has been to gather up whatever cash they can find, and then do their damnedest to keep as much of it as possible for as long as possible.

This cash squeeze is a huge problem for the world economy, because as firms cut discretionary spending wherever they can, the result is likely to be a corporate version of what John Maynard Keynes called the “paradox of thrift”. Every firm does what is prudent for itself, but by cutting its spending it slows down the economy still further and thus hurts everybody, including itself. This will only reinforce the need for expansionary monetary and fiscal policy (see article) to boost demand; and also for more direct support in credit markets, such as the Federal Reserve’s prop for the commercial-paper market (already tapped by some large American firms).

This is only the tip of the iceberg. Read the article in its entirety via Economist.

23
Nov
08

The Buccaneer Stops Here

Headlines (hat tip Justin):
*SOMALI PIRATES APPLY TO BECOME BANK TO ACCESS TARP
*PAULSON: TARP PIRATE EQUITY IS AN `INVESTMENT,’ WILL PAY OFF
*KASHKARI SAYS `SOMALI PIRATES ARE ‘FUNDAMENTALLY SOUND’ ‘
*Moody’s upgrade Somali Pirates to AAA
*HUD SAYS SOMALI DHOW FORECLOSURE PROGRAM HAD `VERY LOW’ PARTICIPATION
*SOMALI PIRATES IN DISCUSSION TO ACQUIRE CITIBANK
*FED OFFICIALS: AGGRESSIVE EASING WOULD CUT SOMALI PIRATE RISK
*FED AGREED OCT. 29 TO TAKE `WHATEVER STEPS’ NEEDED FOR SOMALI PIRATES

Our romantic vision of pirates, and I’m not talking Jonny Depp here, seems to make great humor amongst news pundits.

Watch the Daily Show clip, via Calculated Risk.

22
Nov
08

Wealth Report

It’s nice to see that even in these tough economic times even the upper-crust playboys are having to scale back their activities.

According to a new survey by Prince & Assoc., more than 80% of multimillionaires who had extra-marital lovers planned to cut back on their gifts and allowances. Still, only 12% of the multimillionaire cheaters said they plan to give up on their lovers altogether for financial reasons.

It makes me wonder if I’m doing enough in curtailing my unnecessary expenditures?

Women were far more generous to their paramours in the face of financial crises. Less than 20% planned to lower allowances, gifts and perks, while more than half planned to raise them.

The survey doesn’t mean to suggest that all, most or even a large minority of rich men and women have affairs. It simply is a snapshot of a certain sample at a certain time. Yet it suggests that in a time of financial crisis, it is better to be a kept man than a compensated woman.

Read the entire report via WSJ.

02
Nov
08

The Medici Meltdown

The 15th century Medici banking collapse may seem more relevant in today’s financial meltdown, opposed to the 1929 collapse. Many journalist have the idea that capitalism has no historical roots–but Harvard historian, Raymond De Roover, knows better, as his paper, The Rise and Decline of the Medici Bank (1397-1494), highlights how modern capitalism, based on private ownership, was invented by Italian merchants and bankers. At the height of the Florentine banking empire it was the largest in Europe with branches in Geneva, Avignon, Bruges, and London as well as in Rome, Naples, Venice and Milan. As troubles at home found their way on the Medici’s doorstep, we begin to see irregularities and rash uncoordinated lending throughout European banks.  Sound familiar?

The fear of being annihilated by foreign powers, combined with the lack of transparency, allowed the ruler of the Republic to turn it into an effective tyranny. With the declared purpose of defending Florentine freedom and its way of life, Lorenzo raised taxes for the war and embezzled banking funds with the result (does this sound familiar, anyone?) of creating a huge credit crunch.

The enlightened policies of public artistic patronage like those of Cosimo and Lorenzo were a magnificent facade for their political success and survival–and ultimately for their financial failure.

Read the entire article here.

23
Oct
08

The Icelandic meltdown and dilettantism of finacial markets

So how can we calculate the absolute risk aversion in the Icelandic banking industry?—As the curvature of u(c) increases, so does one’s aversion to risk..Outside of those parameters I’m lost.

r_u(c)=-\frac{u''(c)}{u'(c)}

It’s funny because if you don’t study history you get the great opportunity of repeating it..1,000 years ago Icelanders left Scandinavia in search of freedom and a better life far away from Medieval feudal establishment. Combine this cultural risk-seeking behavior with a desire to be modern, and a neo-culture of inflation and debt, and we begin to see the very underpinnings of a financial meltdown.

The people are industrious and dynamic, and they have a tendency to take on tasks that are beyond them. The current prime minister used to be the foreign minister and he also happened to be the minister of finance – at the time when the head of the central bank, who also did a stint as foreign minster, was the prime minister, and the current finance minister was serving office as minister of fisheries.

Now things are almost back to the way they were in the 80s: the inflation rate is almost double-digit; the state controls the banks and rations currency exchange. All we need now is to re-introduce the beer-ban, and it will look as if the Icelanders want to start the process of globalisation all over again.

Read the entire article via Financial Times Deutschland.

12
Oct
08

Economics of Ethnic Dining

Tyler presents his guide on ethnic dining and covers everything from how to identify quality raw ingredients, to understanding the competitive market scope of a developed culinary environment. Something to keep in mind while patronizing neighborhood restaurants.

The best ethnic restaurants are often found in suburban strip malls, where rents are lower and the degree of feasible experimentation is greater. Small and cheap ethnic restaurants are often better than large ones.

Let’s jump ahead to rule three:

Rule 3: Order strategically. In fancy restaurants, never ask, “What should I get?” Instead, ask, “What’s best?” That allows the waiter to highlight what’s special and reveals how informed the staff is. If the waiter’s answer is “everything” — an uninformed or cowardly response — head for the door. In ethnic restaurants, in contrast, asking what’s best often gets you the most watered-down dishes, designed for gringos. Look at what teh ethnic diners are eating and order that.

Click to read Tyler’s write-up. Also, his ethnic dining guide.

04
Oct
08

The Panic of 1873

A more apt comparison to the current economic crisis, rather than the Depression of 1929. Easy credit financed a real estate boom in Europe, combined with cheap American food imports undermined global prices, ultimately sparking a mortgage crisis. Banks begin to horde money, short-term loans dried up, and day-to-day operations came to a screeching halt.

Scott Reynolds Nelson is a professor of history at the College of William and Mary. His article is here.

24
Sep
08

The bicycle solution

Rising gas prices, increasing environmental concern, and a seemingly obese nation have all contributed to increases in demand for our more humble modus operandi, the bicycle. Unlike most industries bicycle manufacturing has to an effect zero barriers of entry, and as a result maintains one of the most competitive and innovative market environments. Read the article, via Economist.

Bicycle and car production grew pretty much in tandem in the two decades beginning in 1950. But since 1970 bike production has nearly quadrupled while car production has roughly doubled.

22
Sep
08

Laissez-faire (hey, a French word)

Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by a half dozen short sellers in Greenwich, Conn. and FedExed to Washington D.C. to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson

It only gets better..

All Mitterrand did was nationalize France’s big banks and insurance companies in 1982; he didn’t have to deal with bankers who didn’t want to lend money, as Paulson does. When the state runs the banks, they are merely cows to be milked in the service of la patrie.

The article is here.

18
Sep
08

Do I need insurance coverage against pirates?

Today pirates seized two ships, one registered in Greece and the other Hong Kong, off the coast of Somalia’s semi-autonomous region, Puntland. In the wake of such acts, insurance premiums covering vessels sailing through the Gulf of Aden have increased ten fold over the past year.

The coastal region of Puntland is booming. Fancy houses are being built, expensive cars are being bought – all of this in a country that has not had a functioning central government for nearly 20 years.

Although Somalia boast one of the World’s most competitive telecommunications industry, they can now  gloat the most developed pirate based economy on the globe.

Observers say pirates made about $30m from ransom payments last year – far more than the annual budget of Puntland, which is about $20m.

Read the entire article here, via BBC.

18
Sep
08

Bad news

Short-term treasuries trading at rates close to zero. At one point Wednesday yields fell as low as 0.01%. Not so hot.

15
Sep
08

Bailout central..

Here is a look at the Feds extensive new emergency lending programs.

..taking a wider array of securities, including equities, as collateral for its loans, the central bank said late Sunday.

shizer.

11
Sep
08

Go green or bust?

Here is a great look at some negative effects of our incessant green activism. I myself question why there is not more public skepticism on green lobbying efforts.

Anti-science attitudes among aid agencies, poverty campaigners and green activists are denying the continent access to technology that could improve millions of lives, Professor Sir David King will say today.

We have the technology to feed the population of the planet. The question is do we have the ability to understand that we have it, and to deliver?

02
Sep
08

Victims of globalization? I think not…

An interesting article I received from an acquaintance of mine. It touts the trade policies of the 1990’s, while remaining fixated on recent fed bailouts.

Yes, I believe it’s safe to say that emerging markets, combined with a weak dollar, have boosted commodity and energy prices, but I have difficulty seeing any validity in the argument that we as Americans have fallen victim to globalization in the recent decade.

But in this decade, rampant growth in emerging markets has mercilessly boosted prices for energy and commodities; competition from foreign workers has tamped down wage growth, and the weak dollar has made U.S. companies vulnerable to foreign buyers. “In the 1990s, we got all the upside of globalization,” said David Smick, a consultant and author of the new book “The World Is Curved: Hidden Dangers in the Global Economy.” “Now we’re getting some of the downside.”

Click here for the entire article.

01
Sep
08

Liberalizing tariffs on capital goods accelerates growth

Antoni Estevadeordal and Alan M. Taylor report that liberalizing tariffs on capital and intermediate goods correlates directly to accelerated long-run growth.

Recent trade liberalizations—and their intellectual underpinnings, whether we label them the “Washington Consensus” or not—should take some credit for unwinding many of those inefficiencies from the 1980s to today. Where those barriers have dropped growth accelerations have been significantly higher than where barriers have remained. Some countries have reaped the benefits. More could yet do so and enjoy higher incomes and lower poverty rates—but this is less likely to happen if any new consensus says that trade policy doesn’t matter very much.

Click here for the entire report via The Custom-House.

30
Aug
08

Worth its weight in gold

Everyone is more than likely aware of the phrase, worth its weight in gold, but the determination of value based on a per unit measurement isn’t always a simple task.

Here is a collection of things that represents a wide range of monetary value per unit of weight.

24
Aug
08

Rising asset prices as a substitute for personal savings

Tyler Cowen’s article: “Finding the Mess Behind the Mess.”

The thinking went something like this: As long as your home’s value rose every year, you didn’t have to set aside so much from your paycheck. If your stocks went up, too, so much the better; don’t forget that the Dow Jones industrial average stood in the 800 range in 1982 and seemed to rise almost nonstop for many years.

Counterproductive measures include: a) further attempts with a fiscal stimulus package–i.e. tax-rebates b) excessive banking regulation–as not to offset the delicate balance of bank lending, savings, and investment. c) Overreaction of past banking mistakes.

23
Aug
08

Correlation between free trade and peace

Don Boudreaux’s article, Want world peace? Support free trade, highlights the unique correlation between free trade and peace.

Protectionists (of whatever party) believe that consumers who buy goods and services from foreigners cause domestic employment – and wages – to fall. Economists since before Adam Smith have shown that this belief is mistaken, largely because foreigners sell things to us only because they either want to buy things from us or invest in our economy.

One easily becomes aware of the contridictory stances politicians have taken in regards to trade protectionism and the long-run prospects of peace.

19
Aug
08

How long do you spend getting ready?

An interesting discussion highlighting differences in time spent getting ready between males and females.




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