(p. A23) . . . even if fundamental health care reform brings costs under control, I at least find it hard to see how the federal government can meet its long-term obligations without some tax increases on the middle class. Whatever politicians may say now, there’s probably a value-added tax in our future.
For the full commentary, see:
PAUL KRUGMAN. “Climate of Change.” The New York Times (Fri., February 27, 2009): A23.
Source of the graphic: screen capture from the online version of the WSJ article quoted and cited below.
(p. A1) Much of the world may be struggling with the economic downturn, but life has been getting better in Columbus, Ind., Kingsport, Tenn., and Waterloo, Iowa.
These out-of-the-way places have become trade hot spots as U.S. exports, fueled by the dollar’s fall, continue to provide a rare spark in an otherwise gloomy economy.
While many economists expect a recent snapback in the value of the dollar and a spreading global slowdown to soften that growth, exports have become a key to greater local prosperity more than at any time in decades.
. . .
(p. A16) Export-driven growth marks a dramatic shift in an economy that has relied heavily on consumer spending. That has slowed in recent months as Americans, nervous about job losses, teetering banks, falling home values, and rising gasoline and food prices, have tightened spending. Against that background, exports have emerged as a powerful motor.
Over the past year, real-goods exports have risen $115 billion, or 12%, and are up across every major category. They now make up nearly 13.5% of gross domestic product, the highest percentage since World War II. Critics often grumble that the U.S. exports masses of scrap steel and other waste materials to recyclers in China and elsewhere, which is true, but exports of manufactured goods, commodities and services are also growing. Consumer products, from sporting goods to art supplies, have risen 12%, and even autos, which are languishing on showroom floors in the U.S., saw a 4% bump up in exports.
Service exports — which include media, entertainment, financial services, computer software and foreign tourism in the U.S. — have grown strongly right along with the larger goods side of the trade ledger. Through the second quarter of 2008, real-service exports are up nearly 10% over the past year.
It’s a badly needed tonic for the beleaguered U.S. economy.
For the full story, see:
TIMOTHY AEPPEL. “Exports Bolster Local Economies.” The Wall Street Journal (Thurs., SEPTEMBER 11, 2008): A1 & A16.
(Note: the title of the article on the web is: “Exports Prop Up Local Economies.”)
(Note: ellipsis added.)
(p. A15) The passage of the $787 billion stimulus bill has so far failed to stimulate anything but greater market pessimism. This suggests to us that the strategy behind the American Reinvestment and Recovery Act is wrong — and worse, that the weapons it is using to fight the recession are obsolete.
Just as generals are notorious for fighting the last war, Congress and the White House seem intent on fixing an economy of hidebound and obsolete companies and industries, while ignoring the innovative ones rising before us and those waiting to be born.
Missing from this legislation is anything more than token support for the long-proven source of most new jobs and new growth in America: entrepreneurs. These are the people who gave us everything — from Wal-Mart to iPhones, from microprocessors to Twitter — that is still strong in our economy. Without entrepreneurs, we will never get out of our current predicament.
For the full commentary, see:
TOM HAYES and MICHAEL S. MALONE. “Entrepreneurs Can Lead Us Out of the Crisis What Are the Odds of a Depression?” Wall Street Journal (Tues., FEBRUARY 24, 2009): A15.
(Note: ellipses added.)
Source of graphs: online version of the NYT article quoted and cited below.
(p. 3) Nonetheless, a significant portion of the finance boom also seems to have been unrelated to economic performance and thus unsustainable. Benjamin M. Friedman, author of “The Moral Consequences of Economic Growth,” recalled that when he worked at Morgan Stanley in the early 1970s, the firm’s annual reports were filled with photographs of factories and other tangible businesses. More recently, Wall Street’s annual reports tend to highlight not the businesses that firms were advising so much as finance for the sake of finance, showing upward-sloping graphs and photographs of traders.
“I have the sense that in many of these firms,” Mr. Friedman said, “the activity has become further and further divorced from actual economic activity.”
Which might serve as a summary of how the current crisis came to pass. Wall Street traders began to believe that the values they had assigned to all sorts of assets were rational because, well, they had assigned them.
For the full story, see:
PETER S. GOODMAN. “Debt Sweat; Printing Money and Its Price.” The New York Times, Week in Review Section (Sun., December 28, 2008): 1 & 4.
(Note: ellipsis added.)
Benjamin Friedman’s book is:
Friedman, Benjamin M. The Moral Consequences of Economic Growth. New York: Knopf, 2005.
Robert Barro is a Harvard economist who specializes in issues of macroeconomics and economic growth.
(p. A15) The U.S. macroeconomy has been so tame for so long that it’s impossible to get an accurate reading about depression odds just from the U.S. data. My approach uses long-term data for many countries and takes into account the historical linkages between depressions and stock-market crashes. (The research is described in “Stock-Market Crashes and Depressions,” a working paper Jose Ursua and I wrote for the National Bureau of Economic Research last month.)
The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.
. . .
In the end, we learned two things. Periods without stock-market crashes are very safe, in the sense that depressions are extremely unlikely. However, periods experiencing stock-market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression.The bright side of a 20% depression probability is the 80% chance of avoiding a depression. The U.S. had stock-market crashes in 2000-02 (by 42%) and 1973-74 (49%) and, in each case, experienced only mild recessions. Hence, if we are lucky, the current downturn will also be moderate, though likely worse than the other U.S. post-World War II recessions, including 1982.
. . .
Given our situation, it is right that radical government policies should be considered if they promise to lower the probability and likely size of a depression. However, many governmental actions — including several pursued by Franklin Roosevelt during the Great Depression — can make things worse.I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful. But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.
For the full commentary, see:
ROBERT J. BARRO. “What Are the Odds of a Depression?” Wall Street Journal (Weds., MARCH 4, 2009): A15.
(Note: ellipses added.)
Barro’s co-authored textbook on economic growth is:
Barro, Robert J., and Xavier Sala-i-Martin. Economic Growth. 2nd ed: The MIT Press, 2003.
Printing press for $20 bills. Source of photo: online version of the NYT article quoted and cited below.
(p. 4) “We got into this mess to a considerable extent by overborrowing,” said Martin N. Baily, a chairman of the Council of Economic Advisers under President Clinton and now a fellow at the Brookings Institution. “Now, we’re saying, ‘Well, O.K., let’s just borrow a bunch more, and that will help us get out of this mess.’ It’s like a drunk who says, ‘Give me a bottle of Scotch, and then I’ll be O.K. and I won’t have to drink anymore.’ Eventually, we have to get off this binge of borrowing.”
“This is a dangerous situation,” says Mr. Baily, essentially arguing that the drunk must be kept in Scotch a while longer, lest he burn down the neighborhood in the midst of a crisis. “The risks of things actually getting worse and us going into a really severe recession are high. We need to get more money out there now.”
. . .
The most frequently voiced worry about the bailouts is that the Fed, by sending so much money sloshing through the system, risks generating a bad case of rising prices later on. That puts the onus on the Fed to reverse course and crimp economic activity by lifting interest rates and selling assets back to banks once growth resumes.
But finding the appropriate point to act tends to be more art than science. The Fed might move too early and send the economy back into a tailspin. It might wait too long and let too much money generate inflation.
“It’s a tricky business,” says Allan H. Meltzer, an economist at Carnegie Mellon University, and a former economic adviser to President Reagan. “There’s no math model that tells us when to do it or how.”
For the full story, see:
PETER S. GOODMAN. “Debt Sweat; Printing Money and Its Price.” The New York Times, Week in Review Section (Sun., December 28, 2008): 1 & 4.
(Note: ellipsis added.)
Columbia University Professor Amar Bhidé has authored two important books on entrepreneurship. Some of his thoughts on the current economic crisis follow:
(p. A15) Our ignorance of what causes economic ailments — and how to treat them — is profound. Downturns and financial crises are not regular occurrences, and because economies are always evolving, they tend to be idiosyncratic, singular events.
After decades of diligent research, scholars still argue about what caused the Great Depression — excessive consumption, investment, stock-market speculation and borrowing in the Roaring ’20s, Smoot-Hawley protectionism, or excessively tight monetary policy? Nor do we know how we got out of it: Some credit the New Deal while others say that that FDR’s policies prolonged the Depression.
. . .
Large increases in public spending usurp precious resources from supporting the innovations necessary for our long-term prosperity. Everyone isn’t a pessimist in hard times: The optimism of many entrepreneurs and consumers fueled the takeoff of personal computers during the deep recession of the early 1980s. Amazon has just launched the Kindle 2; its (equally pricey) predecessor sold out last November amid the Wall Street meltdown. But competing with expanded public spending makes it harder for innovations like the personal computer and the Kindle to secure the resources they need.Hastily enacted programs jeopardize crucial beliefs in the value of productive enterprise. Americans are unusually idealistic and optimistic. We believe that we can all get ahead through innovations because the game isn’t stacked in favor of the powerful. This belief encourages the pursuit of initiatives that contribute to the common good rather than the pursuit of favors and rents. It also discourages the politics of envy. We are less prone to begrudge our neighbors’ fortune if we think it was fairly earned and that it has not come at our expense — indeed, that we too have derived some benefit.
To sustain these beliefs, Americans must see their government play the role of an even-handed referee rather than be a dispenser of rewards or even a judge of economic merit or contribution. The panicky response to the financial crisis, where openness and due process have been sacrificed to speed, has unfortunately undermined our faith. Bailing out AIG while letting Lehman fail — behind closed doors — has raised suspicions of cronyism. The Fed has refused to reveal to whom it has lent trillions. Outrage at the perceived use of TARP funds to pay bonuses is widespread.
For the full commentary, see:
Amar Bhidé. “Don’t Believe the Stimulus Scaremongers.” Wall Street Journal (Tues., FEBRUARY 17, 2009): A15.
(Note: ellipsis added.)
Bhidé’s two books on entrepreneurship are:
Bhidé, Amar. The Origin and Evolution of New Business. Oxford and New York: Oxford University Press, 2000.
Bhidé, Amar. The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. Princeton, NJ: Princeton University Press, 2008.
Irving Fisher is widely viewed as one of the handful ot top United States economists of the 1920s and 1930s. In addition, he focused on topics that today are considered part of macroeconomics. His not forecasting the economic downturn can be given different interpretations. Some, such as Taleb, would attribute it in part to fundamental uncertainty. Until recently, many economists would have said that Fisher still had a lot to learn, but we are now know more than him.
That may be true, but we still have a lot to learn.
(p. 5) IRRATIONAL exuberance? As the nation entered recession in the summer of 1929, there were still plenty of economists, business leaders and politicians who looked to the future with optimism. And why not? The Dow Jones industrial average was soaring. Then the stock market bubble burst on Oct. 24, which led to several days of panicked selling — an opening bell for the worldwide economic collapse that soon followed. Here’s what some leading politicians, economists and business leaders had to say in the months before and after the crash. Sound familiar?
. . .
Irving Fisher, professor of economics at Yale University, in The New York Times, Sept. 6, 1929. He ended up losing much of his wealth in the crash:
“There may be a recession in stock prices, but not anything in the nature of a crash.”
. . .
The Harvard Economic Society, November 1929:
“A severe depression like that of 1920-21 is outside the range of probability. We are not facing protracted liquidation.”
For the full story, see:
“Word For Word; I’m Having a Flashback; A Storm Unforeseen, Always About to Pass.” The New York Times, Week in Review Section (Sun., October 11, 2008): 5.
(Note: no author is listed.)
(Note: ellipses added.)
At a “Workshop on Creative Ideas to Teach Principles,” organized by Jim Gwartney at the Stavros Center in Tampa, I presented some brief video clips that I use to make various points in my principles classes. The first was Hugh Laurie’s Protest Song.
After playing the song, I tell my students that to make the world better, you need more than a guitar and good intentions—you also need to know something about how the world works (in particular, you need to know some economics).
After my presentation, one of the participants asked if I knew where he could find the lyrics. In response, I found the lyrics posted online, and re-post them here in case they may be of use to other economic educators.
Hugh Laurie’s Saturday Night Live Protest Song
[ open on Hugh Laurie standing at Home Base strumming a guitar ]
Hugh Laurie: This is a protest song. [ blows on a harmonica attached to his neck ]
[ singing ]
“Well, the poor keep getting hungry, and the rich keep getting fat
Politicians change, but they’re never gonna change that.
Girl, we got the answer, it’s so easy you won’t believe
All we gotta do is.. [ mumbles incoherently ]
Well, the winds of war are blowin’, and the tide is comin’ in
Don’t you be hopin’ for the good times, because the good times have already been.
But, girl, we got the answer, it’s so easy you won’t believe
All we gotta do is.. [ mumbles incoherently ]
It’s so easy, to see
If only they’d listen, to you and me.
We got to.. [ mumbles incoherently ] as fast as we can
We got to.. [ mumbles incoherently ] every woman, every man
We got to.. [ mumbles incoherently ] time after time
We got to.. [ mumbles incoherently ] vodka and lime.
Well, the world is gettin’ weary, and it wants to go to bed
Everybody’s dyin’, except the ones who are already dead.
Girl, we got the answer, starin’ us right in the face
All we gotta do is
All we gotta do is
All we gotta do is.”
[ pauses, then blows on the harmonica and finishes ]
[ the audience cheers wildly ]
Hugh Laurie: Thank you.
Source of lyrics:
http://snltranscripts.jt.org/06/06dprotest.phtml
Source of graph: online version of the NYT commentary quoted and cited below.
(p. B1) It’s hard to exaggerate how scattershot the current system is. Government agencies usually don’t even have to do a rigorous analysis of a project or how it would affect traffic and the environment, relative to its cost and to the alternatives — before deciding whether to proceed. In one recent survey of local officials, almost 80 percent said they had based their decisions largely on politics, while fewer than 20 percent cited a project’s potential (p. B6) benefits.
There are monuments to the resulting waste all over the country: the little-traveled Bud Shuster Highway in western Pennsylvania; new highways in suburban St. Louis and suburban Maryland that won’t alleviate traffic; all the fancy government-subsidized sports stadiums that have replaced perfectly good existing stadiums. These are the Bridges to (Almost) Nowhere that actually got built.
For the full commentary, see:
DAVID LEONHARDT. “Economic Scene; Piling Up Monuments of Waste.” The New York Times (Weds., November 18, 2008): B1 & B6.
Laurence S. Moss
Source of photo: http://www3.babson.edu/academics/faculty/lmoss.cfm
On Sunday (3/8/09) I learned that Larry Moss passed away on February 24, 2009.
Larry was full of the joy of life. He was intense. He was an amateur magician, and a wit, and an energetic conversationalist. I used to run into him once a year at the History of Economics Society meetings, and always enjoyed our conversations.
He was a neo-Austrian, though not “pure” enough for some of the ultra-Rothbardians. I first met him at a long-weekend seminar in Austrian economics when I was a graduate student, and he was a presenter.
I remember that he and I thought that the dialogue would be richer, and the neo-Austrian position ultimately strengthened, if its defenders understood better some of the alternative positions. So we announced a kind of rump session during one of the free-time periods. During this session, Larry gave the attendees a brief summary of what Walras had been up to, and I summarized Becker’s paper on the robustness of the law of demand to various forms of irrational and habitual behavior.
If memory serves, we suffered some mild heckling, and Larry was more severely criticized for disloyalty to the cause. (I cannot prove it, but I believe he paid a price for that in terms of invitations to future similar gatherings.)
I did not follow Larry’s research systematically, but know that he wrote the definitive account of Mountifort Longfield’s economics. He also had a nice, early paper in the JEL on the uses of film in teaching economics.
He took Schumpeter seriously, and wrote the script for the wonderful Schumpeter tapes in the Knowledge Products series on great economists that Kirnzer edited.
A couple of year’s ago, I invited Larry to participate in the Schumpeter session that I organized at George Mason’s Summer Institute for the Preservation of the History of Economic Thought. He initially agreed, but then had to withdraw because of his health.
More recently, I submitted one of my more idiosyncratic efforts (on the career consequences of writing on polywater) to the journal that Larry edited. I received excellent comments, and the editorial process was handled with grace and efficiency.
Larry was one of the “good guys” in many different ways, and the world is worse for his passing.
Here are a couple of Larry’s more obscure writings, that I have found useful:
Moss, Laurence S. “Film and the Transmission of Economic Knowledge: A Report.” Journal of Economic Literature 17, no. 3 (1979): 1005-19.
Moss, Laurence S. “Review: Robert Loring Allen’s Biography of Joseph A. Schumpeter.” American Journal of Economics and Sociology 52, no. 1 (1993): 107-18.
The reference to Larry’s Schumpeter tapes is:
Moss, Laurence S. Joseph Schumpeter & Dynamic Economic Change: Capitalism as “Creative Destruction”. Nashville, TN: Knowledge Products, Inc., 1988. audio.
