Category: Economic Crisis

Lippmann Attacked FDR’s Socialist National Industrial Recovery Act

(p. A13) . . . Duke economic historian Craufurd D. Goodwin employs the writings of the once-famous newspaper columnist Walter Lippmann to describe the fervid U.S. debates that began with the 1929 stock-market crash.
. . .
Lippmann established his intellectual credentials in the 1920s, writing several well-received books. They included “Public Opinion,” which excoriated the press for sloppy coverage of government policies and actions. The book is often seen as a call for top-down rule by experts, but Mr. Goodwin argues that Lippmann had something else in mind–that he was eager for expert opinion and “reasoned study” to be widely disseminated so that self-government would be more fully informed and the citizenry less easily manipulated.
. . .
At first, Lippmann embraced the Keynesian argument that government could ameliorate downswings in business cycles through deficit spending, but he later had second thoughts about economic engineering and became more attuned to the free-market ideas of Friedrich Hayek, whom he knew and consulted.   . . .    Lippmann attacked as ill-conceived the most ambitious New Deal brainstorm, the 1933 National Industrial Recovery Act, which attempted to organize all business and industry into cartels to boost prices.

For the full review, see:
GEORGE MELLOAN. “BOOKSHELF; The Umpire of American Public Debate; Certain that a return of investment confidence would restore prosperity, Lippmann criticized those that blamed Wall Street for the malaise.” The Wall Street Journal (Tues., Oct. 14, 2014): A13.
(Note: ellipses added.)
(Note: the online version of the review has the date Oct. 13, 2014, and has the title “BOOKSHELF; Walter Lippmann: Umpire of American Public Debate; Certain that a return of investment confidence would restore prosperity, Lippmann criticized those that blamed Wall Street for the malaise.”)

The book under review, is:
Goodwin, Craufurd D. Walter Lippmann: Public Economist. Cambridge, MA: Harvard University Press, 2014.

Socialist Price Setting Causes Shortages of Corn Flour, Car Batteries and Toilet Paper

(p. B1) Venezuela’s prices on everything from butter to flat-screen TVs are set without warning by the government, which also caps corporate profits at 30%. Any profits evaporate quickly, however, because inflation is almost double that.
And expanded price controls imposed by Venezuelan President Nicolas Maduro, who succeeded late leftist firebrand Hugo Chávez in April 2013, have exacerbated shortages of basic items such as corn flour, car batteries and toilet paper, triggering violent street protests since early February.

For the full story, see:
MAXWELL MURPHY and KEJAL VYAS. “CFO JOURNAL; Currency Chaos in Venezuela Portends Write-Downs.” The Wall Street Journal (Tues., May 27, 2014): B1 & B6.
(Note: the online version of the story has the date May 26, 2014.)

FDR Ruthlessly Manipulated Political Process

(p. D8) Michael C. Janeway, a former editor of The Boston Globe and executive editor of The Atlantic Monthly who wrote two books chronicling what he saw as the intertwined decline of democracy and journalism in the United States, died on Thursday [April 17, 2014] at his home in Lakeville, Conn.
. . .
The second book, “The Fall of the House of Roosevelt: Brokers of Ideas and Power From FDR to LBJ,” published in 2004, measured some of the ideas in his first book against the history of the New Deal. It focused on President Franklin D. Roosevelt’s inner circle of advisers, a group of political operatives and thinkers often called Roosevelt’s “brain trust,” who helped conceive ideas like the minimum wage, Social Security and federal bank deposit insurance.
Mr. Janeway’s father, Eliot Janeway, an economist, Democratic hand and columnist for Time magazine (a portfolio not unheard-of in those days), was a prominent member of that group.
Michael Janeway suggested that in undertaking the radical changes necessary to yank the “shattered American capitalist system into regulation and reform,” Roosevelt and his team manipulated the political process with a level of ruthlessness that may have been justified by the perils of the times. But in the years that followed, he wrote, the habit of guile and highhandedness devolved into the kind of arrogance that defined — and doomed — the presidency of Lyndon B. Johnson, Roosevelt’s last political heir.

For the full obituary, see:
PAUL VITELLO. “Michael Janeway, 73, Former Editor of The Boston Globe.” The New York Times (Sat., APRIL 19, 2014): D8.
(Note: ellipsis, and bracketed date, added.)
(Note: the online version of the obituary has title “Michael Janeway, Former Editor of The Boston Globe, Dies at 73.”)

The book mentioned in the passage quoted above is:
Janeway, Michael. The Fall of the House of Roosevelt: Brokers of Ideas and Power from FDR to LBJ, Columbia Studies in Contemporary American History. New York: Columbia University Press, 2004.

French Socialist Wants to Encourage Entrepreneurs by Reducing Regulations

MacronFrenchSocialist2014-10-07.jpg “Emmanuel Macron, France’s new economy minister, has been a major force behind a recent shift by President François Hollande toward a more centrist economic policy.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B3) . . . , what is important, Mr. Macron said, as a late train from the nearby Gare de Lyon rumbled beneath his window, is that France continue to streamline and modernize the welfare state.

“For me being a Socialist today is about defending the unemployed, but also defending businessmen who want to create a company, and those who need jobs,” he said. “We have to shift the social model from a lot of formal protections toward loosening bottlenecks in the economy.”

For the full story, see:
LIZ ALDERMAN. “France’s 36-Year-Old Economy minister Is Face of the New Socialism.” The New York Times (Tues., OCT. 7, 2014): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date OCT. 6, 2014, and has the title “Emmanuel Macron, Face of France’s New Socialism.”)

Structural Reforms Needed to Increase Innovation

(p. A13) . . . , a lack of “demand” is no longer the problem.
. . .
Where, instead, are the problems? John Taylor, Stanford’s Nick Bloom and Chicago Booth’s Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work? Ed Prescott emphasizes large distorting taxes and intrusive regulations. The University of Chicago’s Casey Mulligan deconstructs the unintended disincentives of social programs. And so forth. These problems did not cause the recession. But they are worse now, and they can impede recovery and retard growth.
These views are a lot less sexy than a unicausal “demand,” fixable by simple, magic-bullet policies. They require us to do the hard work of fixing the things we all agree need fixing: our tax code, our cronyist regulatory state, our welter of anticompetitive and anti-innovative protections, education, immigration, social program disincentives, and so on. They require “structural reform,” not “stimulus,” in policy lingo.

For the commentary, see:
JOHN H. COCHRANE. “OPINION; The Failure of Macroeconomics; When models don’t yield the spending policies they want, some Keynesians abandon models–but not the spending.” The Wall Street Journal (Thur., July 3, 2014): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 2, 2014.)

The Vagueness and Regulatory Discretion of Dodd-Frank Is “a Recipe for Cronyism”

(p. 218) Aaron Steelman has an “Interview” with John Cochrane. On Dodd-Frank: “I think Dodd-Frank repeats the same things we’ve been trying over and over again that have failed, in bigger and bigger ways. . . . The deeper problem is the idea that we just need more regulation–as if regulation is something you pour into a glass like water–not smarter and better designed regulation. Dodd-Frank is pretty bad in that department. It is a long and vague law that spawns a mountain of vague rules, which give regulators huge discretion to tell banks what to do. It’s a recipe for cronyism and for banks to game the system to limit competition.” On how to stop bailing out large financial institutions: “You have to set up the system ahead of time so that you either can’t or won’t need to conduct bailouts. Ideally, both. . . . The worst possible system is one in which everyone thinks bailouts are coming, but the government in fact does not have the legal authority to bail out.” . . . Econ Focus, Federal Reserve Bank of Richmond, Third Quarter 2013, pp. 34-38. https://www.richmondfed
.org/publications/research/econ_focus/2013/q3/pdf/interview.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 235-42.
(Note: italics, and first two ellipses, are in original; the last ellipsis is added.)

20 Years Before Fall of Rome, Ammianus Described “a World Exhausted by Crushing Taxes”

(p. 48) . . . ghosts surged up from the Roman past. An ancient literary critic who had flourished during Nero’s reign and had written notes and glosses on classical authors; another critic who quoted extensively from lost epics written in imitation of (p. 49) Homer; a grammarian who wrote a treatise on spelling that Poggio knew his Latin-obsessed friends in Florence would find thrilling. Yet another manuscript was a discovery whose thrill might have been tinged for him with melancholy: a large fragment of a hitherto unknown history of the Roman Empire written by a high-ranking officer in the imperial army, Ammianus Marcellinus. The melancholy would have arisen not only from the fact that the first thirteen of the original thirty-one books were missing from the manuscript Poggio copied by hand–and these lost books have never been found–but also from the fact that the work was written on the eve of the empire’s collapse. A clearheaded, thoughtful, and unusually impartial historian, Ammianus seems to have sensed the impending end. His description of a world exhausted by crushing taxes, the financial ruin of large segments of the population, and the dangerous decline in the army’s morale vividly conjured up the conditions that made it possible, some twenty years after his death, for the Goths to sack Rome.

Source:
Greenblatt, Stephen. The Swerve: How the World Became Modern. New York: W. W. Norton & Company, 2011.
(Note: ellipsis added.)

“Different Structural Models Can Fit Aggregate Macroeconomic Data About Equally Well”

(p. 1149) There is an apparent lack of encompassing-forecasting and economic models that can explain the facts uniformly well across business cycles. This is perhaps an inevitable outcome given the changing nature of business cycles. The fact that business cycles are not all alike naturally means that variables that predict activity have a performance that is episodic. Notably, we find that term spreads were good predictors of economic activity in the 1970s and 1980s, but that credit spreads have fared better more recently. This is of course a challenge for forecasters, as we do (p. 1150) not know the origins of future business cycle fluctuations. Much needs to be learned to determine which and how financial variables are to be monitored in real time especially in an evolving economy when historical data do not provide adequate guidance.
Explanations for the Great Recessions usually involve some form of nonlinearity. The sudden nature of the downturn following the collapse of Lehman is consistent with nonlinearity being part of the transmission mechanism. At the same time, we lack robust evidence of nonlinearity from aggregate low-frequency macroeconomic data. Essentially, there is an identification issue as different structural models can fit aggregate macroeconomic data about equally well.

For the full article, see:
Ng, Serena, and Jonathan H. Wright. “Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling.” Journal of Economic Literature 51, no. 4 (Dec. 2013): 1120-54.

Raghuram Rajan: “Never in the Field of Economic Policy Has So Much Been Spent, with So Little Evidence, by So Few”

(p. 213) Raghuram Rajan delivered the Andrew Crockett Memorial Lecture at the Bank of International Settlements, titled “A Step in the Dark: Unconventional Monetary Policy after the Crisis.” “Two competing narratives of the sources of the crisis, and attendant remedies, are emerging. The first, and the better known diagnosis, is that demand has collapsed because of the high debt build up prior to the crisis. . . . But there is another narrative. And that is that the fundamental growth capacity in industrial countries has been shifting down for decades now, masked for a while by debt-fueled demand. More such demand, or asking for reckless spending from emerging markets, will not put us back on a sustainable path to growth. Instead, industrial democracies need to improve the environment for growth. The first narrative is the standard Keynesian one, modified for a debt crisis. It is the one (p. 214) most government officials and central bankers, as well as Wall Street economists, subscribe to, and needs little elaboration. The second narrative, in my view, offers a deeper and more persuasive view of the blight that afflicts our times.” Rajan argues that central banks took the right actions during the financial crisis, but that the wisdom of the ultra-low interest rate policies in the aftermath of the crisis are not yet clear. “Churchill could well have said on the subject of unconventional monetary policy, ‘Never in the field of economic policy has so much been spent, with so little evidence, by so few’. Unconventional monetary policy has truly been a step in the dark.” June 23, 2013, at http://www.bis.org/events/agm2013/sp130623.htm.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 27, no. 4 (Fall 2013): 211-18.
(Note: ellipsis in original.)

In France “‘Liberté, Égalité, Fraternité’ Means that What’s Yours Should Be Mine”

SantacruzGuillaumeFrenchEntrepreneurInLondon2014-04-27.jpgGuillaume Santacruz is among many French entrepreneurs now using London as their base. He said of his native France, “The economy is not going well, and if you want to get ahead or run your own business, the environment is not good.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) Guillaume Santacruz, an aspiring French entrepreneur, brushed the rain from his black sweater and skinny jeans and headed down to a cavernous basement inside Campus London, a seven-story hive run by Google in the city’s East End.
. . .
A year earlier, Mr. Santacruz, who has two degrees in finance, was living in Paris near the Place de la Madeleine, working in a boutique finance firm. He had taken that job after his attempt to start a business in Marseille foundered under a pile of government regulations and a seemingly endless parade of taxes. The episode left him wary of starting any new projects in France. Yet he still hungered to be his own boss.
He decided that he would try again. Just not in his own country.
“A lot of people are like, ‘Why would you ever leave France?’ ” Mr. Santacruz said. “I’ll tell you. France has a lot of problems. There’s a feeling of gloom that seems to be growing deeper. The economy is not going well, and if you want to get ahead or run your own business, the environment is not good.”
. . .
(p. 5) “Making it” is almost never easy, but Mr. Santacruz found the French bureaucracy to be an unbridgeable moat around his ambitions. Having received his master’s in finance at the University of Nottingham in England, he returned to France to work with a friend’s father to open dental clinics in Marseille. “But the French administration turned it into a herculean effort,” he said.
A one-month wait for a license turned into three months, then six. They tried simplifying the corporate structure but were stymied by regulatory hurdles. Hiring was delayed, partly because of social taxes that companies pay on salaries. In France, the share of nonwage costs for employers to fund unemployment benefits, education, health care and pensions is more than 33 percent. In Britain, it is around 20 percent.
“Every week, more tax letters would come,” Mr. Santacruz recalled.
. . .
Diane Segalen, an executive recruiter for many of France’s biggest companies who recently moved most of her practice, Segalen & Associés, to London from Paris, says the competitiveness gap is easy to see just by reading the newspapers. “In Britain, you read about all the deals going on here,” Ms. Segalen said. “In the French papers, you read about taxes, more taxes, economic problems and the state’s involvement in everything.”
. . .
“It is a French cultural characteristic that goes back to almost the revolution and Robespierre, where there’s a deep-rooted feeling that you don’t show that you make money,” Ms. Segalen, the recruiter, said. “There is this sense that ‘liberté, égalité, fraternité’ means that what’s yours should be mine. It’s more like, if someone has something I can’t have, I’d rather deprive this person from having it than trying to work hard to get it myself. That’s a very French state of mind. But it’s a race to the bottom.”

For the full story, see:
LIZ ALDERMAN. “Au Revoir, Entrepreneurs.” The New York Times, SundayBusiness Section (Sun., MARCH 23, 2014): 1 & 5.
(Note: ellipses added.)
(Note: the online version of the story has the date MARCH 22, 2014.)

SegalenDianeFrenchEntrepreneurInLondon2014-04-27.jpg ‘Diane Segalen moved most of her executive recruiting practice to London from Paris. In France, she says, “there is this sense that ‘liberté, égalité, fraternité’ means that what’s yours should be mine.”” Source of caption and photo: online version of the NYT article quoted and cited above.

Fed Regulations Are “a Wild Card” Since “Regulators Have a Lot of Leeway”

(p. 1D) The president of First National of Nebraska, the nation’s largest privately held banking firm, said new federal regulatory and com­pliance efforts stand to cost the company as much as $30 million this year.
“It is a big uncertainty in the banking world,” said Dan O’Neill, speaking Wednesday at the com­pany’s annual meeting in Omaha. “They are not operating off of concrete rules. A lot of it is their interpretation.”
The federal Consumer Fi­nancial Protection Bureau was formed as a result of the federal Dodd-Frank laws passed in 2010 after widespread bank failures and bailouts using taxpayer money.
. . .
The bureau, he said, worries banks because there is not a “clear body of rules” from which the regulator is operating in eval­uating the fairness of a bank’s business practices. He said the agency’s regulators have a lot of leeway in deciding what to do af­-(p. 2D)ter examining a bank; penalties for running afoul include fines.
“So it is a bit of a wild card,” he said.

For the full story, see:
RUSSELL HUBBARD. “ANNUAL MEETING; First National Chief Says Regulatory Costs Mounting.” Omaha World-Herald (Thurs., June 20, 2013): 1D-2D.
(Note: ellipsis added.)