Oct
05
2008
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How Government Stoked the Mania - WSJ.com
Is the financial crisis purely a result of market failure? Professor Russel Roberts doesn’t think so. Read this great post to learn how the government may be the real culprit behind our financial mess.
“…before we conclude that markets failed, we need a careful analysis of public policy’s role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?
Part of the answer is a political class greedy to push home-ownership rates to historic highs — from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.
Beware of trying to do good with other people’s money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.”
tags: economics, financial crisis, market failure
Oct
01
2008
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Stiglitz: The Fall of Wall Street Is to Market Fundamentalism What the Fall of the Berlin Wall Was to Communism
Even if we weren’t looking at the financial turmoil, but at the level of household, national and federal debt there is a major problem. We are drowning. If we look at inequality, which is the greatest since the Great Depression, there is a major problem. If we look at stagnating wages, there is a major problem.
Most of the economic growth we’ve had in the past five years was based on the housing bubble, which has now burst. And the fruits of that growth have not been shared widely. In short, the fundamentals are not strong.
tags: Economics, financial crisis, Stiglitz, Obama
Sep
17
2008
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Why Managed Trade Is Not Free Trade| The Foundation for Economic Education: The Freeman, Ideas on Liberty
Is NAFTA really about free trade? Or “managed trade”?
“The North American Free Trade Agreement (NAFTA) is the quintessential managed-trade vehicle sold under the rubric of free trade. The first tip-off should be its size. While we earlier saw how 54 words in the U.S. Constitution established free trade among the states of the Union, NAFTA weighs in at over 2,000 pages, 900 of which are tariff rates. (Under true free trade, there is one tariff rate—0 percent.) The agreement does have trade-liberalizing features, to be sure. Consisting of a 10 percent reduction in tariffs to be phased in over 15 years, however, they are all but buried under the profusion of controls NAFTA also establishes.
In the first place, the benefit from those tariff reductions are jeopardized by the agreement’s snap-back provisions. Those permit pre-NAFTA tariff levels to be restored against imported items which cause or threaten serious injury to domestic industry.[5] In other words, NAFTA supports free trade as long as it does not promote international competition which is too hot for favored domestic firms to handle. In addition, NAFTA’s rules of origin are designed to divert trade from the world’s most efficient suppliers to North America’s most efficient suppliers. This hobbles the international division of labor instead of expanding it, as true free trade does.
The importance of NAFTA clauses that keep out foreign goods came to light as U.S. clothing manufacturers railed against the import of wool suits from our NAFTA partner Canada. The suits in question were made from third-country wool not covered by NAFTA rules of origin. Since Canadian tariffs on foreign wool were lower than U.S. tariffs (10 percent vs. 34 percent),[6] Canadian suits sold for less and soon claimed a large share of the U.S. market. The fact that the entire discussion of this issue centered on closing this loophole in NAFTA rather than on lowering the injurious U.S. tariff on wool should prove how devoted NAFTA’s supporters are to free trade.
Free trade does not
tags: economics, free trade, NAFTA
Sep
16
2008
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Bloomberg.com:Greenspan Says McCain Tax Plan Needs Corresponding Budget Cuts
“Former Federal Reserve Chairman Alan Greenspan said the country can’t afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without corresponding spending reductions.
Greenspan, a lifelong Republican and longtime friend of McCain, said today on Bloomberg Television’s “Political Capital With Al Hunt” that “I’m not in favor of financing tax cuts with borrowed money.”
McCain has said he would balance the cost of most of his tax cuts with budget reductions, while providing few details beyond eliminating earmarks and other pork-barrel spending, which have totaled about $171 billion since 2001. Democratic nominee Barack Obama is proposing fewer tax cuts and more ambitious spending programs.
Greenspan said he has “mixed feelings” about a second government economic-stimulus bill after the U.S. provided a $168 billion package in February. While such an action may increase the budget deficit at a time when spending on retirees’ medical benefits is about to cause “big” financial problems, it may also boost economic growth, he said.
Greenspan has said there’s at least a 50 percent chance the U.S. economy will slide into a recession.”
tags: economics
Sep
02
2008
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ESPN.com - Source: LeBron would consider European offer of $50M a year or more
The source close to James said LeBron would play in Europe only for a year or two before returning to the NBA. He said James would view it as an opportunity to popularize the game and himself overseas. He added that James would not consider himself to be playing in the “minor leagues.”
“Not at all,” the person said. “He believes those guys are pros also.”
The entire scenario falls in line with James’ stated goals of becoming a billionaire and “global icon.” But the representative from the players’ association will have to see James in a European uniform before he believes it.
“First of all, we don’t know that there’s going to be a $50 million offer,” the official said. “And secondly, he wouldn’t be able to accomplish over there the things that he wants to do over here, which are to win NBA championships, MVP awards, etc.”
But he could become filthy rich and a global icon.
tags: economics
Aug
28
2008
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BBC NEWS | UK | Education | Economics ‘dying out’ in schools
“There are three times as many pupils taking psychology A-level as economics and almost twice as many taking A-level media studies. Sport and physical exercise and the expressive arts are now bigger subjects at A-level than economics.”
What’s happening to my favorite subject area in the UK? It appears that economics education and the number of teachers going into economics is on the decline.
Why? It’s not exactly clear, but the simple answer seems to be, “It’s difficult, so students are chosing not to study it”. That’s unfortunate, especially in an age when economics lies at the root of so many of our world’s social political and environmental issues.
tags: economics, education
Jun
12
2008
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Paul Krugman - Bits, Bands and Books - Op-Ed - NYTimes.com
In the future, will everything be free? Well, maybe not everything, but lots more will. Krugman explains why:
“…the ease with which digital content can be copied and disseminated would eventually force businesses to sell the results of creative activity cheaply, or even give it away. Whatever the product — software, books, music, movies — the cost of creation would have to be recouped indirectly: businesses would have to “distribute intellectual property free in order to sell services and relationships.”
tags: economics
Jun
11
2008
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Obama or McCain - who’s better for Housing Market | Wexzilla - Phoenix | Scottsdale Real Estate
Blogger James Wexler summarizes McCain and Obama’s strategies for dealing with America’s housing crisis:
“Sen. Obama has suggested $10billion in government funding to help homeowners sell their homes of modify their loans to avoid bankruptcy or Foreclosure.
Sen. McCain feels like this is a bailout. He feels struggling homeowner and borrowers should share the responsibility and if helped should share equity (if there is a gain) with the lender and Federal Government.
Obama wants the government to lend money to struggling home owners. Money which usually comes in the form of higher taxes
McCain has pledged to eliminate (AMT ) taxes. A break that many Americans want (and need). However AMT tax cut with other extended tax cuts leaves less money for such help to home owners. Unless, other government programs are sacrificed. A move, most do not want.”
tags: economics, housing prices, recession, fiscal policy
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What is Driving the High Oil Prices?
“High oil prices are here to stay due to heightened political risks, irresponsible behavior by oil-producing governments and growing global demand outside U.S. control. Oil is a finite resource which is produced by a partially cartelized imperfect market. Consumer countries should expand cooperation in order to level the playing field and reduce prices by increasing investment and production, promoting conservation, and diminishing geopolitical risks. Yet, in the long term, high demand, inadequate supply and severe geopolitical risks combine to make oil a problematic transportation fuel.”
tags: economics, oil prices, scarcity, resources
Jun
10
2008
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FT.com / World - Emerging-market cities climb world rankings
Shanghai ranked one of the best cities in the world for global commerce:
“Shanghai jumped into the top 25 in this year’s index, joining seven other Asian cities in this group with an eight-position jump that was the most of any city in the index. Among the world’s most populous and fastest-growing cities, Shanghai’s position in the index was bolstered by its economic stability, its legal and political framework, an increased quality of life and China’s booming economy.”
tags: economics, china
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Why the oil boom will eventually bust - Jun. 6, 2008
Are high oil prices here to stay? This article suggests they’re not. New supplies will come online at the same time that consumers start to conserve and switch towards alternative energies.
“The longer prices stay stratospheric, the worse the eventual crash - simply because the higher the prices and bigger the profit margins, the bigger the incentive to over-produce.
It’s even possible that, a few years hence, we could see a sustained period of plentiful oil supplies and low prices, meaning $50 or below.”
tags: economics, oil prices
Jun
04
2008
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Fitch: China’s economy to weather through quake - People’s Daily Online
“The international rating agency, Fitch, believes that neither this year’s heavy snow nor strong earthquake will have much of a negative impact on China’s economy…”
tags: economics, China, earthquake, economy
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Bernanke: Gloomy on growth - Jun. 3, 2008
“[H]ouseholds continue to face significant headwinds, including falling house prices, a softer job market, tighter credit, and higher energy prices, and consumer sentiment has declined sharply since the fall,” said Bernanke, addressing the International Monetary Conference in Barcelona via satellite.
At the same time, Bernanke said that some of the more troubled aspects of the economy are starting to show signs of stability. He said the battered financial markets had “improved of late but conditions remained strained.” He also said the pressures on the U.S. economy are being softened somewhat by foreign demand for U.S. goods and services.
“We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus,” he said.
tags: economics, recession, monetary policy
May
29
2008
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APAC 2008 - Program
The AP Annual Conference in Seattle features two and a half days of economics specific workshops. This looks great and I hope to attend!
“Participants will learn about new technology available to enhance student learning, such as interactive textbooks, blogs, and virtual classrooms.”
This sounds right up my alley!
tags: economics, education, workshops, College Board, AP Economics, AP Annual Conference
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Working with Teens: Teaching Personal Finance on a High School Level by Weakonomics.com
Should schools start teaching personal finance? Come to think of it, which skill are more important for life beyond high school: understanding the intricacies of fiscal and monetary policies, the ballance of payments, and profit maximization rules? Or how to balance your own checkbook?
“There are plenty of subjects that can’t get crammed into a course in just a year or half-year. They are no less important, but require the basic knowledge taught here before they can be understood. Insurance is a big one, and though taxes are touched on, they need their own class! Maybe someday a curriculum could be established. If you know of any schools the require this already, let me know. If your kid’s school doesn’t, talk to the teachers and principals about a class.”
tags: economics, education, finance, curriculum
May
27
2008
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How low can America grow? | Free exchange | Economist.com
A question I have been pondering is whether slow GDP growth combined with high inflation actually means that negative GDP growth. In other words, with GDP growing around .2% and the price level at around 4%, is the US actually experiencing negative real GDP growth of -3.8%? According to this blog post, NO:
“it’s not true that high inflation means real output growth is negative, since the GDP figure quoted is itself a real figure. (Although many observers, like Barry Ritholtz, believe that official inflation numbers are understating inflation). But discussions about whether a recession might be u-, or v-, or curlicue-shaped seem a bit off at the moment. Instead, the economy is essentially flatlining just a hair above zero growth. “
tags: economics, inflation, recession, GDP
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CPI Inflation Calculator
This is a cool little tool for calculating the rate of inflation. Plug in any two years and see how much “buying power” a dollar had in one year relative to another. Great for illustrating Consumer Price Index. From http://www.bls.gov/CPI/
tags: economics, inflation, CPI
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Buffett says U.S. is in recession - May. 25, 2008
“I believe that we are already in a recession,” Buffet was quoted as saying. “Perhaps not in the sense as defined by economists. … But people are already feeling the effects of a recession.”
“It will be deeper and longer than what many think,” he added.
tags: economics, recession, macroeconomics, Buffett
May
23
2008
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China and the Development Myth - D.W. MacKenzie - Mises Institute
Is China’s economic success a result of the government’s close management of market activity? Or is China’s economic success actually a myth in itself? As the author says “While it had been thought that 100 million Chinese live on less than one dollar per day, there are actually 300 million Chinese living on less than one dollar per day.”
The author refutes claims that close government regulation creates higher, more long term growth, claiming that “We can see the strength of the case for economic freedom even more clearly through proper economic theorizing. Free-market economists like Friedrich Hayek and Ludwig von Mises arrived at the proper conclusions regarding socialism and interventionism long before the evidence on modern state planning was in.”
tags: China, economics, free markets, socialism, central planning, economic growth
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The Foundry » Blog Archive » Morning Bell: Cap and Trade Already Killing U.S. Economy
The conservative bloggers at the Heritage Foundation’s “Foundry” blog think that an emiisions cap and trade system is the source of all energy woes in the US. I ardently disagree. Be sure to read the comments, where I express another side of the story.
tags: environment, economics, cap and trade, emissions permits, politics
May
13
2008
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IDE - Enabling Prosperity
IDE Myanmar has operations in practically all of the cyclone-affected areas in the Irrawaddy Delta, and is hence positioned well to provide aid where it is most needed. Here’s what we are doing:
IDE has targeted 20 township areas that are affected, containing an estimated 8,000 -9,000 villages. About 125 staff have been mobilized to work in these areas - approximately six per township. The initial focus will be on providing immediate relief but rebuilding the agricultural and food security systems will receive equal priority and attention.
tags: disaster relief, economics, Myanmar, SAS
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Justgiving - SAS Myanmar Relief
The Shanghai American School service clubs held a joint meeting today to brainstorm how to help victims of the Burma Cyclone. We set up this website on justgiving.com to begin collecting donations to help the victims in Burma. Follow the link to show your support!
tags: disaster releif, economics, poverty, SAS
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