The New York Times asked 7 economists to advise the Obama administration under the title of “What Now.” With one exception they all seemed to be addressing what they thought was a given assumption:How can we get back to where we were before the crash? This seems to me to be singularly unhelpful. If the only task of the Obama Recovery is to restore America to a state in which 70% of GDP is consumer expenditures driven by excess credit and advertising, then we will have neither accomplished not learned anything from this crisis. As Jeremy Grantham has written.
An amateur economist could summarize and simplify the Chinese economy as 39-37-37: an astonishingly large 39% of the GDP is capital spending, 37% is internal consumption, and an amount equal to 37% of GDP is exported. (These numbers do not sum to 100 as we are not using exports net of imports because we are concerned with the vulnerability of total exports to a weak global economy.) The U.S., in comparison, is 19-70-13, disturbingly on the other side of normal; 70% consumption compared with 57% in both Germany and Japan, for example, and nearly twice that in China. Continue reading →
The three cabinet positions that will define the Obama administration are Treasury, State and Defense. The first name floated for Treasury is Larry Summers. This would be a disaster. If one thing Obama promised to end was Clintonomics, as represented by Bob Rubin and Larry Summers. The notion of a “Restoration” was soundly rejected in the Democratic Primaries. Summers would be the same old crowd with the same old coddling of Wall Street. These guys presided over the beginnings of financial deregulation and they should have nothing to do with the new Treasury Department. A far better choice would be Tim Geithner, President of the Federal Reserve Bank of New York. Geithner, was a lonely voice warning of the sub-prime mortgage bomb two years ago and he has both the experience and the youthful vigor to take on the most important job in the new Obama Administration.
On Defense, I am of two minds. I have written in recent weeks that Bob Gates understands some of the hard tasks that lay ahead in the remaking of our military to face the real threats of the 21st Century, not the cold war mentality of the 20th Century that many of the Generals are mired in. However, I still believe that Gates might be unwilling to make the real cuts in the Defense Budget. If Gates goes then Chuck Hagel, a Republican realist might be the right guy for the job. Hagel is a Vietnam vet and understands the foreign and defense policy challenges of our age.
For the State Department, I think John Kerry would be a good choice. He has spent years in the foreign policy arena and has met most of the foreign leaders giving a sense of security to the rest of the world. I would feel even better if Barack appointed Samantha Power as one of the top NSC players. She went into self-imposed exile from the campaign after calling out the Clintons in the midst of a heated primary race. She is one of the great original foreign policy thinkers in America and Barack should bring her into his administration.
While the U.S. has been on a credit funded spending spree for 17 years, the countries known as the BRIC’s (Brazil, Russia, India and China) have been saving up for a rainy day. With more than $3 Trillion in government reserves, they could potentially come to the rescue of the overextended developed world. But will they?
From Asia to Latin America, exports are slowing and should continue to do so as the global appetite shrinks. This is spawning fears that major producers like China and India — which vastly expanded production capacity in recent years — will have to dump products on world markets to keep factories running and stave off unemployment, pressing prices lower.
Faced with high unemployment and potential civil unrest, I am guessing that the BRIC’s will spend their money at home rather than buying US Treasury Bills.
For a few years I have worked with the OECD(Organization of Economic Cooperation and Development) in media and telecom issues. The organization has always done the best statistical analysis of the economies of the 30 Developed Countries that are members.
In the film, one of the characters, Dookie, goes so far as to attempt to hang himself after he watches his net worth plummet. Stone contemplated going with a version where Dookie remains in the air, feet twitching. “It was important to go the distance in terms of portraying the stress and hardship we’re going through now,” says Stone. “
My undergraduate class and I spent 30 minutes today talking about the genius of this little film.
Bonus season is fast approaching and never will it be as scrutinized. With the country facing its worse financial crisis since the Great Depression and taxpayers forking over $700 billion to bail out the nation’s financial institutions, some self restraint would seem to be in order–or at the very least the politically smart move, writes the Finance Professor.
Yet, according to this Bloomberg article, Wall Street won’t be deterred from paying bonuses this year. Merrill Lynch has allocated $6.7 billion, Morgan Stanley has put aside $6.44, and Goldman Sachs Group has $6.85 billion for bonuses.
Most people don’t understand that for Wall Street, more than 70% of yearly income comes from”Bonuses”. It doesn’t matter. If you want to cause civil unrest, I dare the bankers of Wall Streeet to take Billions in bonuses when the tax payers have just shoveled out $700 Billion to save your hide.
With despair rising even among many of John McCain’s own advisors, influential Republicans inside and outside his campaign are engaged in an intense round of blame-casting and rear-covering—-much of it virtually conceding that an Election Day rout is likely.
A McCain interview published Thursday in the Washington Times sparked the latest and most nasty round of Washington finger-pointing, with senior GOP hands close to President Bush and top congressional aides denouncing the candidate for what they said was an unfocused message and poorly executed campaign.
What is emerging is a group of Palinistas gathered around Bill Kristol and The Weekly Standard and the two kings of Right Wing Radio–Rush Limbaugh and Sean Hannity. They believe the future of the Republican Party is in the way Palin can work up a crowd of The Base. Their theory is to return the early days of minority guerrila war when Newt Gingrich was a backbencher and Rush was just getting started. They will launch a permanent campaign against Obama in the same way they ran a permanent anti-Clinton operation. Continue reading →
The conventional wisdom of conservative economics since the publication in 1963 of Milton Friedman and Anna Schwartz’s A Monetary History of the United States was that the Great Depression was caused by inept monetary policies. Instead of flooding the system with liquidity, the government sought to stabilize the currency. Thus bankers didn’t have enough money to loan and consumer demand collapsed. The other leg of Friedman’s stool is based on the notion that cutting taxes on capital gains in downturns will stimulate investment in productive assets, thus leading the rebound. Professor James Livingston of Rutgers has just published a brilliant series of articles that points to another cause of the crash; one that has eerie parallels to our current crash.
The Great Depression was the consequence of a massive shift of income shares to profits, away from wages and thus consumption, at the very moment—the 1920s—that expanded production of consumer durables became the crucial condition of economic growth as such. This shift produced a tidal wave of surplus capital that, in the absence of any need for increased investment in productive capacity (net investment declined steadily through the 1920s even as industrial productivity and output increased spectacularly), flowed inevitably into speculative channels, particularly the stock market bubble of the late 20s; when the bubble burst—that is, when non-financial firms pulled out of the call loan market in October—demand for securities listed on the stock exchange evaporated, and the banks were left holding billions of dollars in “distressed assets.” Continue reading →
Though we doubt most Americans realize it, this would be one of the most profound political and ideological shifts in U.S. history. Liberals would dominate the entire government in a way they haven’t since 1965, or 1933. In other words, the election would mark the restoration of the activist government that fell out of public favor in the 1970s. If the U.S. really is entering a period of unchecked left-wing ascendancy, Americans at least ought to understand what they will be getting, especially with the media cheering it all on… Continue reading →