« June 2005 |
| August 2005 »
Did you know that China is opening a refrigerator factory in Camden, S.C., and this isn’t the only place China is opening production facilities in the U.S.? This may be just the start, so I'm curious if you see the creation of jobs within the U.S. as China opens factories here as a positive development. As you read this, remember that the refrigerators could be produced at lower cost in China even with shipping costs, so this is more of a political move than an economic one from China’s perspective, though currency revaluation could change that calculation:
Fostering Goodwill With Jobs, By Evelyn Iritani, LA Times:
This sleepy town of quaint colonial homes and Revolutionary War battle
sites is an unlikely champion for China. It's the oldest inland city
in South Carolina, a state devastated by competition from low-cost
Chinese textiles. The state's most powerful politicians, including the
late Republican Sen. Strom Thurmond, led the fight to keep out cheap
goods from China and other countries. But Camden, population 6,700, is
also the home of the first U.S. refrigerator factory for China's Haier
Group, a fast-growing appliance maker known as the General Electric of
China. The plant's 225 jobs, with promises of more, explain why people
here view China with greater enthusiasm than do those in Washington,
where a rising trade deficit and a Chinese bid to buy El Segundo-based
oil company Unocal Corp. have sparked concerns that China is bent on
supplanting America economically and politically.
Continue reading "China Sends a Few Jobs Our Way as a Goodwill Gesture" »
Posted by Mark Thoma on Sunday, July 31, 2005 at 12:33 PM in China, Economics, International Trade, Unemployment |
Here’s a follow-up to this post about the drafting of the Iraqi constitution. Those writing it want more time, but U.S. and Iraqi officials are pressuring them to meet the August 15 deadline:
Iraq Panel Seeks Constitution Extension, By Qassim Abdul-Zahra, Associated Press:
Key members of the committee writing the new Iraqi constitution said
Sunday they need another month to finish the draft, threatening U.S.
efforts to maintain political momentum to combat the insurgency.
Later, President Jalal Talabani insisted the Aug. 15 deadline for
parliamentary approval must be met, and the United States stepped up
pressure on the Iraqis to stick by the timetable. ...
Continue reading "Drafters of Iraqi Constitution Ask for More Time" »
Posted by Mark Thoma on Sunday, July 31, 2005 at 11:07 AM in Iraq and Afghanistan |
This NRO BuzzCharts quotes Abraham Lincoln. It reminds me of another quote from Lincoln:
It is better to remain silent and be thought a fool than to open one's mouth and remove all doubt.
BuzzCharts removes all doubt:
Supply vs. Supply - To raise rates or not to raise rates?, By Jerry Bowyer, NRO BuzzCharts:
… Supply-siders, as against other free-market types like the Austrians
and monetarists, emphasize marketplace indicators of inflation and
deflation. Supply-side economists tend to be practical people who are
as often as not forecasters, investment advisors, and business
consultants — as opposed to theoreticians. They recognize that it is
simply impossible for any central planner to “count” the number of
dollars in circulation. They therefore look to … gold prices, interest
rates, and foreign exchange rates — as the most reliable guides...
I assume the Fed is the central planner in this statement. Let’s see
if we can get this straight once and for all. The Fed targets an
interest rate, not the money supply. The form of the interest rate
rule is debated, e.g. how to weight the inflation and output terms, but
the target itself is not. The days are long past when a monetary
target was implemented or seriously considered. One reason is
precisely because it is difficult to define and measure the money
supply, i.e. “to “count” the number of dollars in circulation.” The
article seems to imply this makes an inflation target impractical, but
what does that have to do with measuring inflation? It isn’t necessary
to count the dollars in circulation to measure prices. If prices
aren’t good “marketplace indicators,” and therefore do not properly
direct the flow of resources, then why the faith in markets? This line
of reasoning makes no sense.
Finally, take a close look at the yellow line in the diagram. Pay no
attention to the fact that it is uncorrelated with the other line in
the diagram and don’t wonder why they are plotted together. Instead,
note that it is described as flat. Not also that Luskin whined incessantly when Krugman described
a half a percent increase over five years as flat. Will Luskin demand a retraction from Bowyer of Buzzcharts for using the word "flat?"
Posted by Mark Thoma on Sunday, July 31, 2005 at 01:26 AM in Economics, Monetary Policy, Press |
When you think about a subject long enough and hard enough, you begin to see it all around you. Tim Duy finds lessons for monetary policy in his garden as he observes the lag between the application of fertilizer and the growth of tomatoes in his organic garden. He also shares a trick for growing pumpkins suspended on a trellis. There comes a time in every pumpkins life when it can no longer hold onto the vine and the pumpkin security system involves a safety net that sustains pumpkins through their old age:
For the interested gardener…
When I returned to Oregon, I took up vegetable gardening as a hobby. Organic gardening, to be specific, which as far as I can tell means I am allowed to use deadly pesticides made by nature rather than Dow Chemical (yes, there is more to it).
One of my experiments over the years has been to grow sugar pumpkins by training the vines to a trellis. It is an extremely efficient use of a small garden. For example, see this photo.
What about the pumpkins? They need to be supported somehow – I use a plastic mesh as which you can see in the next two pictures.
To see the effects of excessive nitrogen, just look at my tomatoes.
They are six feet tall, but I think my yields will be low. Getting the nutrients right appears to be a challenge in intensive container gardening. Last year, I undershot the nitrogen; this year, I overshot.
Not unlike monetary policy.
Posted by Mark Thoma on Sunday, July 31, 2005 at 12:34 AM in Economics, Monetary Policy, Social Security |
If you get a chance, take a look at the pork in this highway bill. There's a lot of oinking going on in House Ways and Means Committee member's home states. But I want to highlight a different aspect of this bill. Here’s a statement from House Ways and Means Committee Chairman Bill Thomas:
U.S. Congress Approves $286.5 Bln Highway Legislation, Bloomberg: The U.S. Congress approved $286.5 billion for highway and transit projects, ending almost two years of disagreements as President George W. Bush persuaded lawmakers to accept lower spending than they were seeking…. ''The reason this bill was so difficult is there wasn't enough money to deal with the infrastructure needs of this country,'' said House Ways and Means Committee Chairman Bill Thomas, a California Republican…
There’s enough money for massive tax cuts, the elimination of estate taxes, the folly in Iraq and so on, but when it comes to essentials like infrastructure and education, the money is gone. Apparently, it's much more important to give tax cuts to the wealthy than it is to attend to foundations of economic growth such as infrastructure and education.
Posted by Mark Thoma on Saturday, July 30, 2005 at 09:00 AM in Budget Deficit, Economics |
China is making a major investment in higher education, one that is already yielding large dividends. According to this article, Chinese officials estimate that by 2050 half of China’s high school grads, and that’s half of a pretty large number, will receive some form of higher education. Is the U.S. ready to meet this challenge with a commitment of its own to improving education at all levels?
China goes to college - in a big way, By Amelia Newcomb, Christian Science Monitor: Several years ago, Chinese car manufacturer Geely grew concerned about a shortage of well-trained workers. Its solution: plunk down $800 million and start a private university… in 2000, the sprawling campus of Beijing Geely University, with its Stanford-inspired quad, opened on the outskirts of Beijing - one of some 1,300 private universities that have sprung up in recent years. This September, Geely will enroll about 20,000 students … As China continues to surge onto the global economic stage, it is undergoing one of the most ambitious higher education expansions in the world. … the country is prying open the doors of institutions that formerly served a narrow elite. It's pouring money into research, welcoming private ventures like Geely, and broadening the curriculum to ensure that its grads stay on top in a knowledge-based world economy. Like so much in China, the move is happening quickly - and in eye-popping dimensions. … Since 1998, when Jiang Zemin, then president of China, spoke on the 100th anniversary … overall college enrollment in China has roughly tripled. … By 2010, Chinese officials estimate, at least 20 percent of high school grads will be enrolled in some form of higher education; that number is expected to rise to 50 percent by 2050. …
Continue reading "No Nation Left Behind" »
Posted by Mark Thoma on Friday, July 29, 2005 at 08:01 PM in China, Economics, Universities |
Tim Duy's latest Fed Watch:
A number of critical reports came out this week, including 2Q GDP, 2Q ECI, June durable goods orders, and the Beige Book. When Greenspan & Co. gather on August 9 to decide the path of policy, the data will indicate to them to stay the course – the path of measured tightening is working, so don’t rock the boat.
On the real side of the economy, I suspect that grins spread across the faces of Fed policymakers as they read this morning’s GDP release. To be sure, the headline figure looked a bit weak compared to Q1, and was a hair below expectations, but it is the details that matter in this case. The inventory drawdown is the first detail – it subtracted a whopping 2.32 percentage points from GDP. Consequently, a more useful indicator of demand is final sales of domestic product, which grew 5.8%, the highest rate since 3Q03. Make no mistake – this is a strong number. Fixed investment gained 9.3%, including a double digit gain in the equipment and software category. And net exports even made a positive contribution to GDP as exports gained and imports declined slightly. In short, this report will support the Fed’s contention that the economy is on solid footing.
Continue reading "Fed Watch: A Week of Data That Point to More Tightening…" »
Posted by Mark Thoma on Friday, July 29, 2005 at 11:16 AM in Economics, Fed Watch, Monetary Policy |
North Korea has big economic problems. Poverty is rampant and there is little to indicate that will change anytime soon. But the Dear Leader does provide magical water filled with the endless love of the people for his leadership:
The Dear Leader provides good drinking water, The International Herald Tribune, by Jas Gawronski:
HUNGHAM, North Korea Yun Hyok's shaved head skims the ground as he
turns and tries to get up. He's playing soccer on prosthetic limbs.
His legs were severed two years ago, when he was only 5. It was not an
accident, not a disease, but poverty. The legs got frozen in a house
with no heating while Yun slept at -20 C. At the local hospital, with
no technology, no surgical instruments or relevant expertise, doctors
did not know what to do except to amputate the child's legs right below
the knees. The hospital serves 3 million people, but it has only one
old ambulance and no heating system. Here in Hungham, the second
biggest city in North Korea after Pyongyang, amputation is a common
alternative if a broken arm or a leg looks difficult to fix.
North Korea is a journey through poverty. Hungham is even poorer than
Pyongyang, but there are no beggars in the streets, as in Rome or
Paris. In a dictatorship, beggars disappear. Last February, the
government of Kim Jong Il announced that North Korea had nuclear
weapons. The claim was part of a strategy to acquire aid and to be
taken seriously. … North Korea needs aid now more than ever. It
produces 3 million tons of cereals a year, whereas at least 4 million
are needed for survival. The income per head for a North Korean is 5
percent of what a South Korean makes. The official line is that this
is entirely the fault of the West. ... “Our problems are caused by the
hostility of the rest of the world, by the U.S. sanctions. South Korea
has relationships with other countries, we are isolated."
Continue reading "Don’t Drink the Water " »
Posted by Mark Thoma on Friday, July 29, 2005 at 09:09 AM in Economics |
This article by Gene Sperling details the cost of Bush’s Social Security proposal in terms of what we will have to give up in the future. It’s a lot:
Bush's Massive New Spending Plan Dwarfs Military, Gene Sperling, Bloomberg: Those who fear government spending is spiraling out of control might want to check a new Bush administration proposal that may eventually cost more than the budget of the U.S. Army. If you think I am referring to another hidden cost of the President's Medicare prescription drug plan, guess again. I'm referring to the annual interest that would be due on the new debt needed to support President George W. Bush's Social Security plan to offer private investment accounts. ...
Continue reading "Making The Sky Fall" »
Posted by Mark Thoma on Thursday, July 28, 2005 at 10:17 PM in Budget Deficit, Economics, Social Security |
Krugman answers the question "Does Europe Want to Change?" in his column "French Family Values":
...The point is that to the extent that the French have less income than we do, it's mainly a matter of choice. And to see the consequences of that choice, let's ask how the situation of a typical middle-class family in France compares with that of its American counterpart.
The French family, without question, has lower disposable income. This translates into lower personal consumption: a smaller car, a smaller house, less eating out.
But there are compensations for this lower level of consumption. Because French schools are good across the country, the French family doesn't have to worry as much about getting its children into a good school district. Nor does the French family, with guaranteed access to excellent health care, have to worry about losing health insurance or being driven into bankruptcy by medical bills.
Perhaps even more important, however, the members of that French family are compensated for their lower income with much more time together. Fully employed French workers average about seven weeks of paid vacation a year. In America, that figure is less than four.
So which society has made the better choice?... whatever else you may say about French economic policies, they seem extremely supportive of the family as an institution...
Posted by Mark Thoma on Thursday, July 28, 2005 at 09:36 PM in Economics, Income Distribution, Macroeconomics, Regulation |
Problems with electronic voting machines in Japan lead to a nullified election:
Electronic voting, The Asahi Shimbun: Voters in Kani, Gifu Prefecture, will elect a new municipal assembly on Aug. 21. The election is actually a rerun of one held in July 2003. However, the results of that election were nullified by the Supreme Court because of problems concerning electronic voting machines. … Voting machines broke down at all 29 polling stations in the city. As a result, votes were not properly registered. Some people even voted twice. ... The malfunction continued for an hour, creating long lines outside polling stations. Some voters simply gave up and went home. The difference between the winner with the fewest votes and the top losing candidate was just 35 votes. With such a slim margin, the result could have gone the other way if the system had worked properly. … Kani's handling of the situation was really disastrous. When the voting machines overheated, municipal government officials tried to cool them down with uchiwa fans. But confused voters kept repeating voting procedures or left without finishing. It was impossible to determine if their votes were registered properly. … Voting machines don't leave a paper trail. ... One idea worth consideration is to print out votes so voters can verify their decisions on paper if trouble occurs. Kani's rerun election will use the traditional method of writing down the names of candidates on ballots…
Will someone please remind me what the problem is with using paper copies of ballots as backup? Voters could verify the paper copy and seal it in an envelope inside the booth, then drop the envelope into a lockbox on their way out of the polling place. That would allow random audits, etc. What is the problem with that? I must be missing something obvious.
Posted by Mark Thoma on Thursday, July 28, 2005 at 08:37 PM in Politics |
This editorial from the Jordan Times is interesting. It lists some of the problems Iraq faces as it tries to draft a constitution and decide whether to be a federal or unitary state. The editorial notes that Islam has passed from " ... "a" source for the constitution" to being " ... "the" source." It also notes that a leaked draft of the constitution states that "No law that contradicts with its rules (Islamic) can be promulgated.":
Difficult issues, Editorial, Jordan Times:
Amman) The constitution drafting process in Iraq is passing through turbulent times not only because of the periodic boycott of the meeting of the Constitutional Committee by its Sunni members but also over the salient features of what is to be the organic law of the country. The Sunni members of the committee have been on and off in their involvement in the drafting process because of threats to their lives and the recent slaying of two of their colleagues. It is hard to imagine how the drafting of the constitution can be finalised by the mid-August deadline in the absence of a minimum-security environment. Still, the hurdles facing this process go beyond the security deficit.
Atop the host of difficult issues is the role of Islam in the new constitution. Will Islam be “a” source for the constitution as was initially proposed or “the” source, as now seems more probable? It appears that the consensus now emerging within the drafters of the constitution is to make Islam “the” source. Accordingly the leaked version of the draft constitution states that “Islam is the official religion of the state and is the main source of legislation.” The draft goes on to stipulate that: “No law that contradicts with its rules (Islamic) can be promulgated.”
Continue reading "The View of Iraq from Amman" »
Posted by Mark Thoma on Thursday, July 28, 2005 at 07:27 PM in Iraq and Afghanistan |
The public is not convinced that the economy is improving if approval ratings are the guide, and the president continues to lose ground on the Social Security reform issue:
Continue reading "Bush’s Approval Ratings on Social Security and the Economy Continue to Decline" »
Posted by Mark Thoma on Thursday, July 28, 2005 at 06:57 AM in Economics, Politics |
It is laughable for Luskin to criticize Krugman’s knowledge of international trade and finance, absolutely ludicrous. I don’t think Krugman, a recognized and respected scholar in this area, should be expected to dumb things down enough for Luskin to understand. It’s not possible anyway.
Posted by Mark Thoma on Wednesday, July 27, 2005 at 06:30 PM in Economics, International Finance, International Trade, Press |
Rove isn’t too busy with other matters to play a role in setting the agenda for an attempt at rescuing Social Security reform. He lets us know the House will go first in September, followed by the Senate. Once again, with gusto, they are not giving up. Not at all. Bush speaks as well and uses the opportunity to - surprise - blame the Democrats for his problems:
Continue reading "Rove Reveals Social Security Reform Agenda" »
Posted by Mark Thoma on Wednesday, July 27, 2005 at 03:24 PM in Economics, Politics, Social Security |
My daughter, a Republican, sent me this email that is making the rounds:
Dear Red States...
We've decided we're leaving. We intend to form our own country, and
we're taking the other Blue States with us.
In case you aren't aware, that includes Hawaii, Oregon, Washington,
Minnesota, Wisconsin, Michigan, Illinois and all the Northeast. We
believe this split will be beneficial to the nation, and especially
to the people of the new country of New California.
To sum up briefly: You get Texas, Oklahoma and all the slave states.
We get stem cell research and the best beaches. We get Elliot
Spitzer. You get Ken Lay.
We get the Statue of Liberty. You get Dollywood.
We get Intel and Microsoft. You get WorldCom.
We get Harvard. You get Ole' Miss.
We get 85 percent of America's venture capital and entrepreneurs. You
We get two-thirds of the tax revenue, you get to make the red states
pay their fair share.
Since our aggregate divorce rate is 22 percent lower than the
Christian Coalition's, we get a bunch of happy families. You get a
bunch of single moms.
Please be aware that Nuevo California will be pro-choice and
anti-war, and we're going to want all our citizens back from Iraq at
once. If you need people to fight, ask your evangelicals. They have
kids they're apparently willing to send to their deaths for no
purpose, and they don't care if you don't show pictures of their
children's caskets coming home. We do wish you success in Iraq, and
hope that the WMDs turn up, but we're not willing to spend our
resources in Bush's Quagmire.
With the Blue States in hand, we will have firm control of 80 percent
of the country's fresh water, more than 90 percent of the pineapple
and lettuce, 92 percent of the nation's fresh fruit, 95 percent of
America's quality wines (you can serve French wines at state dinners)
90 percent of all cheese, 90 percent of the high tech industry, most
of the U.S. low-sulfur coal, all living redwoods, sequoias and
condors, all the Ivy and Seven Sister schools, plus Harvard, Yale,
Stanford, Cal Tech and MIT.
With the Red States, on the other hand, you will have to cope with 88
percent of all obese Americans (and their projected health care
costs), 92 percent of all U.S. mosquitoes, nearly 100 percent of the
tornadoes, 90 percent of the hurricanes, 99 percent of all Southern
Baptists, virtually 100 percent of all televangelists, Rush Limbaugh,
Bob Jones University, Clemson and the University of Georgia.
We get Hollywood and Yosemite, thank you.
Additionally, 38 percent of those in the Red states believe Jonah was
actually swallowed by a whale, 62 percent believe life is sacred
unless we're discussing the death penalty or gun laws, 44 percent say
that evolution is only a theory, 53 percent that Saddam was involved
in 9/11 and 61 percent of you crazy b*****ds believe you are people
with higher morals then we lefties.
By the way, we're taking the good pot, too. You can have that dirt
weed they grow in Mexico.
Posted by Mark Thoma on Wednesday, July 27, 2005 at 01:53 PM in Politics |
Bernanke explains how the administration’s economic policies have resulted in robust output and employment growth and a generally sound economy. But as noted here, Joseph Stiglitz sees the administration's economic policies a bit differently. Would Stiglitz say that Bernanke drank the administration Kool-Aid, especially after the last sentence that throws in all but the kitchen sink of administration policies? I hope Ben's reward is a shot at the short-list for Fed chair:
Continue reading "Bernanke Touts the Administration’s Economic Policy" »
Posted by Mark Thoma on Wednesday, July 27, 2005 at 12:24 PM in Economics, Politics |
Joseph Stiglitz of Columbia University, winner of the Nobel Prize in economics in 2001, discusses why yuan revaluation will have little effect on the trade balance, why yuan revaluation could be bad for the U.S., why China wants a stable exchange rate, and why China has little reason to take economic advice from this administration:
US has little to teach China about steady economy, By Joseph Stiglitz, FT:
As excitement over China’s revaluation has died down ... it is time for
a calmer assessment about what it does and does not mean for China, for
the US and for the global economy. … whether this, or a succession of
revaluations, eliminates China’s trade surplus will have little effect
on the more important problem of global trade imbalances, and
particularly on the US trade deficit. Much of China’s recent gains in
textile sales … came at the expense of other developing countries.
America will once again be buying from them, and so total imports will
be little changed. … Unless domestic investment goes down or domestic
savings go up, the trade deficit will persist, unabated. The trade
deficit could diminish but if it does, it will not be a pretty picture.
Domestic investment, for instance, could go down if we succeed in
getting our wish and China’s trade surplus disappears; with China no
longer using the money from its trade surplus to fund our huge fiscal
deficit, medium- and long-term interest rates would rise. The economic
downturn, and the decrease in investment, would be compounded if the
increase in interest rates pricked the housing bubble. … There is a
high cost to exchange rate volatility, and countries where governments
have intervened judiciously to stabilise their exchange rate have, by
and large, done better than those that have not. Exchange rate risks
impose huge costs on companies; it is costly and often impossible to
divest themselves of this risk, especially in developing countries. …
The US economy is growing at a third the pace of China’s. Poverty is
rising and median household incomes are, in real terms, declining.
America’s total net savings are much less than China’s. China produces
far more of the engineers and scientists that are necessary to compete
in the global economy than the US, while America is cutting its
expenditures on basic research as it increases military spending.
Meanwhile, as America’s debt continues to balloon, its president wants
to make tax cuts for the richest people permanent. With all this in
mind, China’s leaders may not feel they need to seek advice from the US
on how to manage either the exchange rate or the economy.
Posted by Mark Thoma on Tuesday, July 26, 2005 at 06:30 PM in China, Economics, International Finance |
The White House has drawn up a short-list for open seats on the Board of Governors. Can anyone fill us in on these people on the list (Buchholz, Krozner, Warsh, and Dooley)? We would be most grateful. The one person I do know about, and support, is Richard Clarida. I am disappointed that Clarida did not make the short-list. I am waiting to learn more to make final judgments, but dropping Clarida, assuming it was the administration's choice and not a voluntary withdrawal, is not an encouraging sign:
Continue reading "Clarida Not on Short-List for Board of Governors" »
Posted by Mark Thoma on Tuesday, July 26, 2005 at 04:41 PM in Economics, Monetary Policy, Politics |
This is not good news for add-on, opt-out accounts. Younger workers, when forced to make a choice due to departure from a firm cash out their retirement saving plans in large numbers. This implies that, when faced with checking a box on a tax return, something that requires active participation, many may opt-out and those that do may be the workers most likely to benefit from such accounts in the long-run. Thus, the ability of these accounts to increase national saving and solve market failure problems in the retirement savings market is suspect if these statistics carry over to opt-out, add-on accounts:
Continue reading "Bad News for Opt-Out Accounts" »
Posted by Mark Thoma on Tuesday, July 26, 2005 at 02:25 PM in Economics, Saving, Social Security |
I would like to write about something else (which explains these posts tonight). Will they ever give up on private accounts as part of Social Security reform? Grassley says they won’t. It appears they will abandon solvency first, the reason they gave for reform. They’re pretty good at justifying things ex-post though:
Continue reading "Please Say Uncle" »
Posted by Mark Thoma on Monday, July 25, 2005 at 10:44 PM in Economics, Social Security |
Here’s another view of Fed policy from John Makin of AEI, but not one I fully agree with since it implies the Fed is focused on housing. The Fed has made it very clear that it does not intend to manage the housing sector, or any other sector in isolation.
Continue reading "Should the Fed Pause and Catch Its Breath?" »
Posted by Mark Thoma on Monday, July 25, 2005 at 09:09 PM in Economics, Monetary Policy |
I didn’t interpret the minutes as reflecting as strong a stance against inflation as John M. Berry of Bloomberg does, but I’m not far off, and I don’t disagree that the Fed is more concerned with inflation than with output growth currently. We’ll know more later this week when new data on GDP are released:
Continue reading "Fed More Concerned with Inflation than GDP Growth" »
Posted by Mark Thoma on Monday, July 25, 2005 at 08:01 PM in Economics, Monetary Policy |
This is about inflation, but not the kind you are used to (to get to economics posts, scroll past this post and the next). When theorists in economics find that the data do not support the theory, their first reaction is often to say there must be something wrong with the data. The theory has to be right. Physicists have the same tendency:
Continue reading "Temperature Anisotropies Do not Support Inflationary Theory" »
Posted by Mark Thoma on Monday, July 25, 2005 at 07:20 PM in Economics, Science |
This has only a loose connection to economics, but I thought it was interesting. When I finished reading the article, I found myself wondering when children first understand what money represents (I’ll trade you this shiny new penny for that ugly piece of wrinkled green paper ... ):
Continue reading "Understanding Symbolic Relationships" »
Posted by Mark Thoma on Monday, July 25, 2005 at 06:30 PM in Science |
Given this post, it would be hard for me to object to these proposals to boost national saving:
Retirement Reservations - Low Savings Rate Worries Congress, By Jonathan Weisman, Washington Post:
... Out of the Social Security stalemate ... a separate, bipartisan
push is emerging to address an issue that is arguably more pressing:
the nation's abysmal savings rate, which most economists see as a
broader threat to retirement security. A final House Ways and Means
Committee bill on Social Security remains far off, but potential
provisions aimed at bolstering the nation's anemic savings rate are
coming into focus.
Continue reading "Bi-Partisan Support for Add-On Accounts Appears Possible" »
Posted by Mark Thoma on Monday, July 25, 2005 at 10:08 AM in Economics, Politics, Social Security |
This is the last automatic post. I want to comment a bit further on two issues because I’m guessing (probably wrongly) that they may generate comment. They are the insurance value of fixed-rate mortgages and the proposed regulation of Freddie Mac and Sallie Mae.
Continue reading "The Insurance Value of Fixed-Rate Mortgages" »
Posted by Mark Thoma on Sunday, July 24, 2005 at 02:07 PM in Economics, Housing, Monetary Policy |
An editorial from the Asahi Shimbun expresses support for revaluation of the yuan:
EDITORIAL/ China's yuan revaluation:
Although the rate is small, the move is welcomed. … The appreciation
rate was also much smaller than market expectations. China has many
state-owned enterprises facing difficulties. If the yuan was to
appreciate significantly, China would lose export competitiveness, and
its domestic industries would be severely hit. … Chinese authorities
appear willing to let the yuan gradually appreciate, but no doubt
international pressure to further loosen the currency will persist. …
The effects upon the Japanese economy also cannot be ignored. The
revaluation of the yuan is good news for Japanese companies suffering
under the waves of imports from China, but it could hurt companies that
have relocated factories to China to manufacture goods intended for the
U.S. market… when Japan's economy was strengthening, there were also
numerous phases when the yen was strong. From now, the true quality of
China's economic power will be tested.
-The Asahi Shimbun, July 22(IHT/Asahi: July 23,2005)
Posted by Mark Thoma on Sunday, July 24, 2005 at 08:01 AM in China, Economics, International Finance |
Fannie Mae and Freddie Mac are targets of legislation to reduce their size. The goal is to reduce the chance problems with either agency will cause problems in the broader economy:
Continue reading "Congress to Propose Tighter Controls on Fannie and Freddie" »
Posted by Mark Thoma on Saturday, July 23, 2005 at 11:43 PM in Economics, Housing, Regulation |
Under the Bush standard, even if convicted, there is an easily imagined possibility that Rove will not be fired until his case is appealed all the way to the Supreme Court. Helen Thomas fills us in:
Continue reading "The Endogenous Standard of Acceptable Behavior Under Bush" »
Posted by Mark Thoma on Saturday, July 23, 2005 at 09:00 PM in Politics |
This is a follow up to this post last weekend:
Kids and the Internet - it's a good thing, By Laura Matthews, Christian Science Monitor: We read a lot of alarmist commentary about the dangers of the Internet for youngsters. ... I'm the first to admit that there are risks … Yet, from what I've seen, the educational benefits of online access are worth it. … the Internet gives kids access to information in ways prior generations couldn't even have imagined. ...
Continue reading "An Encyclo-what-ia?" »
Posted by Mark Thoma on Saturday, July 23, 2005 at 06:03 PM in Miscellaneous |
Michael Darda does not understand Keynesian economics. When he says
Those arguing that the labor market is weak insist the unemployment rate has dropped due to a declining labor force participation rate. ... Even if we accept this assertion (which is false), the Keynesian cure is worse than the supposed labor market disease. The neo-Keynesian elixir typically is a combination of higher tax rates on the entrepreneurial class (the rich), higher tariffs, and a devalued dollar…
he proves it. To say the Keynesian prescription for lagging unemployment is higher taxes shows amazing ignorance about a subject taught in the most basic economics courses or a brazen willingness to mislead just to make a point. The NRO is good for laughs, but that’s about it. PGL at Angry Bear has more.
Posted by Mark Thoma on Saturday, July 23, 2005 at 03:06 PM in Economics, Press |
Social Security Reform is not Dead Yet
"Have you seen Sara Delano Roosevelt? She has a son named Frank."
"Listen. And understand. That terminator is out there. It can't be
bargained with. It can't be reasoned with. It doesn't feel pity, or
remorse, or fear. And it absolutely will not stop, ever..."
Posted by Mark Thoma on Saturday, July 23, 2005 at 12:33 PM in Economics, Social Security |
I am off to my class reunion today (Class of ’75, Colusa High School). If all goes according to plan, new things ought to post automatically every few hours.
I shoulda gotta haircurt. Oh well, time to go …
Posted by Mark Thoma on Saturday, July 23, 2005 at 11:11 AM in Weblogs |
They are going to persevere. Bush made it clear that he is not about to give up the push for private accounts. He even called his mommy:
Continue reading "Bush Calls His Mommy for Help" »
Posted by Mark Thoma on Friday, July 22, 2005 at 09:45 PM in Economics, Social Security |
Federal Reserve Governor Kohn recently discussed how the Fed monitors and interprets risk premiums in financial markets and how that impacts monetary policy. I will present a few highlights, but the entire speech is worthwhile and extracting just a few paragraphs does not do it justice. Those of you interested in the conduct of monetary policy and the factors that go into monetary policy decisions will want to read Governor Kohn's remarks:
Continue reading "Fed Governor Kohn Discusses Risk Premiums and Monetary Policy" »
Posted by Mark Thoma on Friday, July 22, 2005 at 02:43 PM in Economics, Monetary Policy |
Readers of blogs often make noteworthy contributions in the comments. This post is attributed to Movie Guy, who has been pointing readers to relevant and important information on a variety of topics (and thanks to everyone else who does this as well – I appreciate it a lot). In this case, he notes some stark differences between what Greenspan said about housing markets in 2004 and what he has said more recently:
Continue reading "A Tale of Two Greenspans" »
Posted by Mark Thoma on Friday, July 22, 2005 at 12:15 PM in Economics, Housing, Monetary Policy |
The death knell was premature. This isn’t over:
Bush in town to discuss Social Security, Medicare, By Tom Baxter, The Atlanta Journal-Constitution: … Bush will begin a "conversation on senior security" with an invited audience shortly before noon at the Boisfeuillet Jones Atlanta Civic Center. … Bush is expected to talk about both his Social Security proposals and prescription drugs…
An invited audience? I’m shocked!!! Given his track record, I wonder how many invitees, even after signing a pledge of allegiance to the privatization cult, will be convinced to oppose the president’s plan?
Posted by Mark Thoma on Friday, July 22, 2005 at 01:44 AM in Economics, Politics, Social Security |
W=P*MPL and r=P*MPK it ain’t:
… I have been trying to figure out some rhyme and maybe a little reason to how society allocates its rewards and obviously I have failed. I can't really find a correlation between the way society values things and the way society distributes money. And I guess that's why I'm too dumb to be an investment banker or a hedge fund manager…
Yep. To be fair, he’s referring to the pay of CEOs, but I couldn't resist.
Posted by Mark Thoma on Friday, July 22, 2005 at 01:26 AM in Economics, Press |
Posted by Mark Thoma on Friday, July 22, 2005 at 12:51 AM in Politics |
A big thank you is due to New Economist for pointing us to this volume of the Chicago Fed’s Economic Perspectives (2005, 2nd Quarter) devoted to job loss in the U.S. The articles are from a November, 2004 Federal Reserve Bank of Chicago conference on "Job Loss: Causes, Consequences, and Policy Responses." Here are a few tidbits to whet your appetite:
Continue reading "Job Loss: Causes, Consequences, and Policy Responses" »
Posted by Mark Thoma on Thursday, July 21, 2005 at 06:12 PM in Economics, Unemployment |
The FOMC Meeting Minutes are out. In this era of transparency, there are very few surprises. However, I did note several things as I read through the minutes.
Continue reading "FOMC Minutes Reveal Few Surprises, Some Disagreement" »
Posted by Mark Thoma on Thursday, July 21, 2005 at 04:32 PM in Economics, Monetary Policy |
I’m in between meetings, so I’ll toss this up quickly with little comment. Hopefully someone can fill us in on the interpretation of the fall in the jobless claims and whether it is meaningful:
Continue reading "Jobless Claims Fall, Growth Moderating" »
Posted by Mark Thoma on Thursday, July 21, 2005 at 02:25 PM in Economics, Unemployment |
Following up on this post from yesterday on Greenspan's testimony, his testimony today offered a bit more encouragement that regulatory authorities are poised to react to excessive risk-taking behavior in housing markets:
Continue reading "Greenspan Says Regulatory Authorities are Monitoring Housing Market" »
Posted by Mark Thoma on Thursday, July 21, 2005 at 01:08 PM in Economics, Housing, Monetary Policy |
This surprised me, and according to Premier Wen Jiabao, it should have:
China Says It Will No Longer Peg Its Currency to the U.S. Dollar, Reuters:
China bowed to months of market and political pressure on Thursday by
revaluing the yuan by 2.1 percent and abandoning the currency's
decade-old peg against the dollar. ... the central bank said the
yuan's value from now on would be linked to a basket of currencies of
China's main trading partners. … The central bank said the yuan, also
known as the renminbi (RMB), would be allowed to move in a tight range
of 0.3 percent up or down from the previous day's close in a
continuation of the "managed float" policy in place 1994. … The big
question for dealers was whether China would make use of the
flexibility to let the yuan drift gradually higher. "It's just a
gesture. The question now is whether there will be continuing
speculation that China may revalue even more," said Ben Kwon, an
analyst from KGI Asia in Hong Kong. China had long insisted that it
would adopt a more flexible exchange rate system, but not until it was
ready. In March Premier Wen Jiabao impishly said the timing of a move
would be a surprise … Greenspan said a yuan revaluation would have
minimal impact on the U.S. trade deficit but urged China to adopt a
more flexible currency for its own sake...
The question now is, as the article notes, whether
this is a mere gesture without substance or if the yuan will be
revalued further in the near future. Thanks for the tip anne.
Posted by Mark Thoma on Thursday, July 21, 2005 at 06:57 AM in China, Economics, International Finance |
Deroy Murdock should have read Bernanke’s comments yesterday before writing his column. Except for the blame the Democrats part, this proposal will not receive White House support. The DeMint deception makes the solvency problem worse and doesn't lock up anything. Typical NRO nonsense, but the in-fighting subtext does make it a bit more palatable than usual.
Posted by Mark Thoma on Wednesday, July 20, 2005 at 09:00 PM in Economics, Social Security |
The panel working on tax reform held its tenth meeting today and there is wide agreement among members that major reform of the AMT, and perhaps its complete elimination, is necessary. But how they will propose to pay for the trillion dollar loss of revenue over the ensuing ten years? Will they starve the beast, put it on a strict diet, or find another food source? We shall see. If they do decide to put it on a diet, let’s hope they don’t cut the beauty of the beast in the process:
Continue reading "How Will Tax Panel Pay for the Repeal of the AMT?" »
Posted by Mark Thoma on Wednesday, July 20, 2005 at 07:11 PM in Economics, Policy, Politics, Taxes |
I didn’t find much in Greenspan’s testimony over and above what has already been noted here previously. Rates are expected to rise but that is not news. He noted that inflation is in check, and he acknowledged recent data indicating some potential weakness by saying “While the incoming data highlighted some downside risks to the outlook for economic growth, the FOMC judged the balance of information as suggesting that the economy had not weakened fundamentally.”
The acknowledgment that incoming data have indicated some downside risk is farily new. Elsewhere he states “"In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation. This generally favorable outlook, however, is attended by some significant uncertainties that warrant careful scrutiny."” The uncertainties he's referring to are rising input costs, particularly labor and oil, an increase in long-term interest rates, and the potential problems that could cause in the housing market.
It’s interesting to me that the Fed is not taking responsibility for the housing “bubble” even though monetary policy causing low interest rates had a hand in creating it. If, in fact, low interest rates have caused a misallocation of resources towards the housing sector such that there are now risks, and there's a case to be made that it has, then the Fed should be more active and forceful in dealing with and forestalling the potential consequences. That is, if Fed policy has enticed households to make decisions that put them at risk over the long-run, decisions they would not have made if the interest rate were at its natural level, then the Fed has a responsibility to do more than wash its hands of this sector of the economy and say its only role is to clean up after any crash that might occur.
It would have also been nice to hear about the causes and consequences of budget deficits and how that impacts monetary policy and economic risks in the future, but those issues were not addressed.
For more, see Angry Bear, Caroline Baum, The Washington Post, The New York Times, the Monetary Report to Congress, and Greenspan’s prepared remarks. If I can find the video or a transcript of the Q&A I will post them.
Update #1: Clarifying a bit, I am ready to believe those who say there is no significant deviation from fundamentals and hence less to worry about than if it were a true bubble (except for some areas such as coastal regions), though there are risks and it is the Fed's hand in creating those risks that I am addressing. Nobody knows for sure how vulnerable this sector is so it is good policy to attenuate such risks to the extent possible.
My complaint is the way in which the Fed has disassociated itself from any responsibility for creating the environment that caused risks to emerge. For example, the Fed could be more aggressive on the regulatory front in an attempt to ensure that low interest rates do not induce excessive risk taking by households, especially those living near the margin that will be most vulnerable to increases in interest rates. It's really nice to get people into houses - I'm all for that, one hundred percent - but not if it causes financial distress and years of cleanup afterward (there's that bankruptcy bill thing as well) as households are induced to assume more risk than they can handle.
I suppose in the end we can say it's a free market and people should have known better, that they should have been more forward looking, but when prices are set below equilibrium in an attempt to stimulate the economy, market intervention to manipulate interest rates is present making the fundamentals themselves a result of policy intervention, and that has consequences.
Update #2: I forgot to mention this. Whether you like policy under Greenspan or not, this is a really bad idea:
One lawmaker, Rep. Brad Sherman, D-Calif., said he was introducing a bill that would allow Greenspan to serve for another five years, removing the current requirement that will force him off the Fed board next Jan. 31. "Does my wife have a vote on this?" Greenspan joked, referring to NBC News reporter Andrea Mitchell.
This makes the Fed Chair much too sensitive to political considerations. What legislation will be passed if they don't like a Chair? There are good reasons for the Fed to be independent.
Posted by Mark Thoma on Wednesday, July 20, 2005 at 01:08 PM in Economics, Housing, Monetary Policy |