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Archive for the ‘economy’ Category

Look out slightly below, government shutdown edition

Posted by Charles II on October 6, 2013

Not a big move so far. But a roughly three-quarter point drop in S&P futures for a Monday does not bode well. And Asia ex-Shanghai looks to go red. I would not be surprised to see the markets down 2 percent on Monday, though of course that’s pure speculation.

And then there’s this Reuters piece:

While most on Wall Street continue to believe it very unlikely the United States will default on its debt later this month, banks and securities firms are already gearing up for how to handle any U.S. Treasuries tainted by missed payments.

Borrowing costs could surge for businesses and consumers and the stock market could plunge. The Treasury warned on Thursday that a default could trigger a financial crisis and the worst recession since the Great Depression.

SIFMA will be on high alert for a default beginning on October 16, the day before the Treasury says it might be forced to stop adding to the national debt.

Playing with nitroglycerin is so much fun… according to the Republican Congress.

And then there’s this:

Art Cashin says traders have a very cynical explanation for why the government shutdown fight hasn’t been resolved yet.

Cashin, UBS’ director of floor operations at the NYSE, told CNBC’s Bob Pisani around midday that “they don’t want to cut it off because both sides are getting partisan donations pouring like a water faucet in as long as they go nose to nose.”

Cashin predicts that once the contributions start to dry up, Congress will go back to “doing the people’s business.”

Posted in economy, stock market | 2 Comments »

Bonddad has a new, paying gig

Posted by Charles II on October 2, 2013

XE.com has picked up Bonddad and his trusty sidekick, New Deal Democrat. Bonddad:

About a year ago, I received a communication from the website XE.com who wanted to add economic commentary to their website. We exchanged a few emails about the possibility, but the negotiations slowed at the beginning of the year. Over the last few months they picked up again culminating in our signing contracts with them to provide content. And the best part is we’re finally getting paid! On top of that, they have over 14 million hits per month on their website, so our visibility will increase. And we’ll eventually be doing podcasts. I’ll be doing one/week that focuses on international developments while NDD and I will be doing a bi-weekly podcast on the US economy.

Woohoo!

Posted in economy, Good Things | 4 Comments »

More on Reinhart, Rogoff, and whether there is a debt “cliff”

Posted by Charles II on May 9, 2013

Reinhart and Rogoff have re-done their calculations regarding debt and growth:

Setting the noise aside, growth in the high-debt category is less than half of what it averages for the low-debt category. [note: this quote just refers to post-war economies, but their longer data series shows the same effect]

But actually, what this shows is that the noise caused by the details of the model is larger than the effect being studied. Yes, debt reduces growth. But to say that there is a debt “cliff” is indefensible.

More as reaction becomes available, maybe.
________
Update: for the record, two other papers on the effects of debt.

Cechetti et al., concluding that above 85% debt/GDP, a 10% increase in debt reduces growth by 1%.

Arcand et al., concluding that when private sector debt exceeds 80-100% of GDP, it begins to impact growth.

Posted in economy | Comments Off

Krugman on Reinhart-Rogoff: data bent by the black hole that is our political/media system

Posted by Charles II on May 3, 2013

Krugman, NYT:

The fact is that Carmen and Ken are fine economists. Carmen has been doing terrific empirical work on banking crises for a long time. Ken is arguably the world’s leading international macroeconomic theorist. In fact, the main reason I knew that the case for fiscal policy remained strong even in the context of New Keynesian models was that I carefully read the canonical text by Obstfeld and Rogoff.

So what happened here? My interpretation is that after writing a very good book, R-R dashed off a careless paper on debt and growth that was so much what the VSPs wanted to hear that it made them instant celebrities in a way they hadn’t been before — and they didn’t know how to say stop the merry-go-round, we want to think about this a bit harder. The temptation involved was one of fame and becoming a part of the alleged real world, not some crude mercenary consideration.

Also:

The Reinhart-Rogoff rehabilitation tour has been really depressing. There are a number of routes they could have gone; unfortunately, they seem addicted to the notion that they can end the discussion by arguing with straw men.

There should be a serious investigation of how these errors crept into Reinhart and Rogoff’s work. They have been a poor example to younger researchers of the proper response to finding error in one’s work, responding with arrogance and defensiveness when they should have apologized for all the harm their work has caused.

But Krugman doesn’t think they should be accused of fraud, and–at this point–neither do I. Even though the selective use of data ought to be scrutinized very closely.

Posted in economy, Paul Krugman | Comments Off

Snark of the year award… for 2013

Posted by Charles II on January 4, 2013

Sometimes a piece of snark is so good that you know it will be remembered as best-in-class. Now, you must know that there is a site called Shadowstats, written by John Williams, which has been claiming that inflation is running much higher than the government says it is. Not only has the BLS delivered a convincing rebuttal, the claims do not pass the common sense test. They predict, for example, that American incomes fell disastrously during the 1990s (because inflation, Williams says, was very high).

So, in a long, detailed discussion on inflation and why it has not re-appeared during this period of quantitative easing as the inflationistas have predicted, James Hamilton of Econbrowser said this:

I also like Paul Krugman’s suggested inflation measure– the change over time in the dollar price for a one-year subscription to Shadowstats. Six years ago, it would cost you $175 to get a one-year subscription. For 2013, Shadowstats is offering a one year subscription for … $175.

Well, ok. Krugman wins the award, and it was in 2012. But Hamilton gets an assist.

Posted in economy | 1 Comment »

For the archives: the decline in productivity

Posted by Charles II on December 27, 2012

I linked the following Fed Letter by Fabina and Wright in comments below and wanted to promote it to a post.

In this Chicago Fed Letter, we describe the recent behavior of productivity in the United States and in other advanced economies around the world. We show that there has been a dramatic reduction in the rate of growth of productivity across almost all advanced economies over the past ten years. Moreover, this reduction began prior to the onset of the global economic crisis and, hence, it appears to reflect a fundamental decline in the rate of growth of efficiency of economies, not simply declines in factor utilization.

The authors don’t reach any firm conclusions on cause. I tend to think that measurement is the main issue, with trade being the culprit, but there’s no doubt that investment in human capital and infrastructure has declined in the US and many other western countries. It also seems likely that all the investment in repression (war, surveillance, border control) by western countries is a low-return investment. But it’s worth thinking about.

Posted in economy | 1 Comment »

I’m asking for input

Posted by Charles II on December 21, 2012

I keep hearing that Robert Bork’s book, The Antitrust Paradox (TAP) is terribly important. For example:

Robert Bork is the single most important person in antitrust in America….

In 1960, he was concerned the socialists would take over the country through antitrust. Antitrust then was about protecting small businesses. He built a full framework about how antitrust should be more about economic efficiency than about helping small businesses.

Anyone who was concerned that socialists would take over the country by any means was a loony. And by antitrust? Good grief.

And anyone who understands the history of why anti-trust laws were adopted knows that in truly competitive markets, no producer has any pricing power–they’re all small producers. It was the depredations of big business against small business not through pricing power but through non-monetary means (like dynamite) that led to the anti-trust laws. The progressives of a century ago understood that unless small business can operate in a market, the market is not competitive.

And again, from the same source:

Bork came around and said that we were protecting inefficient businesses. …He created this framework where antitrust should be efficient. He introduced economics into antitrust in a really systematic matter.

But economic efficiency is very different when one starts looking at spillover effects. And these were well known when Bork wrote TAP. Yes, Wal-Mart produces low low prices… at the expense of bribery in Mexico, slavery in China, and retail unemployment and union-busting in the US. The progressives of a century ago knew these things! So it seems to me that what Bork did, in effect, was to unlearn over a century worth of wisdom and resurrect discredited arguments from the Gilded Age.

Supposedly, much of the error in Bork’s thinking came from believing the efficient markets hypothesis. But I think the error was rooted more in seeing Big Business as progress, an idea that was enshrined in corporate socialism/fascism.

Am I missing something? Has anyone read TAP? Is there virtue in Bork that I am just not seeing?

As I commented on DK, I believe that the purpose of law is to establish justice. When the courts get involved in deciding what is economically efficient, they are doing in effect what the Soviet state did in central planning. The courts should only intervene in markets when the other two branches have instructed them to intervene.

(adapted from a comment at Lawyers, Guns, and Money)

Posted in economy | 1 Comment »

All you need to know about the finance/economics establishment

Posted by Charles II on December 17, 2012

Gavin Kostick as presented by John McHale explains the different schools of modern finance/economic theory (via Krugman):

[Scene: A spacious drawing room in Frankfurt. A patient is strapped to a table. M Drachet in attendance, plus admirers]

M Drachet: Our diagnosis for this fellow is an excess of partying, too much of the punch-bowl, a surfeit of humours, grass corpulence and a palpable debt overhang. Our remedy? Leeches!

[Enter Mr deKrugman, a plain talking Yankee]

(continues)

Posted in economy | 1 Comment »

Tough market

Posted by Charles II on December 14, 2012

Hope this isn’t an omen:

Tough_Market

On a more serious note, Gillian Tett of FT talks about how computerization is leading to the end of work, in Jeremy Rivkin’s phrase. Exim Bank financing rose 25% (meaning that US exports are increasing), but the jobs behind those exports have actually fallen by 12%. So automation appears to be destroying more jobs than it is creating. She says that Brian Arthur of Palo Alto claims that computerization is responsible for 60-80% of productivity growth since 1995. Personally, that would be no surprise: comparing the work required to send 10 gifts by online shopping vs. six gifts by conventional shopping is enough to convince me that computers are a good thing.

But we have to come to terms with the end of work. As discussed in the thread below on guns, social violence rises when unemployment and hopelessness rise.

Posted in economy, stock market | Comments Off

In the ongoing mythology vs. reality wars…

Posted by Charles II on December 12, 2012

An entry by several NBER members and Sumit Agarwal on the mythology side, countered by Barry Ritholtz on the reality side:

There are two major, critical questions that show up in the literature surrounding the 1977 Community Reinvestment Act (CRA).

The first question is how much compliance with the CRA changes the portfolio of lending institutions. Do they lend more often and to riskier people, or do they lend the same but put more effort into finding candidates? The second question is how much did the CRA lead to the expansion of subprime lending during the housing bubble. Did the CRA have a significant role in the financial crisis?

There’s a new paper on the CRA, Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, by Agarwal, Benmelech, Bergman and Seru, h/t Tyler Cowen, with smart commentary already from Noah Smith. (This blog post will use the ungated October 2012 paper for quotes and analysis.) This is already being used as the basis for an “I told you so!” by the conservative press, which has tried to argue that the second question is most relevant. However, it is important to understand that this paper answers the first question, while, if anything, providing evidence against the conservative case for the second.

There is a simple step that anyone attempting to make a logical argument about causation should essay before going to an econometric model: does the causal link make any f–king sense? The extinction of the dinosaurs might have caused the Renaissance, but I don’t f–king think so.

I have long been skeptical about the NBER and the involvement of political agendas in its actions. Maybe it’s just that economics has become a more conservative profession in my lifetime, but this paper just adds to my disquiet about NBER in particular.

Posted in economy, liars | 2 Comments »

 
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