Stimulus -Not- Thinking

I found this gem of an article on the New York Times website, it is titled "Stimulus Thinking, and Nuance." The article relates Obama's recent presence at the G20 Summit with that attented by global leaders back in 1933. The author sets out defending stimulus packages and how throughout history they were nothing but effective. He names three! The Germans in the 30s, FDR, and the Japanese in the 90s. I'm sure we can go out on a limb and say there were more than three recessions and more than three attempts at stimulating the economy. I'm not sure where the Times dug up this guy, but it is apparent he hasn't done his research. I'd like to focus on his defense of FDR and his use of stimulus in boosting the economy. The author says the following: "When Roosevelt stuck to a stimulus program, unemployment fell markedly, and the biggest stimulus of all — World War II — did the rest." One could argue that FDR kept our country in a recession (or depression) longer than if nothing had happened at all. For the author to claim FDR saved us is silly and uneducated. Unemployment rates were sky high and not to mention a tax bracket reaching as high as 94%. The biggest stimulus of all truly was the war, because it put people to work. Right now jobs are being slashed left and right, even as we are in the midst of a war. This just goes to show how we cannot accurately compare different recessions across time. There are just too many variables to accurately predict what the effects of a stimulus will be. Maybe this guy knows something we don't, but chances are he is just ill-informed on just about everything except dates and names.

Global Economy?

I don't think we realize just how global our economy is. There are so many nations that have trade with us and invest in us, that it is impossible to separate our problems from theirs anymore. We need to realize that we are all working towards the same things and our fates are interrelated. I read an article that talked about Obama meeting with the Group of 20 to discuss the economy. In this article Charlene Barshefsky is quoted as saying, “This is a classic case of countries bending to domestic political pressure because it is too difficult to make the political argument that if everyone restricts imports, everyone loses." You would think that these leaders would be able to agree on that, seeing as how it is one of the most basic economic principles being taught in our schools.

Does a 4.7% increase in new home sales say anything about the economy?

According the article (New home sales in surprise rebound) I found on CNNMoney.com a 4.7% increase is generally a good sign but it’s definitely not enough to say the economy is recovering. The U.S. Census Bureau reported that the median sales were $200,900, down 18% from a year ago. The economist at Moody’s Economy.com also stated that this information is only a months worth of information and that there needs to be at least three months of information to tell if the economy is recovering. It also explained that the Mortgage Bankers Association showed a 30% increase in loan applications last week. The main cause was due to Americans refinancing existing loans. I believe this is a good sign, but my gut feeling tells me that the worst has yet to come. I know this article says there is an increase in sales, but I have yet to hear good news of much of an increase in new home sales around my home town.

One down, hopefully more to come

The evening news two days ago brought what I believe is encouraging news to the government bailout plan. GM CEO Rick Wagoner was forced out of the company by the Obama Administration as part of its agreement to loan the failing car company more money. Finally, after billions of dollars already handed out to companies such as Ford, GM, Chrysler, AIG, etc. Someone is being held accountable for the mistakes that helped cause such financial problems within these organizations. I just hope the same thing happens with AIG, who has infuriated the public and congress for handing out $165 million in employee bonuses since first receiving government assistance. No employee, especially CEO’s, CFO’s, and other top tier managers who are directly responsible for the success or failure of their companies should be getting million dollar bonuses. While bonuses were not a deciding factor at GM, I am happy that the government is finally holding people accountable for poor management. You can’t give some who’s lost billions of dollars due to poor choices another couple billion in aid and expect them to suddenly be much smarter in their management decisions. Hopefully this is just the first of several “boots” of failing company’s managers. You can read about Rick Wagoners forced resignation here: http://abcnews.go.com/Business/wireStory?id=7204767

A Possible Turnaround

Fed’s Stern: Expects Some Econ Improvement Midyear
Gary Stern who has been through the previous two recessions as head of the Minneapolis Federal Reserve Bank offers a few words of encouragement towards the possible end of the current recession. As we have discussed in class it is hard to predict when recessions end and the economy picks up again, and normally don't have evidence until well after the event takes place. That being said, as the first quarter of draws to an end there seems to be initial signs that by midyear things could be turning around. March seemed to be a great month for the Dow-Jones-finding many stocks hitting lows and now rebounding well. Other reports show that while many retailers have offered, and continue to offer great deals, their are faint signs that pickup in the consumer spending trend should continue. With the G-20 summit looming with loud cries from several governments calling for increased regulation over companies with multinational financial risks, time will tell how strong this possible turnaround may be.

We Don't Want Your Money

There is an article on cnnmoney.com that talks about how hard it is to give the money back that banks received from TARP funding. Some banks are saying that the funds that were given to them are actually preventing them from growing. The banks want the government out of their hair and allow them to run their bank as usual. None of them want to be the next AIG.

If the government was going to force banks to take money even though they didn’t need it to try to cover up the ones that did, why are they not making it easier for the people to pay back what they didn’t need in the first place? It is obvious which of the big banks needed the funds; the government really isn’t covering up anything.

(Bankers: Take your TARP money back http://money.cnn.com/2009/03/27/news/economy/tarp_takeback/index.htm)

Could it just fix itself?

In the news lately I am seeing a huge influx of information regarding approval polls of something. One of the latest is who is being blamed for the current economic crisis. Surprise that the banks are being blamed the most for it and then George Bush Jr. This is not a shocker considering they are highly suspect in the current economic crisis. With President Obama being elected only a handful of people are saying it’s his fault, in fact 42% of Americans are saying the country is on the right track. (Washington Post, March 31, 2009: Blame for Downturn Not Fixed on Obama) I was a huge fan of saying that once a new president is elected the economy would turn around. I believe that any change would have spurred the economy around, rather that people seeing change, make them change and would help to make things better. With history we have seen that all recessions have a trough, and that a lot of presidents loose elections because bad economic problems. But would all recessions end if we did nothing and let them run their course? Do we need to do anything at all, or would a simple change of thought help to pull us from despair.

White House to Accept Some Blame for Economic Crisis

An interesting article was published in the Wall Street Journal this week. http://blogs.wsj.com/economics/2009/03/31/white-house-to-accept-some-blame-for-economic-crisis/?mod=rss_WSJBlog?mod=marketbeat. It is entitled Real Time Economics, White House to accept blame for Economic Crisis. This is a surprising article to find in our day and time. It talks about a statement that a White House Official made. He stated how the White House was accepting some of the responsibility for the economic situation that we are currently in. The article does not specify exactly for how much they find themselves at fault for, but just the fact that they are accepting any at all and actually admitting it is quite amazing! He tells how part of the problem is believed to be in the weakness of the regulatory system of our country. This confession came about due to accusations by other large Economy countries that the US is running some sort of a "free-wheeling style capitalism" that led to the crisis crushing their economies, and they are now looking to punish the US for this. Prime Minister Gordon Brown of Britain said, "This crisis was caused by no black man or woman or by no indigenous person or by no poor person. This crisis was fostered and boosted by irrational behavior of some people that are white, blue-eyed. Before the crisis they looked like they knew everything about economics, and they have demonstrated they know nothing about economics." Plans have been made to expand the scope of regulations to any institution, market or product that's important to the international financial system.


Is Inflation the Answer?!?

In the March 30, 2009 issue of the Wall Street Journal, an article entitled, "Inflation Is Tempting for Indebted Nations", discusses the implication that inflation can have on a country which is heavily indebted. The United States is considering using inflation to reduce the value of the U.S. dollar, which would significantly reduce the burden of money owed to other countries. Economists are saying that it would be "epic, a terrible thing to do" but it would be better than outright default. The United States is planning to increase the money supply by more than $1 trillion with the hope of causing some inflation to weaken the value of the dollar and reduce the current federal deficit. Some are concerned with the idea and speculate that this will cause hyperinflation, comparing the current situation to that of the 1920s Germany and the 2000s Zimbabwe in which the local currency was debased and hyperinflation followed. Most economists are saying that this "doomsday" is possible but extremely unlikely. Policy makers will be trying to stimulate some inflation but will be closely monitoring it to prevent it from getting out of hand. While I agree that hyperinflation is not a likely possibility, I am concerned about investing and the stock market. As the dollar weakens, the amount of consumer confidence could fall, causing the stock market to continue to plummet. On the other hand, the burden of debt, which in the U.S. rests heavily on the taxpayers, would be lightened and nominal wages, house prices and tax revenues would increase while mortgage and bond debt would remain constant.

Mid-Size Success

I ran across this article on the WSJ website today. The article caught my interest immediately because Provo and Ogden were among the cities that were beating the recession. The article did mention that a lot of the smaller cities that are doing well have been fortuitous with regard to the housing crisis that has stopped a lot of lending, yet that cannot be the only reason they are doing well.



Recently I stumbled across this opinion piece in the Wall Street Journal. It is written by Robert Rieich, a professor of public policy at the University of California at Berkeley, and a former U.S. Secretary of Labor under President Clinton. In it he defines "Obamanomics" and compares them to the conservative coveted "Reaganomics". One point I found particularly interesting because it relates to our recent lectures in class; Top Down vs. Bottom Up economic policy.
Top Down Policy: During the Reagan administration, it was widley believed that lowering taxes on the top earners would incourage them to invest more into capital in hopes of attaining a higher return. The theory here is by allowing them to be rewarded more, they would in turn create more opportunities for everyone from the "Top Down" and the economy would benefit. This is the idea that growth is enhanced when people are allowed to retain their wealth and be rewarded for investing it, or Alpha form our model.
Bottom Up Policy: Obama's Administration believes that the economy grows better form the other direction. By increasing taxes on the top 2%, Mr. Obama plans to better fund U.S. infrustructure, create more pell grants for low income students, and improve health care and education. In doing so, he hopes to create a better educated more efficient workforce which will help the economy to grow.
Personally I would like to see the Model that Team Obama is using. Each of their goals is admirable and on a social scale would improve the lives of many. However if by accomplishing these goals they hamper the growth of the economy the effects would surely be short lived. It seems to me they are missing a key point from Adam Smith's Wealth of Nations. Most people don't set out to become better educated to improve the lives of others, but rather to improve their own life. Unfortunate as this may be, it is a fact of life. Removing the incentive to earn more, by raising taxes, is not going to result in a better workforce.


I had a thought that may have been obvious to some, but for me, it was a little slow at becoming a reality. I thought of the true meaning of taxation, and if it was, in fact, the source for government revenue. I stumbled upon a book online that briefly covered my thoughts in skimming it. Why do we care of taxation? I can see that the money I suddenly can't choose to use due to taxation is a issue we all must tackle. I cannot, for the life of me, understand why we worry about how it is used. In the news lately, anyone with a online associates degree will arrive on the television and protest the use of the public's money in the recent "stimulating" acts of congress. I haven't seen anything that would suggest the money that is taxed from me going to the government is used for anything specific. The instantaneous restriction and subsequent expansion of the monetary system would lead me to see that all that is happening has to be the revenue services of our government are taking our money, placing it into a pile on the white house lawn, and burning it. At the same time, they print more and decide to use it for something that would make them happy. The distribution of wealth is a concept of child's play in that scenario. Someone please tell me that I am an idiot, and that I am missing the elephant in the room. Explain to me what i am missing!


Decreasing Trade Deficit Not So Good

In a recent article in the Wall Street Journal titled: “Trade Slump Spreads Pain Across Globe,” it was reported that the U.S. Trade Deficit has shrunk significantly to approximately $36 billion. This news should be perceived positively right? After all, it means that Americans are importing less foreign goods therefore reducing our dependency upon them and bringing the nation’s balance of payments closer to equilibrium right? Interpreting the data in this manner is misleading. The primary reason for a declining trade deficit can be attributed to the poor state of the economy. The current state of the Economy has discouraged everyone from the business sector to individual households from making additional purchases. All have scaled back and settled for only the immediate and necessary purchases. If times were good, economically speaking, most likely the deficit would be growing. The truth is that Americans are still highly dependent on foreign goods, especially oil which constitutes a large portion of that deficit. The United States will not see a truly significant decrease in the trade deficit until it provides alternative forms of energy to reduce its dependence on foreign oil. In the meantime, the decline in trade could actually be seen as harmful to all participating economies. The decrease in trade has been mostly among consumer goods that are more elastic to changes in market conditions. Assuming a basic economic theory to be true, that trade makes everyone better off, the recent decline in trade harms standards of living in all participating parties. Consumers in the United States have less consumer choices and their trading partners receive less income. Layoffs as well are becoming more frequent among parties. It is fast becoming a downward slope.

Trade Slump Spreads Pain Across Globe


ABC's 20/20 Bailout Special

This last Friday, John Stossel of ABC's 20/20 news program had a piece called "The Big, Bad Bailout." I have provided a link to watch the 6 1/2 minute video here: http://abcnews.go.com/2020/. It talks about a ton of stuff that we have gone over in class. It shows a lot of clips of our current politicians explaining to the news media that this is a "crisis" that we have not experienced since the Great Depression, and that we need a stimulus package now, and we need it to be BIG!
As I first began to watch the show, I was pretty sure I was in for the normal "hell, fire, and damnation" story about the economy that is the norm in today's media. John Stossel, however, calls the importance and benefits of the stimulus package into question. He explains, and the news clips show, how politicians like President Obama say that when it comes to the need for the current stimulus package, there is a complete consensus among the economists of this country that it is important and vital to our recovery.
Afterward, however, John Stossel interviews a group of economists who all believe the stimulus package is bad, and not helping but hindering our recovery. He points out that a lot of the current stock market drops have immediately followed federal government press releases announcing more federal money to help struggling sectors. Investors really seem to dislike the government's help!
I thought the video was really informative and sums up a large portion of what we talk about on a day to day basis in class. I would really recommend taking the time to watch it.

Preventing the Next Fire While This One Blazes

According to the Wall Street Journal,http://online.wsj.com/article/SB123679308980797581.html#articleTabs%3Dcommentspreventing all future crises is not the goal. The goal is to prevent mishaps from burning down the world economy. I really agree with this issue. as article said, preventing all future crises would be the equivalent of banning stoves and furnaces. Here are three of the threshold questions that need pondering:

Who shall be saved, and who shall be allowed to die?
The goverment must draw a circle to identify which firms or kinds of firms will be saved.

How paternalistic should regulation be, and who should be the parent?
We're foing to get a gurdian even we know a gurdian could get mistake. The question is how much power to give it.

Can we install air bags in the financial system that deploy automatically?
There is the rules for each firms, so understanding each other would be the key.


Can the government really spend our money better than us?

We have been talking a lot lately about whether the government can spend our money better than we can. I don't know whether that is true or not, but they do spend our money differently than we would ever spend it. http://online.wsj.com/article/SB123707854113331281.html

The article that i have linked in this post explains how the government is giving our money to AIG. They will in turn be giving 165 million dollars in bonuses to executives in the company who have obviously done an outstanding job. Tell me that this is how we would spend our money. I would quote the article in saying that the use of our money in this way is "distasteful and difficult." We deserve to have our taxes go towards fixing the problem and not towards rewarding failure.


Am I the only one getting jipped??

So here's an interesting scenario for anyone who might be in the same boat. I am a full time student at SUU and am within a year of graduating. I was married about a year ago here and have planned to stay here as long as I can. When I married I realized that the play days were over and that it was time to get a real job. So for the past year I have been working full time at a factory at nights to try and provide for my family. A medical situation arose within my family that called for immediate attention. So in an attempt to try and stay afloat, we applied for medicade and financial assistance through the hospital. As a full time emplyee however, I was denied any financial help at all and was left with a $5,000 bill to pay. My wife and I started with literally nothing, not even a car, and to put up this kind of money, and to pay for school was impossible. So we are now paying every month for the next six years to try and dissolve this debt. Late, due to non-economic reasons, I was layed off at my work along with 100 other employees. They left us in a time of practically no chance whatsoever of finding something new, and especially something that would be enough for the bills we need to pay. So I applied for unemployment in order to get at least what ever i could. I was denied because I am a full time student and am not available for full time work. What??? I spent the last year working full time and going to school full time! So as a full time employee, I'm not entitled to government help with medical issues. But as a full time student, I'm not entitled to government help with being unemployed! Were I just one or the other i would have qualified. But I guess in our society you get punished for being more productive and working harder for your family to survive. The basic message I'm receiving is that to be more lazy is actually encouraged!! You are rewarded to be a bumb. Wonderful.....

Should Obama give every one $425,000??

It is always amazing to me what people will believe from the most random emails they receive. The only credibility they seem to rely on is something like how it's a person that they may have once associated with who took an economics class in junior high school. An acquaintance of mine was sucked into the same process by a certain email he received from a co-worker who was also his assistant scout master. Note that both of these men are truck drivers who at the most look at the New York Times maybe twice a year for the sports section! So in a random conversation that somehow made its way to the discussion of the current economic situation, he brought up this email that he had received about the latest stimulus package. Looking back on it i realize that the funniest part about this whole conversation was how converted he was to this idea! He told me about the 80 Billion dollar stimulus package that Obama was trying to pass and how he was using it all wrong. He explained to me that Obama should take the money, that would be used for bailing out large corporations, and split it up between the 200 Million working Americans evenly. If this were done, every person would receive $425,000! The people would be required to use the money to pay off all mortgages and other debts first, and that then the rest could be used in any way that they wanted in order to build the economy. What an awesome idea!! And this guy could not figure out why the government would be so dumb as to not see such a simple solution! Well i'm not big on trying to pull down other peoples views, at least not to their face. Plus i obviously wasn't sure myself whether it was a good idea of not. But obviously being quite hesitant to just except the idea, I asked Professor Tufte what he thought of the plan. A simple calculation of the numbers cleaned the matter right up. What turned out to be the truth is that obviously the stimulus was for 800 Billion to begin with. And if you divide 200 Million into 800 Billion, the answer is far from $425,00 per worker. It actually only works out to be . A further investigation on the subject lead to snopes.com where the issue was easily resolved. I never did tell my him about my findings, although i probably should. It is just astounding how easy it is for someone to read something that dumb and believe it so intensely.

Too Big to Fail…Really?

We have heard the phrase “Too big to fail” thrown around recently with all the talks of stimulus packages and bailouts. Obviously these companies weren’t “too big” to be immune from failure, but many individuals, and many in government argue that allowing a company of such size to fail would be crippling to the economy. This brings up two points I’d like to discuss. First, how do we allow a company to reach a point where it is too big to fail? I found a letter to editor from New York Times at the following link.
As pointed out in the letter, Anti-trust laws are in place to protect us from large corporations who monopolize industries and destroy competition. Perhaps that definition needs to be expanded. Because even though there are more than 8,300 banks (according to a previous post: Nationalization of America’s Banks), and there is competition among them, I still think the American economy has been hurt in such a degree perhaps monopolizing banks would have been a better alternative? I certainly don’t think so. I think the solution is found in not allowing banks to become so huge. I think banks and other corporations should not have been allowed to acquire other companies, and been allowed to turn themselves into the monstrous giants they have become. I believe in economies of scale, but I think we have gone well beyond that at this point. In looking toward the future, politicians may want to rethink how we interpret Anti-trust policy.
My second point: I was also looking through to find data on the companies who had already received money from the first stimulus package (TARP funds). This list is found on at this link.
Take a look at the list and sort the companies by size of TARP funds received. The last Company on the list was the Calvert Financial Corporation which received $103,700 of TARP funds. I’d like to know how this company was 1) “Too big to Fail” and 2) how is that amount of money going to help out a financial corporation when that sum of money is not even enough to bail out former boxing champion Evander Holyfield? (http://sports.espn.go.com/espn/print?id=3428080&type=story)


I read an interesting, albeit a little morbid article from http://economics.about.com/b/2003/07/30/a-futures-market-on-terrorist-attacks.htm on a proposition of a program to induce a futures market based upon the probability of a terrorist attack on certain locations. In simpler terms, an idea was created to have people make bets upon the chance of a terrorist attack happening. Although the idea seems strange and morbid, I have to agree with the author that it may help in reducing the threat of terrorism. Futures and options markets are highly efficient, and are usually good predictors of where the stock market is heading. If a futures market existed for say, the risk of a terrorism threat to the Pentagon, it could help the CIA and Homeland Security understand the reason for the escalating risk, and ultimately reduce the risk. A problem I see with the program is the difficulty in assessing the dangers of a terrorist attack. The futures market is very efficient because stock market investors have access to an enormous amount of information on individual stocks. Terrorist threats obviously don't have balance sheets, income statements, dozens of financial ratios, etc. to accurately assess risk. Well anyway, this program was eventually denied, but perhaps it should be given a second thought, if we can find a way to fix the problems.


Nationalization of America's Banks

In Alan Blinder's article in the New York Times entitled, "Nationalize? Hey, Not So Fast", he argues that some of America’s banks are in pretty bad condition, but that nationalizing these banks might not be a good idea. He also acknowledges that some of these banks are "too big to fail". There may be many possible solutions to this problem, but nationalization should not be one of them. Many who are in favor of nationalization site Sweden as benchmark for the United States. It is true that Sweden was able to successfully nationalize its banks, but it does not guarantee that it will work in America. Sweden's government only had to deal with an extremely small fraction of the banks that the U.S. government would have to regulate, which is more than 8,300. It would also be difficult for the government to nationalize only a small number of banks and allow the rest to be handled in the private sector. Banks that are not nationalized would face a disadvantage in competing for funds with the government-backed banks, forcing these banks to pay higher interest rates to attract customers and their subsequent deposits, resulting in lower profits. Another problem that Sweden didn't have to face was the size and complexity of banks. Many banks in the U.S. hold billions of dollars in assets, causing more complications in managing these assets. If the government were to take control of the financial sector, banks would mirror the efficiency of the U.S. Postal Service, which anyone can tell you is a complete fiasco!! Finally, the confidence of the American people would plummet to all-time lows if banks were nationalized. It isn't American tradition to seek governmental help unless in dire straits, and nationalization would indicate that the financial sector is failing, resulting in less consumer confidence. Less consumer confidence would only deepen the recession and cause the stock market to continue its downward spiral. The government cannot be allowed to tinker with the free market. Every time it implements a new policy, such as the nationalization of banks, past history has shown that, although good intended, these policies make society worse off.