Modest Gains

There seems to be a stigma going around that the result are to good to last. While listening to a couple of economist talk ( sorry for not being able to find the names) on "the squak box". They continued to refure to how well we thought we were doing in late 1997 before evey thing dropped out for the 2nd time. It may be my naivety to this type of thing, but it seems like if they think that even Grease is not going to default on their loans that we may have turned the cornner.

Bandaids

Another federal program seems to be on its way to failure. The New York Times reported that nearly 3,000 home mortgages that had been modified by the Federal Loan Modification Program have ended since the program started last fall. The vast majority of the modified loans that ended early were because of foreclosure, with only a handful ending because home owners paid off the mortgage, likely because they sold their houses. The problem with the program (and other similar programs) is that they just put a bandaid on the problem. What they should do is get to the root. Taxpayer dollars are wasted on extending the problem, rather than eliminating the source.

Gas prices and recessions, it takes two to tango.

I found this great post by James Hamilton of Econbrowser which discusses the correlation between gas prices and recessions. Mr. Hamilton provides data which shows that a sharp rise in gas prices precedes recessions. The article notes that the recent rise in oil prices probably isn't enough to cause a double dip on its own, however the recent recession was exacerbated by the steep rise in prices immediately before the crash. Hamilton concludes that the high oil prices are a drag on the economy but are not bad enough to cause another dip on there own.

Promoting Mediocrity

An interesting article in the New York Times featuring a ‘Republican’, Florida governor Charlie Crist, who is currently vying for a Republican seat in the senate, just vetoed a bill that would have essentially based teachers’ pay on results, primarily students’ test scores. It would have also eliminated the general, long-term tenure granted to teachers. It is simply another example of people wanting to be paid, regardless of their performance. If teachers were paid according to their students’ success, we would see a significant increase in their preparation, care, and time spent with students. It would also eliminate those teachers who create a suck on state budgets, as well as an overall improvement in education. Since the public education system has decreasing returns to scale and down-sizing is what they need, this would provide a channel to get rid of poor educators.

http://www.nytimes.com/reuters/2010/04/15/us/politics-us-usa-politics-florida.html?_r=1&hp

(Dr. Tufte, for some reason blogger isn't letting me hyper-link the article, so it's here instead).

Corruption

We have talked a lot in class about trust of strangers being an integral part of economic growth. I found the following chart very interesting. It is a survey on curruption in different countries around the world. Many of the countries at the very bottom of the list are also the poorest countries in the world. Haiti only scored 1.6 out of 10. With that much corruption how can their economy progress? How can people feel safe investing their money? We cant expect anything diferent from them if all we do is send more money through a long chain of corrupt officials.

The Newest Advancement in Eminent Domain

Senator Dodd's Financial Regulatory Reform bill will establish a new government entity under FDIC called the Financial Stability Oversight Council. This new organization will have the power to take over any company with $50 billion in assets or more that it deams too risky. This was explained (but buried) in the article GOP Takes Aim at Plans To Curb Finance Industry in today's New York Times.

"The Democrats’ bill, sponsored by Senator Christopher J. Dodd of Connecticut, would give the Federal Reserve oversight of the largest financial institutions, those with at least $50 billion in assets. And it would let the Treasury secretary — with support from regulators and the approval of a special panel of three bankruptcy judges — take over any giant company that posed systemic risk to financial stability, and essentially force it out of business."

Granting the Government an unchecked ability to take over the large private companies that appear to pose a "systematic risk" may well decrease the risk that financial institutions are willing to assume in lending to individuals and businesses. This would decrease liquidity and increase the likely hood of a new recession.

Dissent on Recessions end

After reading this article in the New York Times Mr. Robert J. Gordon is saying the recession ended in the second quarter of 2009. Is this correct? His colleagues have came out stating that the recession that started in 2007 is not yet over. These gentleman our on the National Bureau of Economic Research Business Cycle Dating Committee which determines the start and end dates of recessions. Why has Mr. Robert J. Gordon came out and made this statement when he’s colleagues our saying that the recession is not over? Here is some of the data Mr. Robert J. Gordon is going off real GDP has recovered strongly from a trough in the second quarter of 2009 to current quarter which is close to the peak it was at in 2007. Mr. Robert J. Gordon is going off of a private organizations data that has been pretty accurate over the past estimating real GDP changes a quarter or two in advance. Should we believe this information?
Article

Translating Bernanke

In an interesting article in the Wall Street Journal, Jon Hilsenrath translates Ben Bernanke's congressional testimony. The article states that monetary policy will most likely not be tightened any time in the near future because "there is no reason".

The article also points out that the Federal Reserve thinks the recovery is real, but there will be some problems down the road given the condition of many state and local governments.

I can only hope that the Fed leaving interest rates and monetary policy alone in the coming months will help improve the economy further and we won't go back into a recession.

A Zero-sum Mindset

Zero-sum mindset is bad for the world. Anti-capitalist terrorists have this mindset: We are poor because you are rich. This logic is so irrational. We can all agree that terrorism has a negative outcome in any aspect and is only destroying capital in most situations with has an adverse economical outcome.

Federal Funds Rate & Summer predictions of growth graphic

I found a graphic that gives a prediction for real GDP growth percentages in summer 2010 with a direct comparison to the federal funds rate in recent history. The article explains that the changes in federal funds interest rates provide one of the eleven factors used to create predictions. However, changes in interest rates come with a delay of about fifteen months before any changes in the economy are noticed. Unfortunatly growth over the summer is predicted to slow from that of the early months of 2010.

Good Job Washington D.C.

I found this article amusing. It explains how the Federal deficit is cut down by 8% for the first half of 2010, compared to a year ago. Only one word comes to mind when I read this, DUH! The officials contributed this by higher tax revenue and lower spending. So they are saying that if you save money, instead of spending it, you’ll reduce debt? Good work D.C.! The funny thing about this is they are serious and just barely figuring this out. The average child knows that if they want to buy a candy bar, they have to save money from their allowance to be able to buy it. It doesn’t take a Harvard degree and a six-digit salary to understand this. What is going on in this nation!?

US Debt Clock

Check out this website. It shows real-time, updated numbers for a multitude of various aspects of the economy. Moving the mouse over each topic provides a brief explanation of how that particular number is calculated, as well as the source of the numbers. A few of the numbers that stick out to me are the total debt per family ($690,000+) and the income per family ($62,000+). Another interesting number is the total assets per citizen, valued at around $234,000+. One caveat: many of these numbers come from Congressional Budget Office, which as we've discussed in class, is required to state the numbers based solely on the face value of written legislation and not necessarily on what ends up actually happening.

More Sports Economics... How Much are You Willing to Pay?

Continuing on with some more sport economics, this article explains the prices paid by the public when a team stadium is introduced and subsidized by the city. I found it very interesting that so many stadiums have been built in the last 20 years. On average, over half of the teams in the MLB, NFL, and NBA have received new stadiums. The argument is about whether these stadiums should be subsidized by the public, for private gains. Some economists argue that it hurts the local economy by lowering personal income. Others say that it is increasing the worth of the city and providing positive economic leisure benefits. I agree that stadiums are an important part of a local economy. Everyone here in Utah knows what the Delta Center is even if they don’t follow sports at all. The problem with subsidies is if a team happens to relocate and the public is left with the tab. This article about the Astrodome provides more information on the downside of stadium subsidies.

Whose fault is it anyway?

This is an interesting blog post in BizTimes.com, a Wisconsin-based newspaper. The article discusses the common perception that insurance companies are to blame for the current health care crisis. The author lists several reasons why insurance companies are not to blame. First-health insurers were already in favor of reform to require insurance companies to enroll anyone-regardless of preexisting conditions. Second-health insurance companies were also in favor of place limits of what they can charge for elderly premiums. Third-insurance providers are businesses, trying to maximize their earnings. To victimize them is childish and shows a lack of understanding of financial institutions. While it's true that a reform was needed (although certainly not a complete overhaul), demonizing a for-profit company is ludicrous.

Houston: We Have a Problem

Initially, when I first heard reports of Obama planning to cancel part of the NASA program, I was annoyed and wished he would keep his hand out of things. However, after delving more in depth into what he envisions happening, it may be one of the few things I agree with. The New York Times reports that only certain parts of the global-leading program will be cancelled. Constellation, the program geared to developing a new rocket to replace the Space Shuttle, is to be phased out, while $18 billion annually will be budgeted to develop new space technologies. The major part of the program that I agree with is that taxiing humans to and from space will now be head by private companies, which should increase efficiency and reduce wasteful spending. Seeing this makes me wonder why Obama wouldn't think of privatizing Social Security, Medicaid, or some of the other bulky programs to save money and increase efficacy.

The Oil-pocalypse

Econbrowser posted an interesting article on their blog with lots of fun graphs about the cost of oil and it's effect on the recession. We have discussed in class the effects of rising prices during recessions and it doesn't take a genius to realize that they won't help us overcome these tough economic times. These gas prices may end up sparking production in the auto industry for even more fuel efficient cars as we could see gas prices are likely to reach $3.50 this summer. As college students, we have all been feeling the pain of gas prices rising but Econbrowser assures us that although "$87 oil is certainly not helping the recovery. But I would be very surprised if it proves to be the kiss of death."

Statistics for Dummies

With all the talking we have been doing in class about statistics, it is nice to know that there are other ways to lie about the GDP. As Dr. Greg Mankiw points out in his article posted on his blog, there is one very interesting publication that we see each year in which actual statistics make very little difference. The article is talking to Parade magazine and their annual report on working individuals and their salaries. Mankiw makes an interesting point in how the distribution of income is not well represented between jobs. Another reason that this article doesn't make statistical sense is the fact that areas around the country are compared without adjusting for things like the cost of living. Obviously an actor in Hollywood in Los Angeles is going to make more money than a plumber in South Dakota. At the same token, a plumber in Los Angeles would make much more money than that same plumber in South Dakota. This article is a poor representation of America. You can find the actual article.

Exporting, We Hope

I found this article to bring a little possibility of more hope for the economy. We hope that we can do more exporting. I found this article in the Economist. In it we learn that if we are going to increase new exports, it will be coming from new firms. There are some companies that do quite a bit of exporting, like Intel, but we will need a whole lot more if we are going to export enough to really make a difference. It will be harder to have new emerging companies to do more exporting because they need more capital which is harder to come by. We also have this new health care bill that will make it harder for new companies to the point where they are effective. Time will tell.

There Ain't No Such Thing as a Free Laborer?

This morning, Greg Mankiw posted a very interesting article on his blog from The New York Times. The article makes a good point on the minimum wage requirements for interns working for no pay. This is a good thing for college students like us because we are trying to find pay in places that also offer real-life experiences for the work place. Under the law, companies are required to pay interns the minimum wage except under special circumstances where the companies comply with the six federal legal criteria the article references. But for every internship that will be paid, there is no doubt some will be cut from companies. They simply can't afford to start paying people that don't contribute in the same way the experienced employees do. It is much like adding more labor to our models but not increasing output. Although the lawmakers might think this is a good idea, there is good reason to think it will actually hurt students looking for internships because there will be fewer available.