Analytical Summaries of Key Stories of the Week on Economics and Public Policy
Fed’s Trouble with Bubbles
In the Wall Street Journal’s Real Time Economics blog, Michael S. Derby reports that the Fed’s views are evolving beyond their historic reluctance, based on doubts about their ability to detect them accurately, to target interventions at preventing or mitigating price bubbles.
Geithner Goes to Beijing to Manage Bad Marriage: Relationship, Smooth During Recession, May Get Stormy
With the U.S. highly dependent on China, which now holds $1.55 trillion in dollar assets, to purchase U.S. debt, Greg Robb of Marketwatch describes the relationship as “a marriage of convenience” that may have new strains on the horizon.
How Economists Can Misunderstand the Crisis
In an article reprinted from the Financial Times, Harvard University Professor Laurence A Tisch counters many economists by arguing that current U.S. fiscal policy of heavy deficit spending financed by massive issuance of new bonds is likely to lead to inflation and upward pressure on long-term interest rates.
Marginal Workers, Underemployed Push Economic Fringe to Limit
Citing sources from the Center on Budget and Policy Priorities, the Economic Policy Institute, the National Jobs for All Coalition, and the Employee Benefit Research Institute, Martha C. White reports in the Colorado Independent on the plight of the underemployed, “a diffuse, often poorly tracked cross section of citizens … living on the economic fringes” and who, when added to the more widely reported circumstances of the outright jobless, paint a much bigger picture of economic strain in the U.S.
Millionaires Go Missing: Maryland's Fleeced Taxpayers Fight Back
Are millionaires in Maryland pulling a John Galt and disappearing? A column in the Wall Street Journal’s Opinion Journal reports that “nearly one-third of the millionaires have disappeared from Maryland tax roles” since the creation by the state legislature of “a millionaire tax bracket” that raises the state’s top marginal income rate.
Public Health Care and Health Insurance Reform — Varied Preferences, Varied Options
Taking the perspective that healthcare reform is inevitable, with only details in question, Mark V. Pauly, Ph.D., argues in the New England Journal of Medicine in favor of a menu of health insurance plans, available to all population groups, managed by both public and private organizations, to meet highly variable preferences of consumers.
Sphere: Related Content
Showing posts with label speculative bubbles. Show all posts
Showing posts with label speculative bubbles. Show all posts
Monday, June 1, 2009
Friday, April 10, 2009
The New Austerity: How Long Will It Last This Time?
According to a column in the Washington Post, “a growing number of Americans have acquired a voracious appetite for tips on, among other things, how to slash grocery budgets, or how to throw a child's birthday party for under $25, or how to save thousands annually by changing one's own oil, hanging clothes to dry, carrying bag lunches to work, and other everyday lessons in leaner living.”
Before quoting that column, however, I left out one vital piece of information: it was published more than 16 years ago.
You see, those of us who are old enough to have experienced more than, say, one or two recessions that occurred before the current one, can remember (or at least should remember) that something like this, though perhaps not quite of this magnitude, tends to happen around once each decade.
Some big financial catastrophe, like an energy crisis, a savings & loan crisis, or a speculative bubble, causes the stock market and the underlying economy to tank and, suddenly, conspicuous consumption is shunned; frugality becomes hip; coupon queens appear as guests on daytime talk shows, demonstrating techniques that supposedly sometimes even allow them the pleasure of receiving rather than giving money at the grocery checkout; numerous books with titles like How to Live on Nothing materialize from the ether and roll off the presses; and pop-finance gurus suddenly start saying things like “No, silly -- you should never view your home as an investment. It’s a lifestyle choice.”
Yes, folks. Although, due to youth or other factors, not all of us may realize it, what we’re watching right now is a rerun. And the original airdate was not even from last season, by a long shot.
But we Americans, unfortunately, are often viewed as being infamous for our short memories. Just a short time after the years in the 1970s of waiting in line for hours at gas stations and rationing based on whether your license plate number ended with an odd or even digit, here we were driving ginormous SUVs as if OPEC had never existed. For around 25 years, gas prices in the U.S. fluctuated inside a relative comfort zone between $1.00 and $1.99 per gallon, and everyone was happy until the big psychological threshold of two bucks started to break.
And just a few short years after the recession of the early 1990s that ushered in, along with a buyer's market in real estate, “the new frugality” referenced in the Washington Post column I quoted, the conspicuous consumption party was on again. Twentysomething entrepreneurs were spinning lame online business concepts into multi-billion-dollar IPOs, and suddenly the homebuilding industry couldn’t throw up enough fiberboard McMansions to keep up with demand. The guy delivering your pizza was making money day-trading telecom stocks. And no one thought it was a bubble until it was too late.
Is the current recession deep enough, different enough, painful enough, and scary enough to make our memories longer and change our habits, for the better, for the long run? Next time around, will enough of us, finally, be sufficiently savvy to spot the signs of an emerging bubble before it has a chance to destroy trillions of dollars in capital and vaporize millions of jobs? Or will we once again fall victim to the fallacy that “it’s different now -- this is a new economic paradigm?”
Only time will tell, of course. But history teaches us that, unfortunately, like students who manage to ace exams by cramming the night before, we’re not very good at long-term retention of our lessons. Sphere: Related Content
Before quoting that column, however, I left out one vital piece of information: it was published more than 16 years ago.
You see, those of us who are old enough to have experienced more than, say, one or two recessions that occurred before the current one, can remember (or at least should remember) that something like this, though perhaps not quite of this magnitude, tends to happen around once each decade.
Some big financial catastrophe, like an energy crisis, a savings & loan crisis, or a speculative bubble, causes the stock market and the underlying economy to tank and, suddenly, conspicuous consumption is shunned; frugality becomes hip; coupon queens appear as guests on daytime talk shows, demonstrating techniques that supposedly sometimes even allow them the pleasure of receiving rather than giving money at the grocery checkout; numerous books with titles like How to Live on Nothing materialize from the ether and roll off the presses; and pop-finance gurus suddenly start saying things like “No, silly -- you should never view your home as an investment. It’s a lifestyle choice.”
Yes, folks. Although, due to youth or other factors, not all of us may realize it, what we’re watching right now is a rerun. And the original airdate was not even from last season, by a long shot.
But we Americans, unfortunately, are often viewed as being infamous for our short memories. Just a short time after the years in the 1970s of waiting in line for hours at gas stations and rationing based on whether your license plate number ended with an odd or even digit, here we were driving ginormous SUVs as if OPEC had never existed. For around 25 years, gas prices in the U.S. fluctuated inside a relative comfort zone between $1.00 and $1.99 per gallon, and everyone was happy until the big psychological threshold of two bucks started to break.
And just a few short years after the recession of the early 1990s that ushered in, along with a buyer's market in real estate, “the new frugality” referenced in the Washington Post column I quoted, the conspicuous consumption party was on again. Twentysomething entrepreneurs were spinning lame online business concepts into multi-billion-dollar IPOs, and suddenly the homebuilding industry couldn’t throw up enough fiberboard McMansions to keep up with demand. The guy delivering your pizza was making money day-trading telecom stocks. And no one thought it was a bubble until it was too late.
Is the current recession deep enough, different enough, painful enough, and scary enough to make our memories longer and change our habits, for the better, for the long run? Next time around, will enough of us, finally, be sufficiently savvy to spot the signs of an emerging bubble before it has a chance to destroy trillions of dollars in capital and vaporize millions of jobs? Or will we once again fall victim to the fallacy that “it’s different now -- this is a new economic paradigm?”
Only time will tell, of course. But history teaches us that, unfortunately, like students who manage to ace exams by cramming the night before, we’re not very good at long-term retention of our lessons. Sphere: Related Content
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