From The Wall Street Journal:
By Ian Bremmer and Nouriel Roubini
Like President Barack Obama, Japan’s new Prime Minister Yukio Hatoyama made lots of extravagant economic and foreign policy promises on the road to victory earlier this year. Mr. Obama has shown flexibility and the willingness to compromise. Will Mr. Hatoyama do the same? If not, Japan will be in for a rough ride in 2010.
Goldman is trying to diffuse the increasingly harsh light being turned on its dubious practices in the collateralized debt obligation market, with the wattage turned up considerably last week by a story in the New York Times that described how a synthetic CDO program called Abacus was the means by which Goldman famously went “net short” subprime. We’ve mentioned Abacus repeatedly because AIG wrote guarantees on at least some of the Abacus trades.
The week between Christmas and New Year’s is probably a good time to throw out half-baked ideas on topics I don’t know much about.
First, there’s been a lot of talk about the “lost decade” for stocks. The S&P 500 is below where it was a decade ago. Dividend yields bring you back up to break-even (the Vanguard Total Stock Market Index Fund had average annual returns of 0.18% for the ten years through the end of November, and that’s after about 0.1% in expenses), but inflation sets you back a couple of percentage points per year. (Vanguard’s S&P 500 index fund, however, was negative over those ten years.) James Hamilton, drawing on data from Robert Shiller, has some thoughts on why the stock market did badly; the fundamentals were so-so, but the big factor was that valuations were at their historical peak at the beginning of the decade.
Joseph Lawler at the Spectator distills the Austrian perspective on the sources of current unemployment. Economists of a statist or Keynesian bent tend to posit that modern managers are quicker to fire employees and squeeze extra productivity out of their remaining workers, and then explore why that might be so. … There is a more […]
Brad DeLong says the undesirable act of bailing out those who helped to cause the financial crisis is justified by the greater good that came from this policy, but the public does not see it that way: The Fairness of Financial Rescue, by J. Bradford DeLong, Commentary, Project Syndicate: Perhaps the best way to view […]
The New York Times have an interesting article on China’s break neck rail growth. I have an interest in this article as I recently took the 30 minute Beijing – Tianjin train. It was great. Very fast, relatively cheap (this is a moot point) and similar in comfort to a first class air flight. I should add that the train was full when I travelled – see point in the article below.
Pettis is very good. He is also correct about China’s level of infrastructure relative to its level of development. He should not underestimate the power of a trophy however.
Arnold Kling makes an important contribution to the debate about fiscal stimulus and double dip recessions which was also pointed out to me in the comments of my recent double dip post:
Paul Krugman provides an analysis showing arithmetically that the fiscal stimulus will have a declining contribution to GDP growth, even as stimulus spending increases.
What is interesting to me about this analysis is that the concept of a multiplier has completely disappeared. If you believe in a multiplier, then as far as stimulus goes, the sooner the better. The more you spend this quarter, the more people are employed this quarter, the more they spend next quarter, and so on. If you do not believe in a multiplier, then any time you slow the rate of government spending growth you slow the rate of overall GDP growth.
If there is no multiplier, and we follow the Krugman logic, then we have no choice but to keep increasing government spending until…what point? when it is 100 percent of GDP?
On the other hand, if there is no multiplier, then I think we should question the whole concept of stimulus. With no multiplier, its benefits are almost entirely transitory and artificial.
One of the effects of the credit crunch and recession has been to make us even more sceptical of economic forecasts. Model-based forecasts, or even those based on hunch and guesswork, suffer from a fundamental flaw. Humans are not blessed with the gift of being able to foretell the future. The human element even in model-based forecasting is very important.
What forecasters should be blessed with, and one hopes they will be when the lessons of the past year or two have been absorbed, is better ways of telling which way the wind is blowing.
The latest data from Case Shiller, covering the October 2009 period, shows an ongoing improvement in price data.
This was the 9th consecutive month of gains. As the chart below shows, year-over-year data for the 10-City and 20-City Composite Home Price Indices, fell 6.4% and 7.3%.
“Hungary’s potential economic growth should be 2 percentage points over the corresponding EU figure in order to ensure convergence”. Prime Minister Gordon Bajnai, speaking in London in October
Two contrasting pieces of news about Hungary’s economic plight have caught my eye over the last week. In the first place, and in an evident sign of the times, retail sales reportedly fell at their fastest annual rate in over ten years in October, whilst secondly, and more surprisingly, I learnt that Hungary’s economic-sentiment index rose to its highest level since October last year, when the gale force wind sent by the fall of Lehman Brothers engulfed the country. How can this be, I thought? These two pieces of information would, at least on the surface, seem to be pretty contractictory, with the former suggesting the deepest recession in living memory is getting even worse, while the latter seems to add backing to government claims that the worst is now behind them.