Capital Commerce
-
The Stimulus That Didn't Stimulate
Continue reading… 0 CommentsAn analysis done for the WSJ finds that Americans saved rather than spent their stimulus checks. This is exactly what I said would happen. Well, actually, this is exactly what I said Milton Friedman said would happen. This from December 2007:
Back in 1957, Milton Friedman proposed something called the "permanent-income hypothesis," which said that people spend money based on what they consider their normal level of income and what they expect to earn over the long term. Short-term fluctuations in income, whether for better or worse, are smoothed out by more debt or less spending if consumers perceive the fluctuation as temporary. People adjust slowly to changes in income—just as the economy adjusts slowly to changes in Federal Reserve interest rate policy—which makes it tough for the government to fine-tune the economy. Short-term moves simply don't have the oomph policymakers expect, especially when the slow movement of legislation puts them out of step with the actual business cycle.
-
10 Wild Predictions for 2009
Continue reading… 3 CommentsMy pal John "the Brain" Tamny over at RealClearMarkets writes a fascinating post on an investment firm that does a "wisdom of crowds" thing with its clients in order to make market forecasts. Here are some of their 2009 predictions, as paraphrased a bit by me:
1) 68 percent think Obama will win.
2) 53 percent think Obamanomics will be bad for the economy.
-
Will High Oil Prices Kill Globalization?
Continue reading… 0 CommentsExcellent by post by global strategist and superblogger Thomas Barnett on the impact of higher energy prices on globalization. Here's a nice hunk of it (boldface mine):
Up to now, accessing virtually any cheap, reliable labor made sense, given the cheapness of energy. Now, only those who can figure out how to make that happen with commensurately lower energy costs will be able to do so, and frankly, that should produce a better globalization. We've long let several crucial sectors of our economy off the hook in terms of serious innovation because there was no great incentive to pursue it. Now, we have those incentives.... I would expect to see a lot of glocalization by global corporations: continuing to "go global" by "going local," meaning they become truly "globally integrated enterprises" of the Sam Palmisano mode (R&Ding locally, hiring and resourcing locally, and producing and selling locally—all the while remaining a global corp). So the Ikea that imports everything now starts producing locally, creating local manufacturing jobs. Sure, expect jobs to be "saved," just don't expect to get unduly picky about who the employer is. You can call that a "reversal" if you want, but that's what a lot of economists and business types have been describing as the next stage of globalization anyway. In the end, though, we have to thank ourselves for this wonderful challenge: If we don't succeed so brilliantly in spreading globalization, we don't create all that new demand for energy, which in turn drives up prices and pollution, forcing us (more collectively now) to address those issues with far more seriousness than in the past. By going to locations with less stringent environmental laws, we expand globalization, but that expansion now rewards greater efficiency, so watch companies now demand better environmental rules as a cost-saver.
-
Bush’s 5 Smartest and Dumbest Economic Moves
Continue reading… 6 CommentsNo one can say President Bush hasn't had a full economic plate of trouble in front of him—imploding asset bubbles (stocks and housing), corporate scandal tax, an energy crisis, a credit crisis, and an (almost) recession. With his time as president nearing a close, let's take a look at the president's best and worst economic moves.
First, the Smartest Moves:
1) Getting the 2003 tax cuts passed. The reduction in capital-gains rates (and the acceleration of the 2001 income tax rate reductions) were growthy and well-timed, helping give the economy the momentum that, so far, has prevented a housing/credit/oil-related recession.
-
GOP Veepstakes: The Probable McCain Shortlist
Continue reading… 6 CommentsI feel like half my time each day is spent speculating about whom John McCain will pick for veep. These are the three names that keep coming up in my chat with folks who should know a little something: Mitt Romney, Tim Pawlenty, Rob Portman. No Sarah Palin. No Fred Smith. No Meg Whitman. Take it for what it's worth.
-
Obama: Right Economic Formula, Wrong Variables
Continue reading… 2 CommentsAmerica has a big economic problem, but it's not income inequality or income volatility or economic insecurity. Those are just symptoms. The problem is a lack of sustained or even spectacular economic growth. Consider this: During the 1980s, the economy notched 19 quarters of 3.5 percent GDP growth or better. In the 1990s, the economy also notched 19 quarters of 3.5 percent growth or better. So far this decade? Just eight. Or look at the number of quarters of "hypergrowth," say, 5 percent or better. (This was JFK's GDP goal in the 1960s, by the way.) There were 12 in the '80s, eight in the '90s. So far this decade? Just a single quarter, the third quarter of 2003.
That's why I am heartened by Barack Obama's decision to go for growth. As Obama puts it, there are two deficits that we need to deal with, an investment deficit and a budget deficit. (I tend to agree.) And given the weak state of the economy, he thinks the former deserves emphasis over the latter. (I tend to agree.) The best way to balance a budget is to grow the economy first, reduce the budget deficit second. As such, Obama wants to boost growth, long and short term, through government spending on energy and infrastructure. Budget balancing will have to wait.
-
Energy: What Would Reagan Do?
Continue reading… 7 CommentsThis tidbit on energy from Ronald Reagan's 1980 debate with Jimmy Carter perfectly fits in with today's energy crisis. It's really uncanny:
I do believe that this nation has been portrayed for too long a time to the people as being energy-poor when it is energy-rich. The coal that the President mentioned—yes, we have it—and yet one-eighth of our total coal resources is not being utilized at all right now. The mines are closed down; there are 22,000 miners out of work. Most of this is due to regulations which either interfere with the mining of it or prevent the burning of it: With our modern technology, yes, we can burn our coal within the limits of the Clean Air Act. I think, as technology improves, we'll be able to do even better with that. The other thing is that we have only leased out—begun to explore—2% of our outer continental shelf for oil, where it is believed, by everyone familiar with that fuel and that source of energy, that there are vast supplies yet to be found. Our Government has, in the last year or so, taken out of multiple use millions of acres of public lands that once were—well, they were public lands subject to multiple use—exploration for minerals and so forth. It is believed that probably 70% of the potential oil in the United States is probably hidden in those lands, and no one is allowed to even go and explore to find out if it is there. This is particularly true of the recent efforts to shut down part of Alaska. Nuclear power: There were 36 power plants planned in this country. And let me add the word safety; it must be done with the utmost of safety. But 32 of those have given up and canceled their plans to build, and again, because Government regulations and permits, and so forth, take—make it take—more than twice as long to build a nuclear plant in the United States as it does to build one in Japan or in Western Europe. We have the sources here. We are energy rich, and coal is one of the great potentials we have.
-
Bernanke and the Batman Conundrum
Continue reading… 0 CommentsFor months, Federal Reserve Chairman Ben Bernanke has been suffering from a version of the Batman Conundrum. (The Joker has placed The Batman's girlfriend and best pal in danger in two different places. With the clock ticking, whom should the Dark Knight choose to save?) Does Bernanke try to save our wages and investments from inflation or our jobs from slow growth and unemployment? Which is in greater danger?
Well, the Federal Open Market Committee chose to do nothing at its meeting today, leaving interest rates unchanged at 2 percent. An examination of its statement sure leaves the impression that for now the Fed is more worried about growth. One example: In its previous statement, the FOMC said risks to growth were "diminishing somewhat." Today, though, the statement merely said that "downside risks to growth remain." While Bernanke & Co. would probably love to raise rates, they are catching a break from the big drop in oil. Not only does that relieve inflation pressures, but it also helps wage and job growth. Economist Bernard Baumohl puts it this way:
I see this as a wink by Bernanke and other doves telling us that the inflation outlook is looking better thanks to the decline in commodity prices and the rise in the dollar. But to minimize the number of dissenting votes, the FOMC still had to maintain its very tough talk against pricing pressures.
Look for the Fed to stay on hold until at least after the presidential election.
-
How General Petraeus Saved the U.S. Economy
Continue reading… 78 CommentsWith oil prices continuing to plunge—and they may have a lot further to go—I've started wondering about this "what if" scenario: Where would oil prices be today had we abandoned Iraq to civil war and al Qaeda? What if President Bush had announced on Jan. 10, 2007, that instead of surging U.S. troops under the command of General Patraeus, he was ordering their withdrawal? Imagine if Iraq had descended in complete chaos and terror and genocide. Somalia or Rwanda on the Tigris and Euphrates, I guess.
Right now, Iraq is pumping out some 2.4 million barrels of petroleum a day. (That's about what the country was producing before the war and double the level of production at its post-liberation low point.) But given tight global oil markets, what would the price of oil be—and what would the state of the U.S. economy be—with perhaps all of those 2.4 million barrels off the market? Actually, we don't have to imagine very hard at all. Hurricane Katrina took about 2.4 million barrels off the market (because of refining shutdown and a halt to foreign oil deliveries), and oil prices spiked. And then layer on top of all that a possible regional war. Saudi Arabia and Iran might well have intervened on the side of the Sunni and Shiite. Wouldn't we all be screaming about $200-a-barrel oil—or maybe twice that?
-
Obama’s Needless Social Security Tax Hikes
Continue reading… 4 CommentsSocial Security guru Andrew Biggs make a great point about Obama's evermorphing plan to hike payroll taxes over at his SS-themed blog:
Sens. McCain and Obama are both in a bit of a fix here, although Obama worse than McCain. McCain can reject tax increases and still more or less fix Social Security, say through a combination of raising the retirement age and progressive benefit reductions for high-earning retirees. (If you let the NRA rise to 70 by 2080 or so, you could do a benefit reduction that shielded the bottom half of the earnings distribution from cuts.) The prospects for political success may be limited, but he can at least put together a plan that's plausible as policy.
Obama's in a bit deeper: His plan to hit earners making over $250,000 would fix maybe 15 percent of the long-term deficit, and he's rejected raising the retirement age or cutting benefits. Where does the other 85 percent (much less the additional fixes needed to make the system sustainable beyond 75 years) come from? If someone has an idea how they plan on making this work, please let me know.
-
Why Oil Really Fell Today—and Could Keep Falling
Continue reading… 37 CommentsOil slipped below $120 at one point today and now overall is down nearly 20 percent from its July high of near $150. But I don't think the drop had much to do with the usual suspects—a weak consumer spending report, less risk that Tropical Storm Edouard will smack the Gulf Coast—which will surely be mentioned in the financial pages tomorrow.
I think the drop had everything to do with reports this weekend that MIT chemist Daniel Nocera seems to have discovered a cheap—by a factor of 1,000—and easy way to separate hydrogen from water. Scientific American puts the advance in context:
-
Was that 2Q GDP Number Phony?
Continue reading… 1 CommentThere has been lots of controversy about last week's GDP report since government statistics showed inflation to be a skimpy 1.1 percent vs. a 4 or 5 percent rise in topline inflation as measured by consumer prices. Wouldn't a more realistic inflation measure have more than wiped out a reported 1.9 percent rise in GDP?
Here are two takes on the issue that show such a calculation isn't as straightforward as it might appear. First up is economist Brian Wesbury:
-
Is Obama the Bizarro Clinton?
Continue reading… 8 CommentsTeam Obama is finally trotting out this campaign meme: Obamanomics means a return to the booming 1990s economy. Over on CBS's Face the Nation yesterday morning, former Clinton Treasury Secretary Robert Rubin told host Bob Schieffer—who had just asked whether the economy, which grew 1.9 percent last quarter, is in a recession or headed toward a depression—that Obama would bring back the higher tax rates of the Clinton era, "which brought us the longest economic expansion of all times." And there was former Clinton administration economist Laura Tyson on CNN's Late Edition with Wolf Blitzer:
A final quick comment is that we need to understand that what Senator Obama is proposing bodily on taxes is rolling back some of the Bush tax cuts for those who make over $250,000 a year to levels you saw in the 1990s. I will only point out again the 1990s had the longest and strongest economic expansion in our history.
-
Get Ready for a Trillion-Dollar Bank Bailout
Continue reading… 2 CommentsIn Barron's over the weekend, economist Nouriel "The Office of Prophet of Doom of the 21st Century" Roubini said the ongoing financial crisis will lead to credit loss of at least $1 trillion and "most likely closer to $2 trillion."
Now this is a global number, and as market strategist Ed Yardeni notes, Roubini's forecast, as well as the trillion-dollar estimate of the IMF both assume all this bad debt is marked to market. Some of those losses may be eventually recouped. But if Roubini is anywhere close to being right, there will be immense pressure for governments to start buying this bad debt. But hey, every year that we in the United States do nothing about entitlement, liabilities add $2 trillion to $3 trillion to our long-term debt. So, what's another trillion?
-
Obama’s Emergency Economic Plan
Continue reading… 10 CommentsTeam Obama just released an "emergency economic plan" to "relieve the burden on families struggling with high gas and grocery bills, or preparing for high heating bills." At least that's the intent. Here are details:
Forcing big oil companies to take a reasonable share of their record breaking windfall profits and use it to help struggling families with direct relief worth $500 for an individual and $1,000 for a married couple.... The rebates would be fully paid for with five years of a windfall profits tax on record oil company profits.... $25 billion in a State Growth Fund to prevent state and local cuts in health, education and housing assistance or counterproductive increases in property taxes, tolls or fees. The fund will also ensure sufficient funding for home heating and weatherization assistance as we move into the fall and winter months.... $25 billion in a Jobs and Growth Fund to replenish the highway trust fund; prevent cutbacks in road and bridge maintenance and fund new, fast-tracked projects to repair schools—all to save more than 1 million jobs in danger of being cut.
-
Dude, Where’s My Recession?: The Series
Continue reading… 1 CommentOK, so nonfarm payrolls fell 51,000 in July, while revisions to May and June added 26,000 jobs. That results in a net loss of 25,000 jobs. (The consensus expected a loss of 75,000.) The guys at First Trust Advisors get it right, I think, with this piece of analysis:
The labor market is a lagging indicator of economic activity, and job declines so far this year reflect weakness in the overall economy in late 2007 and early 2008. Still, the recent decline in jobs is much smaller than has been typical of past periods of economic weakness.
Job losses so far have been between 51,000 and 88,000 with no sign of downward momentum. Back in 2001, the economy lost 30,000; 281,000; 44,000; and 128,000 as the economy weakened. And in 1990, the economy lost 42,000; 280,000; 82,000; and 161,000 as the economy tanked. Way back in 1981, jobs losses were 36,000; 87,000; 100,000; and 209,000. Now, I am certainly not saying that the economy is in great shape. It isn't. But it's not in shambles, either.
-
Welcome to America's $2 Trillion Budget Deficit
Continue reading… 3 CommentsBarack Obama has already said that America's "investment deficit" will take priority over its budget deficit. And congressional Democrats have been waiting a generation to launch a full-scale infrastructure spending spree. How might this combination play out in 2009? Well, I may have glimpsed a possible financial future in a proposal for an "economic recovery program for the post-bubble economy" sent to me by the left-of-center New America Foundation and authored by businessman Bernard Schwartz and think tanker Sherle Schwenninger.
First, Schwartz and Schwenninger assume a worst-case scenario for the economy—that the housing recession and rising unemployment will suck $475 billion out of consumer spending. Moreover, rising food and gas prices will drain another $300 billion. (These calculations adopt the guesstimates of Merrill Lynch econobear David Rosenberg.)
-
GOP Veep Watch: Fiorina vs. Palin vs. Whitman
Continue reading… 20 CommentsMy reporting tells me that the vice presidential McCain short list—as of the morning of Aug. 1, 2008—is 1) Mitt Romney, 1A) Mitt Romney, and 2) Tim Pawlenty. But what about the veep prospects of the Three Amigas: former Hewlett-Packard CEO Carly Fiorina, Gov. Sarah Palin of Alaska, and former eBay CEO Meg Whitman. Here's the skinny on these women from campaign insiders:
1) Fiorina: Media-savvy, a good communicator, well suited to the traditional veep role of attack dog.
2) Whitman: Supersmart, a compelling communicator, just too nice and thus poorly suited to the attack-dog role.
3) Palin: Miss Congeniality but with a big, big learning curve; knows energy, though.
