News Roundup (Econ Edition)

America at work, Europe at play

The heading may not be strictly true, but Americans do tend to work more (25.1 hours per week for 46.2 weeks per year). I agree with the blog post, but with not the original post. The difference here is cultural. Without making any value judgments, Americans just seem to prize wealth accumulation more than social interactions and overall well-being. This has been my experience from living on both sides of the Atlantic.

This has gotta be the absolute worst-case scenario, right?

A depressing read, predicting a depression no less. The author believes that current high levels of private sector debt are unsustainable. Therefore, as soon as government withdraws its prop, the economy will tank again. Government cannot lower interest rates or print money anymore, and a tanking dollar will drastically escalate prices. Consumer spending won’t ever recover with a double punch of inflation and unemployment. I wonder if the writer also believes in a debt jubilee.

Summers to the rescue again

Larry, as he always seems to do, rides in at the time of trouble to dazzle everyone with his genius. This was the case in the Asian financial crisis of 1997, and is so again today. My personal belief is that intelligent people like Summers and Greenspan (already accomplished) are going to be surprised that the fundamentals here are so bad that straight Keynesian stimulus and easy money will not set the country on the road of stable growth. Those men have rather firm beliefs about how the world works, and are loathe to change for a fear of the unknown, embarrassment of being mistaken, or just plain denial. Regardless, this article is an excellent and unbiased narrative of Larry’s life, how he rose to fame, and how he thinks.

Jobs report: the subtext behind the headline

Headline unemployment is at 9.8% right now, and that number may not fall any time soon. This is because the laid off workers are (stop me if you’ve heard this before) in unskilled labour sectors such as manufacturing or low-skill jobs in hospitality, restaurant, and retail. Job openings are primarily concentrated in the skilled service sectors such as education, health care, and engineering. Workers are slowly transitioning by going back to school, but it will be a rough ride in the meantime.

Consequences of unemployment

It’s easy to look at the headline figures, but there are long-term implications of unemployment. Not only is the work force unsuited for the kinds of jobs created, but the risk propagates to future generations. Unemployed families usually cannot provide a stable environment for children to become educated. Also, crime and depression usually rise with high unemployment. This article delves into data to discover which population segments are suffering the most and what impact that may have long-term.

China comes calling

America got into the crisis by borrowing too much money and using it to consume. As a result, public and private debt totals have soared to historic levels. Note that this is in raw numbers, not as a % of GDP. As a result, people like Krugman suggest that we can afford to borrow more. Winkler believes that this is not tenable and that Argentina and California (default) are examples of the endgame. Chinese calls for a new global reserve currency in light of the plummeting dollar are only the start of the decline.

Reagan’s greatest sin

Staying on the subject of deficits, prophets of doom proclaim drastic inflation down the road. Liberal economists acknowledge that this is possible, but that getting the economy growing is the top priority. Sadly, they just want to inflate another bubble instead of buckling down and rebuilding economic fundamentals. When the bubble does start up again, there will be calls for more spending or tax cuts. The last president (Clinton) to attempt deficit reduction did so on the slimmest of margins. For all of Reagan’s sins, his worst may have been, in Cheney’s words: “Reagan proved that deficits don’t matter.” Because of Reagan, there’s absolutely no political will to cut the deficit.

HSBC returns to its roots

How the mighty have fallen. Britain and America were the two centers of finance in the world. HSBC, my personal bank, is based on London but has decided to shift its corporate HQ to Hong Kong, citing Asia’s rise as a global power. I’m not surprised. Look for BRIC countries’ growth to outpace the west in the future.

Thorough rebuke to Keynesianism

Robert Barro, a perennial favourite for the Nobel Prize, wrote this article contrasting tax cuts with stimulus spending (deficit-driven or not). He finds that tax cuts have a higher multiplier than stimulus spending in general cases. I’m not a fan of Keynesianism, but I take issue with this study in that it looks at historic events in isolation. The spending events being tracked are all military spending, which I doubt has a high multiplier in contrast with infrastructure spending. The author admits this and uses the excuse that nonmilitary spending is difficult to track and isolate. Another problem I have is that the results of tax cuts are measured in terms of GDP. As we’ve seen in the last recovery, GDP does not equate to many factors of well-being, such as employment, fulfillment, happiness, average income, and income disparity.

A sad end to free trade

If China and America’s recent spat over tire tariffs isn’t enough, overall global trade has absolutely collapsed. This article takes a depressing look at the other ways that protectionism is rearing its ugly ear. Bailouts and subsidies protect domestic industry in an attempt to win political points with labour by propping up employment in dying industries. Truly this is a sad time for free-traders everywhere.