Perhaps most impressive is that America is winning medals in traditional sports often dominated by Europeans, such as alpine skiing, figure skating and long-course speedskating. Noting that the number of Winter Olympics events has risen to 86 from 46 in Calgary, Olympic historian David Wallechinsky said, “We’re expected to do well in new events like freestyle skiing and snowboarding. But this week is not just a new-event phenomenon for the U.S.”
Not too jinx things, since there are still a lot of medals yet to be one, but I think we can all be proud of the athletes representing America in this year’s Winter Olympics. Let’s hope the leadership in both overall medals and gold medals continues this week!
Share This ]]>A pilot slammed his small plane into a seven-story building that housed the local office of the Internal Revenue Service Thursday, apparently killing himself and one agency employee, in what federal officials described as a deliberate suicide attack amid a long-running tax dispute.
He left a note on his website which isn’t worth the time to read or repeating here. Needless to say, we all have feelings about paying taxes and politics, this just isn’t the right way to deal with that. Sadly, one IRS employee lost their life. Hopefully, his/her family will hold strong even after this senseless crime.
Share This ]]>The lesson that reality has shown is that there is only an extremely weak multiplier effect for government spending, meaning a dollar spent by the government does not spread throughout the economy in the way originally modelled by Keynes. Moreover and a lesson made clear from the 2009 stimulus bill – getting legislators to allocate money quickly and then spending it is nearly impossible. The tendency is for government spending to dovetail recoveries. This seems to be what is happening now:
The approach this week of the stimulus program’s one-year anniversary sparked a fresh round of dueling partisan statements, as Democrats sought to credit the effort with averting a deeper recession and Republicans said the program deserved a failing grade. But in terms of spending, the stimulus is largely incomplete.
As the economy is recovering, the influx of the majority of the U.S. stimulus money will make the recovery look stronger and more swift than it would be absent extra government spending.
I’m going to walk through this article and try and break down some of the points because I think it is worthwhile to understand the workings of a currency and a federal-style system.
No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.
The narrative that I have been reading primarily follows the line of fiscal irresponsibility on the part of Greece and Spain or the recession for Ireland. Some have also tried to blame speculators for the troubles plaguing the Greek government. The opinion that the article goes on to argue is that monetary inflexibility across borders amplifies these small issues when adjustments cannot be made at the national level.
The result was rapid growth combined with significant inflation: between 2000 and 2008, the prices of goods and services produced in Spain rose by 35 percent, compared with a rise of only 10 percent in Germany.
And there’s not much that Spain’s government can do to make things better. The nation’s core economic problem is that costs and prices have gotten out of line with those in the rest of Europe.
Sustained inflation can prove quite damaging for an economy. Think – if the cost of your goods increase by 25% more than your neighbor of an 8 year period, then your value menu goes from $1 to $1.35. As prices increases, wages also have to increase so those fast food workers can afford to pay an extra $0.35 for part of a meal. Spain’s goods just don’t stay within the country’s borders though. Now, all of the goods Spain exports are relatively more expensive than other parts of Europe, making them less competitive.
Central bakers have well-tested tools for combating inflation. Control of the money supply and the ability to devalue the currency could have assisted Spain. Had they retained their own currency this would have been possible. Of course, had they retained their monetary system, they wouldn’t have experienced the advantages of participating in the Euro. So, I’m not arguing and neither is this article that Spain should abandon the Euro to reinstate some form of monetary sovereignty, but for the Euro to be sustainable through financial and economic crisis, the EU will need tools to deal with problems like this.
It’s an ugly picture. But it’s important to understand the nature of Europe’s fatal flaw. Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.
Wait….what?
Gordon Brown said on Wednesday the world’s leading economies were close to agreeing a global bank tax, amid hopes in Downing Street that a deal can be concluded at the G20 summit in Canada in June.
The prime minister said those with the “broadest shoulders” should pay more, and insisted that the tax would raise “a substantial amount of additional money”. He admitted: “It’s not as high as you would like it to be because of avoidance.”
I actually have no intention of answering the question posed in the title of this post, far too challenging for a blog post and likely too soon to really tell.
I do want to make a point though. As a response to the financial struggles of the past nearly 2 years, how are the most powerful nations in the world coming to this conclusion?
Logic –
1.Banks were profitable throughout the 90’s and early 2000’s
2. Some of this profit was derived from crazy financial instruments lacking transparency or regulation
3. Housing market started to fall
4. Banks balance sheets reveal mortgages are heavily wrapped up in these crazy financial products
5. Financial meltdown
6. Bailouts
7. They’re starting to recover…apply tax
1-6 is a bit of history of the last decade or so, 7 marks what the quotes from the FT indicate. We’ve had this same discussion before regarding the oil industry and the auto industry. During the good times rent seekers like governments and unions like to go after the “extra” profits of corporations (many of which are owned by average citizens through retirement investments). In the run up to the 2008 election and during the summer of record gasoline prices, it was all the rage to levy a windfall profit tax on oil companies. During the recession and a period of falling oil prices, the oil industry struggled a bit. Too bad the government didn’t take more money during the good times, right? That seems so obviously wrong that I shouldn’t have to say so. Take the profits now so we can bail them out later…is that really the answer? The auto industry seems to confirm this as well.
Let’s use the example of an individual again to make this a bit more clear. Let’s start with Person A. In the first 10 years of his life, Person A makes a lot of money, but never saves any. Instead, A buys things for his friends. In the second 10 years, Person A struggles with the economy and goes bankrupt. Now Person B. Person B also does well or himself, but saves money along the way in the first 10. When the economy goes sour, he relies on his savings and investments that he’s made.
The example is a bit crude, but it’s clear that when A acts with disregard to the second period, he’s worse off than had he planned for the uncertainty of the second period. Academically, I think this falls into the category of bounded rationality and probably some other temporal phenomenon, but the point is that people value their immediate situation more. On a collective scale, this might explain the rent seeking activities of governments, unions, and even shareholders during times of growth.
On the other hand, this does not explain the current reaction to the financial crisis. Populist angst against banks seems to lead people to support policies like this. Struggling governments seem to frame it as an easy solution. However, considering the recession and financial meltdown does it really make sense to tax the group that just broke down? Furthermore, does this do anything to remedy the root cause of the financial crisis? It seems to do the opposite. Taxes often have a tendency to discourage behavior that is transparently taxable. Read another way – could this be a recipe for more complex financial products that regulators (including the IRS) don’t understand?
A slump in financial stocks sent the Dow Jones Industrial Average to its first close below 10000 in three months as concerns about the global economy and U.S. interest-rate policy simmered.
Here is a question no amount of searches on Google will help answer: Why did Google choose the one product it doesn’t need to advertise for its first Super Bowl commercial?
No commentary here, just some food/articles for thought!
The question to ask about the president’s eye-popping budget, also rolled out last week, is whether it prepares the country for its future—or shackles it to past decisions that our leaders would rather not confront.
This quote from an article written by the dean of the Columbia Business School summarizes many of my feelings on the subject of the size and budget of the U.S. government. Most of you probably heard recently about the $3.8 trillion Obama budget with future ‘plans’ for reducing the deficit. As I have said many times on this blog, budget deficits and national debt do not concern me too much. It certainly does not worry me nearly as much as a major meltdown of our financial system (which it appears has been avoided). But in the long-run a growing national debt can pose problems for the economic health of a nation. The analogous situation for an individual seems obvious: In the short-run using credit to purchase a car has great benefits – you can get to work and be productive. Using a credit card to finance monthly purchase regardless of your current cash flow and pay it back after you have your pay checks accumulated at the end of the month, makes sense. Taking out a loan to improve your house (although possibly questionable in the current housing market) can also make sense to increase the value of your home. In the long-run though, interests rates make the amount you owe sky rocket and your credit rating falls.
Even the NY Times is able to understand a reasonable approach to this problem:
No one is calling for balancing the budget in a single year. Yet small cuts now, with bigger steps such as limiting entitlement benefits in the future, might send a positive signal to the markets and perhaps spur the recovery.
What I can’t figure out is why the President’s budget and Congress aren’t taking this sort of attitude and putting it to work. I also can’t figure out why people mock the ‘tea parties’ going on around the country (which I’m not specifically endorsing, just observing a phenomenon in popular culture/media), but they laud to no end protests for global warming. Starting a popular political discourse for a slimmer, more efficient government seems like a great idea considering what the future could hold otherwise. I can guarantee if the government loses its credit rating, starts taxing at ridiculously high rates, and loses its credibility as a world financial leader no one is going to be too concerned about meeting CO2 reductions.
If someone in Congress or the White House can turn this around and by ‘this’ I mean the attitude that turns a blind eye to any sort of serious talks on fixing the budget and the fiscal status of the U.S. government, I would vote to re-elect them regardless of party or support them in their run for office. I have a feeling, though, that if I strictly hold that position, I might not be voting for anyone in 2010 or 2012.
Share This ]]>The U.S. economy surged at the end of 2009, a bigger-than-expected gain driven more by slower inventory liquidation than by consumer spending.
Gross domestic product rose a seasonally adjusted 5.7% annual rate October through December, the Commerce Department said Friday in its first estimate of fourth-quarter GDP.
Don’t read too much into this though:
“Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” the Federal Open Market Committee of policymakers said this week.
Not to say that this is not good news. Obviously, strong growth stats are great when compared to a year of the economy contracting. We should all be wary of over-celebrating two digits meant to estimate the aggregate activity of the world’s largest economy. Undoubtedly, this will appear in papers across the country and around the world this week. The WSJ does a good job of laying out what factors composed the growth and how those changed from last year or last quarter.
Here’s to hoping 2010 turns things around!
Share This ]]>Instability in Greece seems to indicated that a continental-wide currency can pose significant problems. If Greece doesn’t clean up it’s act, then Germany and France may be on the line for bailing Greece out to protect the Euro. In times of economic growth, affluent countries may feel charitable and have no problem doing this, especially when it directly benefits their shared currency. Now, where governments are rightfully more concerned with bailing out their own economies, this seems less likely.
The Lisbon Treaty is supposed to give the EU a united diplomatic front to present to the rest of the world. France and Germany aren’t too excited about giving up their abilities to represent themselves diplomatically. How can the EU be taken seriously as an entity if it only has meaning within itself and not internationally?
When the world’s policy and economic elite gather Wednesday in Davos, Switzerland, for the annual World Economic Forum, much of the talk will be about the rise of a “G-2″ world where the U.S. and China are the most important players.
A growing number of European policymakers and analysts say the EU’s international influence may have peaked thanks to a combination of political divisions and poor long-term prospects for its economy.
It is no surprise to hear that China and the U.S. are two major players in the world. But it is a surprise that the 21st century may take a swing back toward a bipolar world or at least a multipolar world with two strong, opposing poles.
Share This ]]>Previous Congresses along with the Bush Administration failed at the task of compromising and certainly paid the price for it. The Democratic response to that administration seems evidence enough. When you hold a position of power you have the ability to create enemies and allies and also neutralize former enemies.
To think that the absolute best idea for the country only comes from a single source, your party, stands as foolish and losing view. As much as people seem to enjoy mocking Americans, the American public recognizes what happens when a major piece of legislation passes. The Brown election does not give Republicans any sort of leading majority, not even close, but it will make it possible to filibuster. The Republicans do not have to filibuster to render this newly-found ability worthwhile; the threat alone of the filibuster creates a powerful incentive for compromise.
What could this indicate for Democrats in upcoming elections?
Other Democratic priorities are now also uncertain. Although they still hold substantial majorities in both chambers, nervous Democrats with an eye on November midterm elections could start to keep their distance from the White House.
This sounds similar to what happened to George Bush as 2006 rolled around, an election which saw the likes of Nancy Pelosi elected. Republicans began to distance themselves from the President prior to the election. This will be a struggle for the Obama Administration looking to pass several landmark bills in the near future.
One obvious outcome of the past year of the Obama Administration is the transfer of responsibility to him from the preceding administration:
Mr. Brown benefited from antigovernment sentiment, a sour economy and discontent with Mr. Obama’s agenda.
During the 2008 election, I felt extremely confident that the wave of anti-Bush euphoria pushing Democratic success could not last long, that view seems to be vindicated, at least in part. This is the challenge for the Obama Administration and Democrats heading into the 2010 midterm elections and the 2012 presidential election. How does the administration turn its accomplishments into something meaningful for people without attaching a huge ‘BUT”? That being, that the economy is still tough for people and it’s not clear we’ve done anything to prevent a similar financial collapse.
Regardless of your politics, this election makes the next year a little bit more interesting. The 2010 midterm elections will certainly end up as an important barometer of the country’s feelings.
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