On the airport bus in Helsinki, a Finnish woman asked my wife, “What is the biggest difference between Europe and the U.S.?” There are lots of possible answers, but the most striking to me is the tremendous diminution of mutual trust in the U.S. over the past few decades. Why does this matter economically? Because a number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.
From a loss-of-life standpoint, the Japanese earthquake/tsunami may well be at least five times more severe than 9/11. While natural disasters in the past have claimed more lives, it’s extremely rare for a developed country to suffer this kind of catastrophe. While the economic losses no doubt take a distant back seat to the human suffering, nonetheless there are many important economic questions to be answered. I can’t think of a better pair of people to do so than Anil Kashyap and Takeo Hoshi.
Economic trouble continues. In the U.S., where the Federal government has moved gradually at best to cut spending, the pain — especially at state and local levels — is still rolling in. (The U.K., meanwhile, went directly to austerity mode.) But there are green shoots to be seen, especially at the high end. Plastic surgery, for instance, is on the rise. (Depending on your worldview, you might consider this the end of the world rather than the start of a recovery, but still …)
A wealth manager I know sends out a quarterly letter to clients that summarizes his view of the economy and his resultant investing plans. Here’s a nice paragraph from his most recent letter…
What happens to eating habits in the face of unemployment? Nothing good, according to a new working paper by Dhaval M. Dave and Inas Rashad Kelly.
We’ve all done it. You’ve been introduced to someone, but forget his or her name. And so you spend the rest of the conversation studiously avoiding needing to refer to your new friend by name. Well, as far as I can gather, the same thing happened on Wednesday to Treasury Secretary Tim Geithner. He gave a talk at Brookings that was all about China, but if you didn’t know better, you could be forgiven for thinking he had forgotten her name.
The Brookings Panel on Economic Activity is pretty much my favorite conference each year. (It better be! I took over running the Panel with David Romer in early ’09.) I’ve found that the best way to keep growing as an economist is to embrace any opportunity to be the dopiest guy in a very smart room, and this latest meeting was no disappointment. I’ve been meaning to write about it for a couple of weeks, but time kept getting away from me. So I decided to try something different-I popped into the video studio to chat about some of the new findings presented at the Panel. Here are the highlights.
Here’s yet more evidence that a good economy is good news all around.
Anxious investors can take heart: Congress’s August recess begins at the end of this week, which has historically been a good thing for the markets. Michael Ferguson and Hugh Douglas Witte found that “about 90% of the capital gains over the life of the Dow Jones Industrial Average have come on days when Congress is out of session.”
From Dan Okrent’s recent Q&A about Prohibition: “No factor played a larger role in the repeal of Prohibition than the government’s desperate need for revenue as the country fell into the grip of the Depression.” In short: governments who hate vice suddenly hate it much less when cash flow is slow. And we are seeing that again today.
The Missouri Department of Natural Resources on July 28th ran what may be the first-ever online reverse auction for energy efficiency grants. The state allocated $3 million of American Recovery and Reinvestment Act funding in a series of three one-hour auctions by having 23 pre-qualified businesses bid on a $/kWh saved basis for projects that were expected to enhance energy efficiency. Grants with fixed dollar amounts were awarded to the bidders who promised the best (conservation) bang for the (grant) buck.
If you want to know how people around the country are shopping, just ask the retailers and banks and credit card companies who collect reams of data on consumer buying patterns.
East St. Louis, faced with budget shortfalls, will lay off 30% of its police force (19 of its 62 officers) after negotiations with the union failed. City residents and police officers worry the move will lead to a significant increase in crime.
With nearly one in ten American labor force participants out of work, it is clear that more needs to be done to stimulate hiring. Action is required, and I’m pleased to add my voice to those calling for a well-designed temporary hiring tax credit.
It may be the most emotionally powerful photograph to come out of the Great Depression: the well-dressed, unemployed business man hawking apples for a nickel on a city street corner. It’s a poignant image-the stoic gentleman attempting to preserve a vestige of dignity for himself and his family. But is it an accurate reflection of the era?
An interesting finding from a recent Gallup poll, reporting on, well, reporting. There appears to be substantial excess demand for insightful reporting on economic issues.
My latest Marketplace commentary returns to a topic I touched on earlier this week: the fact that when economists talk about a “recovery” being underway they are talking about something completely different than when Joe Public says he’s waiting for the “recovery” to begin.
There’s some debate about whether the economy has begun to recover. The consensus among professional forecasters is that the trough occurred sometime in the second half of 2009. But it doesn’t feel that way — which is why the latest Gallup survey is so interesting. Gallup researchers asked regular people how long until they expect the recovery to begin, and nearly half think we are three years or longer away.
Despite the recession, the Associated Press reports, U.S. crime rates continue to fall in 2009 compared to last year. Sociologists and crime experts are citing the economic stimulus, people staying home from lack of work, and even an aging population as possible causes of the drop.
I’ve been struck recently that as I talk to most economists, they think that the case for a further fiscal stimulus is pretty solid. At least that’s what I hear in the hallways and seminar rooms. But that’s not what I hear in the media; for some reason the most outspoken economists are the anti-stimulus folks. And so I did a short piece for Public Radio’s Marketplace yesterday on the need for more fiscal stimulus.
I thought it worth taking a closer look at the main arguments against the stimulus:
Yes, we already know the facts — income inequality has been increasing since the 1970’s. But it can be easy to lose sight of just how important this has been. This presentation of the data — by Claudia Goldin and my former thesis advisor Larry Katz, really hits home:
Reuters reports that the “cash for clunkers” program, which I criticized in an earlier blog post, has been removed from the stimulus package. I wish I could say that the reason for abandoning the program was that policymakers had come to understand the likely adverse economic consequences of the program. The real explanation, as usual, appears to be political, not . . .
As an economist, I am supposed to have something intelligent to say about the current financial crisis. To be honest, however, I haven’t got the foggiest idea what this all means. So I did what I always do when something related to banking arises: I knocked on the doors of my colleagues Doug Diamond and Anil Kashyap, and asked them . . .
What the stimulus package could do for a slump (Earlier) What computer science is doing for the elderly What the Super Bowl can do for your portfolio What the Super Bowl might do to your heart (Earlier)
With all eyes suddenly on the economy, thanks in large part I am convinced to the extra hyperbole produced by a presidential campaign, there is much talk now of what sort of government “stimulus” package may be offered. Without debating the value of Fed vs. legislative interventions, and without debating the potential long-term ills caused by such short-term interventions, let . . .