Strong opinions, weakly held

Tag: financial crisis (page 3 of 5)

Correlating the stock market with economic policy

Actual financier Paul Kedrosky posts at the Daily Beast, examining the argument that the stock market hates Obama’s economic policy:

But all of this is beside the point: The Barnes/Hannity market model isn’t how stock markets work anyway. Markets are, in the short run, a random walk, right up there with Brownian motion of molecules in a coffee cup. To the extent they even do anything semi-predictably, however, they rise on the rumor, and fall on the news. In other words, far from being surprised that two major and widely anticipated Obama announcements saw market declines, a more intelligent take is that things played out pretty much as expected. Saying otherwise is plain dumb, or maybe simply being grotesque and cynical.

Sell optimism

One line I see repeated a lot lately by Obama detractors is that he’s causing the stock market to tank by talking about economic catastrophe and talking about the tough times ahead. These people apparently miss the Bush days when our President’s outward stance was that he was oblivious to the real world we all live in, steadily projecting optimism in such a way that made him look detached and clueless.

In recent weeks we’ve learned that Japan’s economy is shrinking rapidly. AIG is going to report a $60 billion loss on Monday and will have to get more government loans or file for bankruptcy. California home prices are down to 2002 levels and falling.

Nassim Taleb says the current financial crisis is worse than the 1930s. George Soros says we’re nowhere near the bottom. Nouriel Roubini says the same. Alan Greenspan says we need to nationalize banks.

Given the amount of legitimate bad news that we’re seeing every day, I find it difficult to believe that investors are discouraged by President Obama. I think the desire to blame Obama (or others) for insufficient optimism is denial. How bad will the economy get? I don’t think anyone really knows, but it strikes me as foolish to err on the side of optimism at this point, and I certainly don’t want our elected leaders to downplay the crisis in a false attempt to get people to deny the reality around them.

Germany’s old car repurchase program

The Truth About Cars writes about a German program that pays drivers to get their old cars off the road:

The attack of the aging automobiles is caused by the Abwrackprämie, cash for clunkers, paid by the German government. Since January 14th, 2009, owners of cars nine years or older can collect €2.5K if they put the pile of rust out of its misery, and buy a new one.

In the beginning, the program was ridiculed. It’s not going to work, said many, owners of clunkers won’t buy new. The Green Party said it’s “a joke.” Quickly, the mood changed.

Polk Germany prognosticated that the program would result in seven percent more sales than in 2008, that’s 200K units. A few days later, a new study said 1.2m people would buy a new car because of the Abwrackprämie. Too good to be true, given that barely 3m new cars were sold in 2008, with gruesome losses in Q4 08 and an awful January.

This strikes me as a pretty good idea. For the most part, old cars get worse mileage, have worse emissions, and are less safe than new cars. It’s a simple idea but one that could be of huge benefit to the car industry, and have some environmental benefits as well. Sounds like stimulus to me.

The stimulus bill

ProPublica has published a very readable breakdown of the contents of the final version of the stimulus bill.

Nate Silver speaks for me

Nate Silver says everything I’d like to say about the bank bailout plan. Go read it.

He also gets at what’s frustrated me so badly about Paul Krugman over the past few weeks:

My anecdotal experience for the past several months has been that the more someone knows about the economy, the more they know (or at least are willing to admit to) what they don’t know. Anyone who is professing with certainty that this or that will work — nationalizing the banks, for instance — is an idiot.

Paul Krugman is a Nobel prize winning economist, and is deservedly recorded lots of respect and deference on these issues. But he doesn’t know what will or work in this situation. He has theories, but there are lots of people with theories, many of which are at odds with what he thinks. I don’t mind his criticism of the Obama administration, but I think his certitude serves him poorly.

On financial innovation

Viral Acharya and Matthew Richardson on the dangers of new regulations inhibiting financial innovation:

Some say that this inhibits financial innovation. We think this gets the issue wrong.

The goal is not to have the most advanced financial system, but a financial system that is reasonably advanced but robust. That’s no different from what we seek in other areas of human activity. We don’t use the most advanced aircraft to move millions of people around the world. We use reasonably advanced aircrafts whose designs have proved to be reliable. The same is the case with ethical drugs. Although we are now in a golden age of biomedical research, our goal is to sell only products that have been tested extensively.

Bank of America is evil

It’s possible that the banking industry deserves even less public sympathy than it currently has (if that is even possible). Bank of America is apparently having its estates department attempt to wring money out of survivors of its deceased account holders that they don’t legally owe. The economy is being held hostage by companies that are both incompetent and malicious.

Today’s post on economic stimulus, episode V

Arnold Kling deciphers two contrary outlooks on the economic stimulus package. One from Kevin Murphy and another from Brad DeLong.

It’s a great, short look at competing economic philosophies, and why there’s such difference of opinion regarding the stimulus package. I don’t agree with Kling’s conclusion, but his explanation is very much worth reading.

One of Murphy’s key criticisms of fiscal stimulus is that to some degree, it will pull private resources into the public sphere, where they will most likely be allocated less efficiently. As unemployment rises, the degree to which this will occur shrinks. Given that companies announced over 68,000 layoffs just today, these concerns would appear to be diminishing.

Today’s post on economic stimulus, episode IV

Tyler Cowen and Alex Tabarrok both lay out their alternatives to massive fiscal stimulus today. Both argue along roughly the same lines — play defense and wait for the measures already taken to work. Tyler also helpfully quoted Warren Buffett’s argument for stimulus yesterday.

It’s important to remember in this argument that nobody really knows what’s going to work and economists are relying on the philosophies that have gotten them this far. The main line of argument right now seems to be over the consequences if the policy we pursue misses the mark. Is it worse to not pursue fiscal stimulus and find that we really needed it or is it worse to run up a big deficit and find that doing so was insufficient to address the crisis?

Tyler Cowen’s call for civility

Tyler Cowen makes a good argument for increased civility in the debate over economic stimulus, but it could apply to plenty of other subjects as well. I’m in favor of not treating the people you’re debating as though they’re stupid or dishonest (even if you suspect that they are) simply because such treatment inevitably turns persuadable people on the other side away from your arguments.

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