It's time to call in the big guns

Today's job report is dismal indeed;

Here is a chart showing the monthly numbers and consumer confidence:


And Krugman points out that:

Monetary policy obviously isn’t enough. It’s time to raise Keynes: we need big fiscal stimulus, now now now.

I agree with this. Financial stability is a necessary, but not sufficient condition for economic growth. The government needs to step in and provide real stimulus to the working class and the unemployed.

We are in for a lot of pain. Quoting Krugman again:

So the “worst recession in 25 years” thing is now baked in. The only question is whether we hit “worst slump since the Great Depression” territory.

The end of the permanent republican majority

From the NYT: Electoral Shifts

Where McCain performed better than Bush in 2004:



...and where Obama outperformed Kerry.

How is history made?

Newsweek tells you: Barack Obama: How He Did It

The point of production is ultimately consumption

Don't forget that the point of doing the work is to produce output. In this vein, the ability to show off data in a coherent and clear way is very important in this profession. I try to always improve my ability to visualize information, and I am always looking for great examples.

It is refreshing to see a mainstream publication like the New York Times spend so many resources in making sure they have top notch visuals. They are the best way to follow the results of their election, and their economic and other charts are always incredible.

For other samples, look here:

Visual complexity
Information aesthetics

There are many others, but you can see how there are some great ideas and tools out there. What is needed is for our profession to catch up, and for that the tools need to get better and easier (I'm looking at you, MS Office!)

Shhhh!! don't say the "R" word!!

Economist's View: Fed Watch: Ugly Numbers

Bottom Line: Incoming data are dismal, and will keep the Fed on the road to additional easing. There is room to cut rates further, at least another 25bp, and ongoing liquidity injections point to further swelling of the Fed’s balance sheet. But supporting growth in the near term is no longer within the Fed’s ability – the baton will be passed back to fiscal stimulus early next year

Tighten your belts!

Lets see what Obama will do and how fast he will be off the gates.

Is there any good news out there?

China:
Marginal Revolution: China Worry of the Day

It may already be too late, however, to shift smoothly from export to domestic consumption

I don't think that a shift from export to domestic consumption would do much for China. Exports only account for 1% of GDP growth in China, with the bulk coming from domestic consumption and investment.

Keep an eye on the ball

From the Dallas Fed, an interesting chart: International Economic Update, October 2008 - Globalization & Monetary Policy Institute - FRB Dallas

It shows what can clearly be seen as the start of the crisis (or when people noticed), but more worrisome is the aggravation that has occurred since the fall of Lehman.

I also should remind people against designing policy based on daily fluctuations of financial markets. It is tempting because detailed information on the health of financial markets is difficult to parse (which is why we let "the market" interpret it for us). So lets not be overly optimist, and rather be sober and professional in addressing the weaknesses that exist. /lecture

PS: can we please focus more on the crisis in the real economy? The consumer sector (~70% of US GDP) fell by 3.1%!! And as the rest of the world follows suit, what do you think will happen to US exports (the sole good news in the past few NIPA tables)?

The hazards of Moral

A friend has just started an interesting blog about economics with a Latin American bent. He writes in Spanish but I can vouch for his curiosity, open mindedness, and great work habit. Watch for him. Una Mente en Interdependecia

He brings up the issue of moral hazard and what to do about it. Of course, this is a topic where the discussion can easily turn to philosophy, but it is still a topic we must tackle for every major crisis has included this component. Investors price risks according to the possibility of being bailed out. "Too big to fail" etc. See Enron, S&L crisis, and today.

I don't think there is a way around it without regulation. I think this is the largest failure of the markets (benefits accrue to individuals while losses are socialized) and the greatest argument for regulation. In this sense, the price of deregulation, and the benefits of proper rules and enforcement must be included in any talk about the market. There is no such thing about public/private divide. The public sector is an actor, via policy and regulation, in the private sector. And the private sector is a strong influence on the public sector (sometimes vie large crises).

Back to your regularly scheduled crisis...

RGE - New recommendations to solve our financial crisis (and I admit that I was wrong)

One advantage we have over the folks of 1930: we know this song. The response of government leaders since the crisis started in December 2006 (when the mortgage brokers began collapsing) has been slow, reactive, and incremental. In many ways similar to that of President Hoover’s administration between 1929 and 1932. While recognition of the danger has been slow, action following recognition will be fast.

Also, we understand economics better. Keynes wrote The General Theory of Employment, Interest, and Money in 1936 (although the ideas it presents we in circulation much earlier). Plus we have the work of others during the past 70 years, such as Hyman Minsky and Milton Friedman. The gross policy errors made during the 1930’s — such as raising taxes and trade barriers — are far less likely today.

I made a comment to a coworker who asked me if I thought we had turned around after the latest round of announced stratospheric bailouts that I don't think we are near the end. I also said that the financial system won't collapse. Governments will pull out all stops to prevent it. There is no other option. My biggest worry wasn't in this troubling but needed market crisis, but rather on the impact on the real economy. Economic indicators have been pointing to a recession for some time now (see You know this but do you feel it) and lost production is a permanent loss in economic welfare.

I think we are or have been in a recession, but I don't much care about the label. Consumers have been feeling the pain for many years in the form of stagnating wages and wealth. Class warfare is very real in today's US economy (whether it is desired or not is up to another post). The ones who will need the greatest help will be the middle and lower classes. The ones loosing the most from the financial crisis are also the ones getting the huge bailouts, meaning they benefited from the risks without paying the consequences. But bailing them out won't help the real economy and if anyone thinks that consumers will borrow their way out of their slump, they are mistaken.

New recommendations to solve our financial crisis (and I admit that I was wrong)

This post was in my drafts, so I'll release it to clear the list.

From the RGE:RGE - New recommendations to solve our financial crisis (and I admit that I was wrong)

One advantage we have over the folks of 1930: we know this song. The response of government leaders since the crisis started in December 2006 (when the mortgage brokers began collapsing) has been slow, reactive, and incremental. In many ways similar to that of President Hoover’s administration between 1929 and 1932. While recognition of the danger has been slow, action following recognition will be fast.

Also, we understand economics better. Keynes wrote The General Theory of Employment, Interest, and Money in 1936 (although the ideas it presents we in circulation much earlier). Plus we have the work of others during the past 70 years, such as Hyman Minsky and Milton Friedman. The gross policy errors made during the 1930’s — such as raising taxes and trade barriers — are far less likely today.