Sunday, December 7, 2008

My faves for the day (December 7, 2008)

Let’s see what the blogosphere has for us today:

From HSH Associates, Budget Cuts Lead to Creative Advertising finds that California teachers are selling ads on quizzes, tests and final exams: “A California high school teacher has thought up a genuinely creative way to raise money when he learned he and his fellow teachers’ printing budget had been cut from $500 to $316 a year. Calculus teacher Tom Fraber decided to sell ads at the bottom of his tests and quizzes”

RW: Honestly, why so much for the final? Is the underlying theme here that students spend a lot of time twiddling their thumbs in the middle of a final, leaving plenty of time to view the ad?

From the Drudge Report, Job Numbers Even Worse Than Reported “The number of people who were outside the labor force -- that is, neither working nor looking for work -- rose by much more than the 251,000 newly unemployed workers the Labor Department reported. An additional 637,000 people aren't counted as unemployed in the government's statistics because they are not looking for work.”

RW: Actually, this shows up in the labor force participation rate, which declined 0.3% to 65.8%.

From Economist’s View, Rubber Stamp Agencies “But when agency relationships are broken, i.e. when the profit motive of the ratings agencies provides incentives that are not fully compatible with the best interests of investors who purchase the securities, and when the interests of the ratings agencies instead become aligned with the firms issuing issuing the securities they are rating, problems are bound to develop”

RW: And still, there is no alternative. Amid serious criticisms of credit ratings by Moody’s or S&P, firms try their dardest to cling to these so-called ratings.

From the Baseline Scenario Causes: Where Did All That Money Come From?: “Second - and this was supposed to be the topic of this post - it takes two to tango. If the U.S., seen as a single unit, borrowed a big pile of money, that’s because someone else lent it to us - and lent it to us cheaply. And while China isn’t the only country that lent us money, it was the major new lender of the last decade.”

RW: Could it be that this financial crisis is the catalyst that rebalances key current account imbalances? Please read this article by Martin Wolf at (registration is free)., Global imbalances threaten the survival of liberal trade.

And from the Financial Times Obama lays out stimulus plan: “Mr Obama’s decision to call for specific action at this stage in the transition breaks historic precedent and comes in marked contrast to the studied indifference that Franklin Delano Roosevelt maintained during the much longer transition from Herbert Hoover’s disastrous presidency in 1932 and early 1933. It also provides two key pointers as to how Mr Obama might conduct his presidency.”

RW: Even the Financial Times is doing it – comparing our current environment to the Great Depression. Notice that the article points out that FDR took the office in 1933 – that is over 3 years after the Depression started (August 1929). Obama will be taking office 1 year after this recession started, and during that year the Fed has been on its toes and a separate rebate program had been put in place. This is nothing like the policy follies that were made during the Great Depression.

Kerry Hawkins shows us Boston's first snow!

Rebecca Wilder


  1. Rebecca: Robert Mundell has been making news lately calling for a one year cut in business taxes to zero percent followed by a later readjustment to 20%. Intuitively this sounds like a much better method of simulating business growth than saving poorly run businesses via government bail outs. Main street is worried about jobs, and a good way to help job growth is to decrease the taxes on busenesses, hence adding to their efficiency. What are your thoughts on Mundell and his ideas?

  2. And, today is December 7th, a day that should live in infamy but we are starting to forget. An editorial here pointed out that the USA was in much more dire straits on that evening in 1941 than we are now - and still in the "great" depression. Let us reflect a bit and refocus. Thanks for the outlet... aj

  3. Hi dmg555,

    Yes, Mundell is pushing a broad-based (meaning finance, manufacturing, etc) corporate tax holiday of up to 20% for one year. When capital investment - machinery, computers, even commercial real estate - is coming to a grinding halt and then reversing, a corporate tax cut would surely be a fantastic expansionary fiscal policy that may actually produce some investment growth going forward. I have a friend in venture capital, and he was very, very disappointed when Obama won - mainly because the Bush tax cuts would be repealed. No tax incentives, no or very little venture capital.

    You don't have to be a supply-sider to know that a tax cut is a fiscal stimulus; Kennedy did it and Reagan did it. Out of 30 developed and emerging economies, the U.S. corporate tax rate is the highest - 35% (you can see this here,3343,en_2649_34533_1942460_1_1_1_1,00.html). I'll take a corporate tax cut over Congress' hodge podge of new spending any day.

    Have you seen Stefan Karlsson's blog? He is great and of the Austrian school of thought:

    Thanks for the comment!


  4. Real-gdp fell (-.5% 3rd qtr).
    The PCE price index increased 5.2 percent in the third quarter, while the CPI increased 6.7 percent (i.e., economic stagnation coupled with inflation or stagflation).

    Financial assets are down. Commodity prices are down. Real-estate is down. Incomes are down. Tax revenues are down. Corporate profits are down. Credit has been curbed. & unemployment is up.

    "Aggregate demand" is down (i.e., the rates-of-change in MVt are 5-6% below an adequate monetary policy target). This fits with lower consumption, investment, exports, state & local government spending, etc.

    Only the Federal Deficit is up, and it has lost it's validity to rescue the country from economic contractions (savings are not sufficient to float government debt and simultaneously finance an expanding economy-recovery).

    Only direct controls can cope with the current downswing. I.e., the U.S. has reached the stage where it will be forced to resort to a "command economy" (e.g., the big 3 auto makers) to cope with this recession/depression.

  5. thank you so much rebecca for that reference and your thoughts :)