Focus on Pro Growth Policies

A decent call to arms from Mohamed A. El-Erian.

[Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities. The economy needs political courage that transcends expediency in favor of long-term solutions on issues including housing reform, medium-term budget rules, pro-growth tax reforms, investments in physical and technological infrastructure, job retraining, greater support for education and scientific research, and better nets to protect the most vulnerable segments of society.]

If most of the jobs are not coming back, we need massive retraining leveraging the community college system and open learning systems, especially online delivery methods.

We need to raise the bar on math and science education starting from pre-K. Students should be spending 4hrs a day on math at least through 8 grade. Federal gov should mandate this, similar to the no child left behind mandate. Most school districts can implement this by asking teachers to use existing online curriculum, cutting back on areas such as social studies, increasing school time, supplementing face time with computer time, asking for the community for additional volunteers for k-5.

Within 10 yrs we can lay a decent foundation for the next generation.

U.S. Math Performance

Interesting report on Math performance by State!

Illinois, where I live is smack dab in the middle at 25!!!!

Our k-12 educational system focus on math from pre-k till at least 8th grade. They should be spending 4 hours a day on math, applied math and problem solving.

Proficiency of Black Students

Proficiency of Black Students Is Found to Be Far Lower Than Expected

This should be a no brainer for anyone who has had kids. Children begin the learning process in infancy and the groundwork for higher learning needs to be in place by 3 yrs.

[“There’s accumulating evidence that there are racial differences in what kids experience before the first day of kindergarten,” said Ronald Ferguson, director of the Achievement Gap Initiative at Harvard. “They have to do with a lot of sociological and historical forces. In order to address those, we have to be able to have conversations that people are unwilling to have.”]

The sad fact is that Liberals want to throw more money at grade school and high school to improve the lot of black children. They need to shift the scarce resources to early childhood and address the root of the problem; kids having kids.

Wonder if this research can explain the recent GOP rout of the Democrats in teh mid term elections.

[Logically, an unethical behavior performed yesterday should also be unethical if performed tomorrow. However, the present studies suggest that the timing of a transgression has a systematic effect on people’s beliefs about its moral acceptability. Because people’s emotional reactions tend to be more extreme for future events than for past events, and because such emotional reactions often guide moral intuitions, judgments of moral behavior may be more extreme in prospect than in retrospect.]

A Myth About George W Bush

The racism charge against Bush was vicious. Too bad most of those folks making that charge did not read up on his record. Here is an excerpt from a WaPo piece.

[While growing up in Texas and later serving as governor, Bush constantly befriended and worked with members of his state's Hispanic community and fought for the rights of immigrants. "Once children are in Texas," he said in 1995, "Texans know it is in our best interest and their interest to educate them, regardless of the nationality of their parents." In his gubernatorial reelection victory in 1998, Bush won 49 percent of the Hispanic vote and 27 percent of the black vote - a strong showing for a Republican in Texas. (It is unsurprising that, in his memoir, Bush reportedly describes the accusations of racism he experienced in the aftermath of Katrina as "the worst moment of my presidency.")]

The China Boom

Wow, eye popping statistics about students from China.

[While China’s students have long filled American graduate schools, its undergraduates now represent the fastest-growing group of international students. In 2008-9, more than 26,000 were studying in the United States, up from about 8,000 eight years earlier, according to the Institute of International Education.

The boom parallels China’s emergence as the world’s largest economy after the United States. China is home to a growing number of middle-class parents who have saved for years to get their only child into a top school, hoping for an advantage in a competitive job market made more so by a surge in college graduates. Since the 1990s, China has doubled its number of higher education institutions. More than 60 percent of high school graduates now attend a university, up from 20 percent in the 1980s. But this surge has left millions of diploma-wielding young people unable to find white-collar work in a country still heavily reliant on low-paying manufacturing.]

When Will Christina Romer Resign and Face the Music

For a year and a half Prof Romer has been saying fiscal stimulus is best. Now she thinks we have reached the limits of government!

Given this situation, the obvious question is: What more can we do? Here, it is important to emphasize that the crucial source of demand has to be the private sector. Especially at a time of large long-run fiscal challenges, there are limits on the role the government can play.

The Popular Press & Salt Water Econs Are Wrong about Eugene Fama & The Chicago School!

A very nice retrospective piece from one of the GREATS of financial economics!

[Vindicating Mandelbrot, my thesis (Fama 1965a) shows (in nauseating detail) that distributions of stock returns are fat-tailed: there are far more outliers than would be expected from normal distributions - a fact reconfirmed in subsequent market episodes, including the most recent. Given the accusations of ignorance on this score recently thrown our way in the popular media, it is worth emphasizing that academics in finance have been aware of the fat tails phenomenon in asset returns for about 50 years.]

Obamanoics Hurting The Economy

The Obama admin's economic policies are hurting the chances of a true recovery. Here is a nice analysis from Clusterstock.

'Over the next several months, thousands of individuals will face the end of their federal unemployment benefits. The typical interpretation of this reads these people as becoming the hopelessly jobless. Expect to see a lot of specualtion about whether the unemployment numbers are concealing the actual number of jobless people. That speculation is half-right. What's really happening, however, is that resources locked out of the jobs market start to re-enter the market. As long as unemployment benefits continue to pay people not to learn new skills or accept lower wage jobs, the recovery will remain anemic. The misallocation of human capital will remain stuck in place.

Of course, if the economy is not recovering, the loss of unemployment benefits can be devastating. We need to create new jobs in new businesses to soak up those now entering the jobs market. This is a tough task, especially since as many as 400,000 workers could be re-entering the jobs market. But it's a two-way street: employers who know that they will not face a labor crunch can more easily expand operations as the workforce expands due to the end of unemployment benefits.'

More EMH Bashing - interesting points

A decent read about the issues with EMH. During the last three years EMH has taken a hit, similar to the hits it has taken during previous down turns. Yes there will be some interesting data points to make the EMH better but, I suspect the underlying principle will stay intact.

On the limited value of informational efficiency vs allocative efficiency:

[Prices may indeed contain "all relevant information" but this includes not just beliefs about earnings and discount rates, but also beliefs about "sentiment and emotion." These latter beliefs can change capriciously, and are notoriously difficult to track and predict. Prices therefore send messages that can be terribly garbled, and resource allocation decisions based on these prices can give rise to enormous (and avoidable) waste. Provided that major departures of prices from intrinsic values can be reliably identified, a case could be made for government intervention in affecting either the prices themselves, or at least the responses to the signals that they are sending]

The Lack of Political Will, Will Be The Source of The Obama Depression

Interesting prediction:

'This depression will be a classic deleveraging, or resolution of debt. Debt will either be paid back or defaulted on. Since a lot can't be paid back, a lot of it will have to be defaulted on, which will make a lot of money disappear, which will make many people a lot poorer.

President Obama will be faced with a basic choice. He can either make the situation worse by offering more bailouts and similar moves aimed at stopping the deleveraging process - that is, continue what he has been doing, only perhaps twice as much, which may crash the system more rapidly - or he can recognize the larger trends in The Long Emergency and begin marshalling our remaining collective resources to restructure the economy along less complex and more local lines.

Don't count on that.'

Oooooh, this should get exciting. We might have a tit for tat trade war and at the same time deflate Obama's claim that green industries can create massive jobs in the US.

If it is cheaper to manufacture components else where then why would the US gov and the wind farm companies want to waste dollars purchasing US components. If the US components add more value, that would be a different story.

Globalization Works

More research showing that globalization works. From Paul Kedrosky

Using the official $1/day line, we estimate that world poverty rates have fallen by 80% from 0.268 in 1970 to 0.054 in 2006. The corresponding total number of poor has fallen from 403 million in 1970 to 152 million in 2006. Our estimates of the global poverty count in 2006 are much smaller than found by other researchers. We also find similar reductions in poverty if we use other poverty lines. We find that various measures of global inequality have declined substantially and measures ofglobal welfare increased by somewhere between 128% and 145%.

Why Can't the NYTimes Fire Paul Krugman for making up stuff

If the Times had any sense of integrity they should can Paul Krugman for making up stuff and spreading falsehoods.

Case in point, Krugman's trashing of SuperFreakanomics.

From Ari Armstrong

[So where do Levitt and Dubner claim that global cooling was the consensus in the 1970s? They don't say that. Krugman just made that up. Talk about grossly misrepresenting other people's research.

Where do Levitt and Dubner imply that Weitzman's paper urges weaker action on global warming? They don't imply that. Krugman just made that up. Because it's "just the basic issue of representing correctly what other people said."]

From Greg Mankiw

[Paul is rebutting claims I did not make, and he is giving Team Obama more credit on this question than it is due.]

Shame on the NYTimes for keeping Paul Krugman.

The first academic analysis of the investment in banks by the Treasury in 2008 using TARP was worth it.

[We analyze the market response to the revised Paulson plan and show that, systemic

effects aside, this plan adds $132bn to the banking sector at a taxpayers cost of between

$15 and $47bn, with a net benefit between $84 bn and $107bn.]

Continued from the previous post:

For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession—making many less creditworthy. Second, some sources of funding for small businesses—credit card borrowing and home equity loans—have dried up as banks have responded to rising credit losses in these areas by tightening credit standards. Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough to accommodate more than a small fraction of the demand from this sector.

All of these factors will tend to inhibit the pace of the economic recovery.

How the Economy Will Bring Down Obama pt 3

Continued from the previous post:

The third, and perhaps most important factor, is that the banking system has still not fully recovered. Bank credit losses lag the business cycle and are still climbing. Thus, while banks’ access to the capital markets has sharply improved, banks are still capital constrained and hesitant to expand their lending. Most importantly, some significant classes of borrowers—namely commercial real estate and small business—are almost wholly dependent on the banking sector for funds, and those funds are not easily forthcoming.

How the Economy Will Bring Down Obama pt 2

Continued from the previous post.

The second force that could restrain the recovery is the fiscal outlook. The fiscal stimulus that is currently providing support to economic activity is temporary rather than permanent. This has to be the case if we are to ensure that fiscal policy is on a sustainable path over the long-run. This means that the positive impulse from fiscal stimulus will abate over the next year.

How the Economy Will Bring Down Obama pt 1

In about three years the GOP will ask the voting American public the same question Ronald Regan asked when he ran for President against James Earl Carter; 'Are you better off today than four years ago'. If the current Fed Reserve forecast is correct the answer will be no. That will lead to the defeat of Obama. Here are the remarks from the Fed.

From ZeroHedge:

The shock to household net worth seems likely to have several important implications for household behavior. The shock creates a risk that the household saving rate could increase further. For example, during the period from 1990 to 1992, the household saving rate averaged about 7 percent of disposable personal income, considerably higher than the 4.3 percent average rate during the first half of this year. If the household saving rate were to rise, then consumption would rise more slowly than income, making it more difficult for the economy to develop strong forward momentum. In addition, it seems likely that some workers will respond to the wealth shock by postponing their retirement. This suggests that the labor force participation rate may rise once labor market conditions improve. This would tend to push up the unemployment rate, all else being equal.

The source of Obama's stimulus push seem to come from Christina Romer who thought that FDR did not spend enough during the Great Depression. From the New Yorker:

One of her key papers as an economist at the University of California at Berkeley, where she had spent the previous twenty years, showed that, contrary to popular belief, Franklin D. Roosevelt’s spending programs hadn’t pulled America out of the Depression. (She found that monetary policy was the key factor.) Conservatives had seized on the paper to disprove the efficacy of fiscal stimulus, but Romer’s point wasn’t that Roosevelt had spent too much to no purpose; it was that he hadn’t spent enough. When faced with a severe recession, she believed in overwhelming force.

It seem intuitive to state that the 1940s and 1950s was an unusual time in world economic history because the US was the only viable and growing economy; producing everything the world wanted and employing Americans. FDRs huge budget out lays were recouped from taxes paid by various participants in this growing economy.

But today it seems like there is a lot of competition from other economies and the US would not be able to recoup the large federal deficits through growth. History never repeats but it does rhymes. In this case it seems that the ideologues have latched on to academic research that may not be relevant. Let's see what happens.