Daily Archives: January 21, 2010

Heart

Well done, from the tumble log, Where is F. ?
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China vs the West: an economic experiment

It’s not often you see economic idea laboratory tested, so to speak, but as Matthew Yglesias shows, that’s exactly what we have seen in comparing the West’s approach to the Great Recession as opposed to Chin’a approach. As he points out:

When the world entered a major downturn, China applied major stimulus. Really across the board stuff. …The government spent money, they did credit easing, they stimulated consumer demand (”retail sales rose 16.9 percent in 2009″), they did infrastructure, they did exchange rate policy, they did a lot. People warned that all this stimulus might create inflation, but China kept doing it anyway. Now, GDP growth is back on track and there’s actual evidence of inflation happening so they’re looking to pivot. Policymakers in the developed world—especially Europe—have, by contrast, spent much of the past twelve months doing the equivalent of worrying about a flood while standing in a burning house.

As a result, China’s ecomomy is taking off and their Central Bank is worried about inflation. Meanwhile, in the West, the central banks act like they are worried about inflation, but without the economic growth to cause inflation, I am not sure what they are worried about. It is the rest of us in the West who are worried, and it’s not about inflation.

I.F. Stone, the UK Guardian and the future of journalism

When I think of print journalism, I think of journalists working the phones and going to press conferences to gather news. However, that is not the only way to do it. Indeed, the famed journalist I.F. Stone had a different yet very successful way of working. His “journalistic work drew heavily on obscure documents from the public domain; some of his best scoops were discovered by peering through the voluminous official records generated by the government”. It looks like the Guardian is supporting something along similar lines as it launches a search engine for government data. As the article in the link states:

The UK Guardian, ostensibly a newspaper but a major proponent for opening data held by governments to use by outside software developers, has launched some software of its own: a search engine that unearths datasets and pathways to data sets provided by governments around the world. World Government Data Search is now live.

In effect, The Guardian is enabling the new generations of I.F. Stones to muckrake and report on what is happening in the government. We are going back to the future.

Paul Volcker and the return of Glass Steagall as part of Obama’s long term plan

Whatever you think of President Obama’s policies, one thing to note about him is that he plans long term. When he brought Paul Volcker onto his team, I first wondered if it was just window dressing. Volcker all but dropped off the radar until recently, when he has been saying scathing things about the big banks. Now there’s this: Obama to Propose New Limits on Banks – WSJ.com. In this article, the WSJ says that…

“Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.”

Why does any of this have to do with the long term? This could have been done anytime in the last year. Instead, Obama shored up the banks and let them more or less do what they wanted. And what did they do? They went on to rake in some serious profits and pay out some huge bonuses, much to the dismay of Obama’s supporters. However, Obama in the short term has focused on the more difficult task, which was Health Care Reform, while cajoling the banks to show some restraint (which they did not).  Once that is settled, one way or another, Obama will pivot towards bank reform, which is what he appears to be doing now. Just in time for the 2010 elections. Which is the plan.

After that, the plan will be to work on climate change, propose improvement to health care reform,  complete the draw down of forces in Irag and Afghanistan, and get the economy in the best shape it can be for the U.S. presidential election. That’s the long term plan. Watch.