Category Archives: economics

Is the FED broken? Some random thoughts.

Is the FED  (Federal Reserve System) broken? If not broken then certainly being strongly tested, as this piece shows to me: The Fed Is Searching for a New Framework. New Minutes Show It Doesn’t Have One Yet. – The New York Times.

Since the start of the Great Recession, the target interest rate has gone from just over 5% to just over 0% and has more or less stayed that way for over half a decade. (See the chart). After a very long pause, the chairwoman of the Federal Reserve has begun the process of raising interest rates,  a process that her predecessors have engaged in over recent decades as they put their own distinctive stamp on the economy. (See A History of Fed Leaders and Interest Rates – The New York Times). Some of them, like Paul Volcker, have been hugely successful in shaping the economy. Others, like Alan Greenspan, also have shaped the economy hugely, but I would add, unsuccessfully. So what should the FED do?

Paul Krugman has his take, here. Perhaps an extreme inflation target is the answer, just like Volcker’s extreme interest rates were the answer for their time. However, I don’t think they are symmetrical, and the goals of a higher inflation target would be dampened down by other forces. Furthermore, the FED and most other central banks seem only capable dealing with tamping down inflation and not so capable when dealing with unemployment.

The Chairwoman is signalling she will be raising rates soon. We should see what the effect is, and how the economy and President Trump and Congress responds. If the economy goes into a recession, that would say to me the FED is broken.  If the economy does not go into a recession, I would say this means the FED still has a limited role in managing the economy. Let’s see.


Uber is reaching an inflection point (and may be reaching a crisis point)

Why? According to Bloomberg:

After touting profitability in the U.S. early this year, the ride-hailing company is said to post second-quarter losses exceeding $100 million.

A main source of the losses: subsidizing Uber drivers. As Christopher Mims commented on Twitter, “So Uber is a giant machine for transferring wealth from venture capitalists to underemployed Americans”. This is both clever and something that can’t go on indefinitely. It makes clearer to me now why Uber is keen to make self driving cars work. Sure, Uber could charge more for cabs or pay cab drivers less, but in either case, they risk losing market share.

The losses this quarter certainly are an inflection point. It remains to be see if it is a crisis point. That will depend on how the VCs see this loss. I believe they will have patience and they haven’t reached a crisis point yet. Uber should hope that their investors have the same patience that Amazon’s investors have.

For the rest of the story, see: Uber Loses at Least $1.2 Billion in First Half of 2016 – Bloomberg (Image above via the Bloomberg article)

Is facadism/urban taxidermy bad?

In this piece, Are we killing Yonge Street? from NOW Toronto Magazine, there is a good discussion on what is happening to development on Yonge Street in Toronto. NOW reports that for a lot of development happening on Yonge Street, the facades of the existing building are kept and much of the development is happening behind it. The article argues that this is a bad thing, and they raise some good points.

What I think they don’t touch on are some of the alternatives. Toronto is fortunate in that there is development ongoing. For poor cities, the alternative is boarded up or demolished buildings and vacant neighborhoods.  Instead, we have neighborhoods and buildings being improved. That’s good.

Another alternative is the old buildings being torn down and replaced with new storefronts and new buidlings. I think some of that is good, but I also think preservation of old buildings is also good.

When it comes to preservation and improvements of old buildings, I also think that some of them should be preserved outright. However, Toronto is a growing city, and in some cases, we need larger buildings. In that case, facadism is a good compromise.

Now whether or not facadism is effective or not depends on at least two things. The first is how well the new architecture uses the existing architecture. Done well, the marriage of the old and new building results in something that enhances the area and preserves the city while allowing it to grow.  The second thing that determines if facadism is effective is how the new building affects the neighborhood. Here, I think, is the root of the problem. It’s not so much facadism as it is gentrification. Old buildings get preserved, but old stores do not. New developments can cause rents to rise, driving out the stores and organizations that made the neighborhood great. You get bank branches and big chain stores replacing old bookshops and cafes.

I hope the next phase of development tries to understand how to preserve not just the existing architecture, but the neighborhood as well. I realize that is a difficult task, but it is one worth trying to accomplish.

Nate Silver and Paul Krugman on the importance of good models to understand and predict

This piece by Nate Silver, How I Acted Like A Pundit And Screwed Up On Donald Trump in FiveThirtyEight, is ostensibly about how he messed up in his predictions on the rise of Donald Trump. What I think is worth reading is how he goes about his work and what he learned from his mistakes. Specifically, it’s a great study on how important models are and how a good model works and what it can tell us.

Related, Paul Krugman talks about his model here: Economics and Self-Awareness in The New York Times. Like Silver, he uses models both to understand and predict. Obviously they are modelling different things, but in both cases good models are the basis of their thinking and the work they do.

It’s likely too much to ask now, but eventually anyone doing analysis and making predictions should have to disclose the models they are basing their decisions upon. The opinions of anyone not having such models are likely not worth much.

Detroit: imploding city

While I knew things were rough in Detroit, this story, Volume of abandoned homes ‘absolutely terrifying’ (from, gives you a context of just how incredibly bad it is. Two take aways from that story. First, this statistic:

Since 2005, more than 1-in-3 Detroit properties have been foreclosed because of mortgage defaults or unpaid taxes

Two, this map of foreclosures:

The situation is terrible, but the story is worth reading and the visuals (e.g. a bigger view of that map) really illustrate the damage. Worth reading, especially if you have recently read some pieces, as I have, of good news coming out of Detroit.

An astounding interview of Yanis Varoufakis

This New Statesman interview of Yanis Varoufakis is astounding. The way he describes negotiations between Greece and other members of the Troika should not surprise me, and yet it does.

You might think: that can’t be right….he’s exaggerating for his own benefit. But many of the things Varoufakis states I have read referenced elsewhere, but in snippets.

Well worth the time spent reading it.

P.S. He has some interesting things to say about Piketty, as well. The link to his critique of Piketty is here.

Economic inequality is rising, plain and simple.

As this piece at Vox shows , economic inequality really is rising, no matter how you fuss with the data. Possibly because of the skepticism from some, Vox explores this using differing analysis. The conclusion is always the same: economically, things are getting worse.

Data aside, this anecdotal argument at the end of the piece nails it for me:

Outside the sphere of political debate, you also see the real world impact of inequality. Merrill Lynch recommends an investment strategy to its clients based on the growing economic clout of plutocrats, Singapore Airlines is now selling $18,400 first class cabin tickets, and observers think Apple is going to start selling a $10,000 watch. Conversely, Walmart is now primarily worried about competition from dollar stores. The executives at these companies are not hysterical liberals trying to drum up paranoia about inequality, they are trying to respond to real economic conditions — conditions that have entailed very poor wage growth paired with decent returns for those proserous enough to own lots of shares of stock.

Worthwhile and recommended.