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Monthly Archives: September 2010

Another story about an impending trade war between China and the US.

The U.S. Congress is considering legislation that would treat what lawmakers call China’s undervalued yuan currency as an export subsidy, a step that would give the U.S. Commerce Department increased ability to slap duties on Chinese goods.

The U.S. House of Representatives is expected to pass the bill this week, but its future in the Senate is uncertain.

“If we take this additional step, it’s going to continue this downward spiral,” Tim Stratford, a former U.S. trade official who was part of a delegation visiting Washington from the American Chamber of Commerce in Shanghai, told reporters.

This time at least there is a balanced look at the story, maybe even leaning toward criticism of the legislation. One story told there is about how China retaliated when Obama placed tariffs on Chinese tires last year. China placed tariffs on American chicken parts and a few US firms lost loads of money.

My mind always turns to the benefits of importing lower priced goods. Not only does that allow people to save or to buy more, it increases demand for all kinds of other goods and services. That can mean more jobs in other industries, more profits, and a better standard of living.

China is accused of attracting more customers by keeping the value of their currency artificially low. We should be thanking them for that.

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Young people in the US are building a new trend that rejects owning their own automobile.

“It’s a matter of mind-set far more than affordability,” says William Draves, president of Learning Resources Network, an association that studies consumer trends and provides education and training services.

“This generation focuses its buying on computers, BlackBerrys, music and software and views commuting a few hours by car a huge productivity waste when they can work using PDAs while taking the bus and train,” says Draves.

Moreover, in survey after survey, Gen Yers say that they believe cars are damaging to the environment. Even hybrid electric vehicles don’t seem to be changing young consumers’ attitudes much.

Living in China, I see my neighbors craving their first car, saving and borrowing heavily to buy as soon as they can. Then they sit in traffic for hours when their old bicycles would serve as more practical transportation. The car as status symbol is alive and  well here.

Though I have a typically American love of cars, I have found that living without one really simplifies one’s life and certainly costs less. I am glad to see some of the US is becoming a practical place to live without a car, and I hope China will soon get back to their bicycle culture.

Interesting story here that tells about a new study that has been published in the journal Science. The study claims that introspection has been linked to a particular area of the human brain.

Here’s how it worked: Researchers briefly showed 32 healthy people computer screens containing patterns, one slightly brighter than the rest, similar to tests used in eye exams. First, the volunteers had to rapidly choose which screen contained the brighter pattern. Because some people are simply better observers, the computer adjusted the level of difficulty to each individual so that the task was equally hard for everyone and no one could be completely sure their answer was correct.

Then the volunteers had to rate how confident they were in their answer. The idea: People with good introspective abilities would be more confident when they were right, and more likely to second-guess themselves when they really were wrong. People who are just brash and overconfident might lead an outsider to think they were right, but in reality wouldn’t show that correlation.

Brain scans showed the people’s introspective ability was strongly linked to the amount of gray matter in a spot of the prefrontal cortex, right behind the eyes, the researchers reported.

In addition, the study found people who were more introspective also had stronger functioning white matter in that part of the brain — the nerve fibers that act as a telephone system to allow cells to communicate with others.

The economics here might claim some relevance for improving labor or management performance, but that is not really the point here. It is, though, an interesting finding for anyone involved with education.

But much more research is needed to address the which-came-first question: Are these brain differences innate? Or do they reflect this brain region getting stronger as people try to spend more time monitoring their own mental state, meaning it’s an ability that might be improved with training?

It seems to me that many educators already treat this ability as something that can be improved–with training that involves reflection and dialogue.

Never have I heard that William Jennings Bryan was promoting monetarist policy long before Milton Friedman and Anna Schwartz published their ideas. This article claims that Bryan promoted and practiced monetary policy in fighting the US recession of 1893, predating the birth of formal monetarist economics by about 60 years.

The author (I can not find his or her name) also claims that increasing money supplies now is what the US needs, not Keynesian style fiscal policy. One catchy phrase, “deflation is more dangerous than cheap money,” is used to support the notion that our fears of inflation are misplaced right now. In fact, inflation would be good for many people–

Yet – as Bryan argued in 1896 – inflation is what we need. In an inflation, debts gradually melt, and depressed assets like houses begin to recover their value relative to cash.

Defenders of the administration argue that there is nothing more that the Federal Reserve can do — that it has already cut interest rates to zero, that monetary policy is exhausted. But there’s always more that monetary policy can do! As Milton Friedman famously proposed back in 1968, when all else fails, the monetary authorities can print money, load it into helicopters, and drop cash over the landscape. That’s stimulating!

It is also argued that money growth is a natural way to battle deflation, but–despite the observation of cheaper housing–I do not think the data backs-up the deflation argument.

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US President Obama has introduced a new stimulus plan, one that should have been introduced two years ago.

Obama, scrambling to spur job creation, proposed a six-year plan on Monday to rebuild infrastructure with an initial $50 billion investment and prepared new business tax cuts.”We are going to rebuild 150,000 miles of our roads — that’s enough to circle the world six times. … We’re going to lay and maintain 4,000 miles of our railways — enough to stretch coast-to-coast,” Obama told a labor rally in Milwaukee where several thousand supporters cheered his every line.

Of course, Republicans and some business leaders were quick to criticize the plan, but the real advantage of it is job creation. The first stimulus was focused on the financial industry. It did not lead to more employment because the subsidies did not lead to more investment.

The White House stressed the plan would not add to the record U.S. deficit, a key issue for voters.

“One thing (Obama) is willing to put on the table is closing some of the tax loopholes for big oil and gas companies that currently get subsidies from taxpayers that they certainly don’t need. He thinks that is a perfectly good ‘pay-for’ to get this up and running,” the administration official said.

Not sure that eliminating that source of campaign contributions is going to help with Obama’s re-election, but this should continue to attract votes among middle class voters. From an economic standpoint, this is a better example of the kind of stimulus Keynes suggested for pulling out of a demand-deficient recession. Let’s wait and see of the US congress can throw-off the chains of their election funding and do something for the majority of Americans.

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A short book review gives us a new perspective on problems in the US economy.

In the early 1980s, in a book called “American Journey,” I calculated that American corporate chief executive officers were making 30 to 40 times as much as they paid average production workers. Looking back at that, I see that I was surprised to learn that that ratio had increased from 25-to-1 in 1970 — and that in other developed countries the ratio was closer to 10-to-1.It seems now that I was easily shocked in the good old days. Today that compensation ratio goes from 300-to-1 to almost 1,000-to-1 in the United States, if you count various perks, including stock options and pensions.

Massaging those numbers produces rather startling results, as recorded in a new book, “Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned Its Back on the Middle Class” by Jacob S. Hacker and Paul Pierson, professors, respectively, at Yale and the University of California, Berkeley.

Apparently, the real message of the book is that American politics has become enamored–but probably bought off–by big business in the states. American policy has rewarded the rich at the expense of the poor and middle class and the voters have been vulnerable to marketing that works against their own interests.

It is sad, but the real problem is finding a solution. Bad income distribution does deter investment and development of industries that help most people. What are we gonna do?