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Tag Archives: recovery

The news seems more and more pessimistic about the prospects for recovery and growth in the west. Are Americans Worried About a Double Dip? was one story, and Strategies: A Market Forecast that Says Take Cover was another–just two of dozens of editorials written on the same theme.

It may be that this is partly a response to falling market values over the last several days. It might also be that investors are responding to negative reports by analysts and the shared pessimism becomes a self-fulfilling prophesy. A Bearish forecast brings down investment, jobs go missing, output drops, income drops, more bearish forecasts.

The traditional idea of the business cycle says that resource prices drop during a recession, and that brings new opportunities for investment and profit. Keynes explained that prices may be static for long periods of time, despite surpluses. While politicians have embraced Keynes’ suggestion of deficit spending, public fear of huge debt remains a big part of the argument, just as it did in the thirties.

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To jumpstart US job market, turn workers into owners–this is an idea I really like, but I doubt many business owners will turn this direction.

Seldom do the United Steelworkers, the United Nations, and film director Michael Moore express the same idea at the same time. But all have, in their own way, promoted the benefits of cooperative businesses in recent months.

Cooperatives–worker-owned businesses–are not at all a new idea, but I am glad to see it is gaining favor again. It is something I wanted to do with my restaurant some 26 years ago. The article cited here focuses on how cooperatives might help the US economy back to growth and high employment, but the real value of cooperatives is the proper placement of incentives.

Profit is typically the incentive of investors, but if it were also the incentive of workers imagine the potential for a really productive enterprise, with people going about their work because they really care about it.

Time to finally behead the paternalistic monster. That kind of management is not suited for a cooperative (it does not work anyway) and people are perfectly capable of motivating themselves if it is for the right reasons.

Utopian literature often introduces cooperatives as a model for their communities. Some people say it will never work, but I think it depends on the level of cooperation and realistic expectations.

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This story brings some perspective to the Obama administration’s plan to “renew its push for stimulus dollars to be directed to minority groups and women.” It is pointed out that–

Three-quarters of the recession’s total job losses have fallen on blue collar workers. Two-thirds of all Americans who have lost jobs are blue collar men. And more than four-in-10 of the total job losses are blue collar white men.

It seems obvious that a plan focused on minority groups and women will not be effective for a huge segment of the unemployed. It is pointed out that, because of the smaller number of black, blue collar workers, the percentage of–

(Black men) have suffered most as a group. The number of jobs held by white men has fallen by 6 percent. Hispanic men by 5 percent. But the number of black men employed has fallen by 11 percent.

It is also noted that women have lost a smaller percentage of jobs than men. So why focus recovery policy on minorities and women? It is vaguely suggested that the policy is based on outdated views of prejudice against those minorities. The statistics do not support that view.

I do wonder about something–I wonder if the unemployment statistics are skewed by different participation rates with unemployment benefits. Finding unemployment we only measure those looking for work compared to those working. It may be that white men have easier access to the unemployment lists, for whatever reason. Maybe some women–when losing a job–are more likely to just stay at home rather than go to the employment office.

Another question–Will policy create opportunities for those who have opted out of the system and are not counted as unemployed? Or will it focus only on those on the unemployment lists now?

This article claims that Ben Bernanke has probably been reappointed chairman of the Federal Reserve. However, the article’s real topic–the real argument–is that Bernanke and the Fed. are the most likely source of meaningful help for the economic downturn.

As my students will recognize, this is a very monetarist argument, dependent finally on the Quantity Theory of Money, where money supplies are the final determinant of production.

Another perspective (Keynesian) might argue that monetary policy is ineffective if people are unwilling to borrow even at low interest rates.  The following bit suggests that the Fed. recognizes this as a problem, but not much of an argument that these problems can be overcome.

He has ordered the Fed’s bank examiners to muscle banks into boosting their lending. This often requires an examiner to tell a bank that it should value a property used as collateral higher than it may want to. The Fed is also reviving the market for the bundling of loans for small businesses. And it is bending the arms of potential investors to put more capital into banks to increase credit.

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Tim Geithner, the US Treasury Secretary, has announced that the Obama administration can shift money away from the bail-out of financial institutions and direct it towards job creation instead.

Geithner said money was being repaid in greater volumes by banks and that he expected $175 billion to come back by the end of next year.

Ironic that this comes out on the same day that employment data comes out that is a bit positive.

The economy shed only 11,000 jobs in November, well below the 130,000 loss financial markets had braced for, while the unemployment rate unexpectedly dropped to 10 percent from October’s 10.2 percent, government data showed on Friday.

Stock prices are rising on the positive headlines, but it might not last. There is still 10% unemployment, just fewer lost jobs than predicted.

As written here long ago, the focus on jobs should have come with the initial bail-out.

beverly-hillbilliesA good editorial here about monetary policy, focused on the Federal Reserve and how it has dealt with the recession. Some valid criticisms here–rewards for the “imprudent financial firms at the expense of their more prudent rivals,” and a recent policy reversal that is poorly timed.

Then the amusing bit, critiqueing Bernanke’s claim that the recession was nearly over.

One doesn’t usually turn to old TV shows for economic insights. Yet the best way to put the Fed’s role in the recent crisis in perspective is by recalling an episode of “The Beverly Hillbillies” – the one in which Granny convinces everyone that a spoonful of her medicine can cure the common cold. Sure enough, it can: It just takes between a week and 10 days.

I like the mataphor. The message–of course–is that recessions are self-curing too, and Bernanke and money policy do not deserve credit for a recovery.

chinaascendingThe NY Times reports that Asia’s Recovery Highlight’s China’s Ascendance. This is something I predicted when US and China’s stimulus packages were introduced, and the statistics are coming out now. Though the US economy is still three times the size of China’s, it is China and the rest of Asia that is leading the world out of the global recession.

One question mark remains about China’s recovery, and that is whether Chinese consumers can make-up for the lost demand in exports to the US and Europe. One positive sign,  Chinese banks lent a record 1.1 trillion dollars in the first half of 2009. Another positive sign, US and European companies still find China a more affordable production location, and worker training has improved. As long as trade barriers do not become too popular, I think China will continue to lead the world out of recession.

Do you agree?

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marketToday stock markets in Shanghai, Taiwan, and Hong Kong have jumped to their highest levels since October. Reasons for the jump are said to be optimism over the recovery in China and–for Taiwan–the expectation that their markets will soon be open to Chinese investment.

My own casual observations might also fuel optimism on Chinese markets. I spent Saturday afternoon in a new shopping mall near our home in Suzhou. My daughter was there to experience the big indoor playground, but first we explored the mall, got a bite to eat, watched the crowds wander by. The crowds were big. The mall has only been open a few days, and there was a light rain outside, so maybe that explains the crowds, but I was surprised to see people shopping in what is supposed to be a big economic downturn.

But were people spending money? Hard to say. They were buying snacks and paying for the kids to get in the playground, but I don’t remember seeing many shopping bags around.

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africa_poverty-383x480146 million more people are falling into poverty, defined now as income of less than $1.25 per day. Like I mentioned here a couple of days ago, yes, the people most vulnerable to a recession are those that are marginally employed.

It is obvious that people with such small incomes are much more likely to spend an extra dollar or two if it was made available. Would it not make good sense to give all the bailout money to the poor? Not only because they need it more, they are much more likely to spend their increased income, increasing the multiplier and encouraging new investment

istock_000005241474xsmallInteresting article here that makes one very simple–but very important–point. Economic recovery is dependent on peoples’ attitudes as much or more than any amount off stimulus spending.

Congress could pass a law requiring more positive coverage of the economy by the news media.

OK, so that’s a tad unconstitutional. But the spirit of that plan does make an important point. Now that inflated asset values have been brought down to earth, many of our remaining problems are tied to a lack of confidence, fueled by what we read or see in the mainstream news.

Fact is that Keynesian fiscal policy will not work unless people spend the money they receive from the government. Without re-spending, the multiplier will drop to one and any increase in income is off-set equally by government debt. In that situation, the only justification for spending would be that government can spend more efficiently that the private sector, and few people would buy that argument.

What to do? Convince people that the economy is fine and that good investments will generate fair returns. Then people will spend their surplus cash and problem solved.

This is probably the thinking behind China’s apparent optimism, mirrored in Wen Jiabao’s speeches as he travels through Europe this week. The thing is, if no one believes you, the optimism is useless.