Monday, February 23, 2009
Friday, February 20, 2009
Paul Krugman is at his best in yesterday's article – explaining real world economics in understandable ways. His article talks about how we can get out of this recession, and his analysis is not encouraging. Here is a nice passage that would be very helpful in an introductory macro class:
So will our slump go on forever? No. In fact, the seeds of eventual recovery are already being planted.
Consider housing starts, which have fallen to their lowest level in 50 years. That's bad news for the near term. It means that spending on construction will fall even more. But it also means that the supply of houses is lagging behind population growth, which will eventually prompt a housing revival.
Or consider the plunge in auto sales. Again, that's bad news for the near term. But at current sales rates, as the finance blog Calculated Risk points out, it would take about 27 years to replace the existing stock of vehicles. Most cars will be junked long before that, either because they've worn out or because they've become obsolete, so we're building up a pent-up demand for cars.
The same story can be told for durable goods and assets throughout the economy: given time, the current slump will end itself, the way slumps did in the 19th century. As I said, this may be your great-great-grandfather's recession. But recovery may be a long time coming.
David Brooks, on the other hand, in the aptly titled "Money for Idiots," makes the case for government intervention, and explicitly addresses the moral hazard problem involved with bailing people out when their problems are the result of bad choices:
The stimulus package handed tens of billions of dollars to states that spent profligately during the prosperity years. The Obama housing plan will force people who bought sensible homes to subsidize the mortgages of people who bought houses they could not afford. It will almost certainly force people who were honest on their loan forms to subsidize people who were dishonest on theirs.
These oscillations are the real moral hazard. Individual responsibility doesn't mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate.
It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order. And the sad reality is that in these circumstances government has to spend money on precisely those sectors that have been swinging most wildly — housing, finance, etc. It has to help stabilize people who have been idiots.
I do not have much confidence in my own understanding of the macroeconomics involved, but it seems to me that the issues in these two articles are central to understanding the times we are in.
Tuesday, February 17, 2009
He hypothesizes that the economic crunch will get U.S. Americans back to thinking about an eco- and pocket-book friendly lifestyle - inner city, pedestrian/bicycle centered, etc., you know, like Amsterdam, he says.
"Well, Amsterdam is a wonderful city, but Americans never seem to want to live there. And even now, in this moment of chastening pain, they don’t seem to want the Dutch option."
He cites several conclusions from a recent Pew study suggest that, well, no really, we still want urban sprawl. We still want a spread out, car-dependent lifestyle, although now we want it with some scenic views - hence the preferences for Denver, San Diego, Portland, San Antonion, and the like. And, we still prefer McDonalds (for its drive-through, he takes that to mean) than to Starbucks (for its casual conversational, urban lifestyle I think he believes it stands for).
So, his conclusion is that:
"And that [McDonalds prefs > Starbucks prefs], too, captures the incorrigible nature of American culture, a culture slowly refining itself through espresso but still in love with the drive-thru. ...The results may not satisfy those who dream of Holland, but there’s one other impressive result from the Pew survey. Americans may be gloomy and afraid, but they still have a clear vision of the good life."
I had a different reaction to the Pew survey results. We are gloomy, afraid, and have a clear vision of the good life - for me - not for an entire community. We have a long ways to go before urban policies actually look at the effects of polices on the most vulnerable, too. Of course no one in the Pew survey wants to live in the city, who in their right mind, let alone those with kids, would want to live in the U.S. inner cities as they are now with horrible schools and crime poor infrastructure. They are the result of long years of tax and zoning polices that cared nothing about the effects on the community, only on the individual, and mostly the wealthy individuals, at that. And the point about McDonald's is not necessarily about drive-through. It is also an indoor playground that is actually one of the few places families can go with their kids and relax and be with other adults at the same time. Much more Amsterdam-like than what most of us would assume. (Yes, I admit, I have many hours of experience with that.)
Friday, February 13, 2009
Blue State people, on the other hand, chase their Zoloft down with iced chai while they listen to twelve hours a day of public radio programming which ceaselessly and thoughtfully points out in genteel and condescending tones that we are all pretty much screwed.
Of course, now, even the regular news concurs with that.