“The alternative to a huge fiscal stimulus is simple: enough pro-active fiscal policy to ensure that cuts in state and local spending do not bring additional contractionary pressure to bear on the economy. Otherwise bear the costs of the ongoing sectoral shifts and allow consumption to decline as indeed it must sooner or later. Aggregate demand macroeconomics really does matter, but it is easier to do badly from negative shocks than it is to engineer good results from expansionary shocks. ” — Tyler Cowen, economics professor at George Mason University, stating the alternative position to Obama’s fiscal stimulus
Monthly Archive for December, 2008
“Now, I know the comparison between Palin and Caroline Kennedy is not perfect. Each has strengths where the other has weaknesses, and the jobs of senator and vice president aren’t identical (the former actually has more responsibility, for starters). But the comparison is nonetheless revealing. Palin’s selection triggered troughs of bile, vomited up from nearly every respectable liberal quarter. A Florida congressman, and Obama surrogate, insinuated that Palin was a “Nazi sympathizer” and anti-Semite (she’s not, but Caroline Kennedy’s grandfather was). Her by-the-bootstraps story was ridiculed by nearly every ex-debutante newsreader and avowed “feminist” in America. Meanwhile, Caroline, with a resume perfectly suited to being a Kennedy and little else, is a Cinderella who deserves a Senate seat because, well, she just does.” —Jonah Goldberg, dissecting the different treatment Palin gets vs Caroline Kennedy
“Detroit needed to do a lot of things in the 1970s. It needed to get better engineering, it needed to get control of its assembly process, and yes, it needed to lower labor costs. But it did none of these things. By the early 1990s, Detroit wasn’t even trying very hard to make a profit on cars. Detroit was making profits on light trucks, where the higher sticker price made it easier to hide labor costs (and which foreign companies were not, anyway, very good at making). It’s worth noting that Detroit’s focus on light trucks was not merely a management decision; it was what the powerful unions wanted, because they knew the math as well as management. Light truck plants were better for the UAW than more Ford Focus capability. ” — Megan McArdle, explaining how the Big Three got to where they are today
“…zero interest rate policy. And it has arrived. America has turned Japanese. This is the thing I’ve been afraid of ever since I realized that Japan really was in the dreaded, possibly mythical liquidity trap…Seriously, we are in very deep trouble. Getting out of this will require a lot of creativity, and maybe some luck too.” — Paul Krugman, winner of the 2008 Nobel Prize in economics
“There is absolutely no way whatsoever that GM has any hope of profitably making a car with labor costs higher than their competitors. Their labor costs should be lower than their competitors, because they have to sell their cars at a steep discount. Even if we somehow magically revolutionize the management tomorrow and get them steep discounts on their debt, it is going to take them years to rebuild their brand to the point where they can charge comparable prices to Japanese cars. GM cannot afford to pay its workers more than the competition in that situation.”–Megan McArdle, blogging in the Atlantic…more here and here.
“What are the auto workers being asked to do? Set a date for accepting wages comparable to those paid at other auto plants in America. Now, we can argue about how much of a role labor costs play in the Big Three’s problems. But I think most people should be able to agree that a company on the verge of bankruptcy, which is losing a ton of money on every car it makes, cannot afford to pay its workers substantially more than the competition, particularly when there is no indication that this labor is any more productive than the competition”. — Megan McArdle
“What needs to be done is to help the automakers get a fresh start and allow them to focus on producing good cars rather than trying to juggle their books to meet past obligations. The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America’s bankruptcy code is supposed to do. A variant of pre-packaged bankruptcy – where all the terms are set before going before the bankruptcy court – can allow them to produce better and more environmentally sound cars. It can also address legacy retiree obligations…With financial restructuring, the real assets do not disappear. Equity investors (who failed to fulfil their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position. Taxpayer dollars will go far further. Moral hazard – the undermining of incentives – will be averted: a strong message will be sent.” — Joseph Stiglitz, arguing for letting the Big Three fail in the Financial Times
“When gas prices were high, a lot of people blamed Detroit’s troubles on the fact that they hadn’t learned to make awesome small cars. But Toyota isn’t so successful in the US because of the Yaris and the Corolla; its core business, like Honda’s, is American-sized sedans, station wagons, luxury cars, and so on. The Japanese and Germans have not, it’s true, been as successful as Detroit in the SUV and Minivan markets, though Toyota has a sizeable truck business, and Honda makes some fairly successful minivans. But they’re not making their money on gas-sipping hybrids and compacts, either. They, like Detroit, are making their money by selling cars that will need a pretty big refit to pass the new CAFE standards….It is true that when gas prices rose, there was a temporary surge in the prices companies could charge for hybrids and small cars, but though I think that the memory of recent price spikes will offer some support to the smaller car market, I also think we’ll see that market head back down along with oil prices. In short, the small, fuel efficient car market is still not some sort of gold mine that the Big Three have stupidly overlooked.” — Megan McArdle, blogging in the Atlantic
“The old GM slogan of “a car for every purpose, a car for every pocketbook” can’t work any more. Back in the 1920s, or even the 1960s, making cars was itself a specialization. Cars were made in Detroit, carpets were made in Georgia, and the two would trade with each other. But now there are so many different types of car, and the global competition in the car industry is so fierce, that there’s no point in Detroit trying to do what it’s bad at….Ironically the Big Three might be better off if they stuck to what they’re good at: gas guzzlers. Why is Ford the healthiest of the three? There’s one big reason: the F series pickup truck. And the brightest of GM’s dim bulbs is Cadillac, a marque which has never been known for its fuel economy. —Felix Salmon, on The Case for Making Bigger Cars
“Neither legal nor market forces have brought employment parity between whites and blacks in the United States. Parallel with the struggle of blacks for parity, Jews, East Asians, and immigrants generally, have made rapid economic progress and indeed (at least in the case of Jews and East Asians) largely overcome discrimination, yet without significant help from the law. An open economy provides opportunities even to victims of discrimination, especially if the victim group is large enough to achieve economies of scale in trade within the group. As members of the group grow modestly affluent and thus achieve a standard of living that enables them to assimilate to the larger culture, as by consuming similar goods and services and sending their children to good schools, discrimination against them declines because they cease to seem “different” from the majority. When members of a minority group talk and think and act like the majority and have the same tastes and in short share the same culture, the fact that they may have a different physical appearance ceases to count greatly against them, as indicated by high rates of intermarriage in the groups I have mentioned. Assimilation to the dominant culture, as yet incomplete for a great many blacks, may thus be the major force in reducing discrimination, with competition and law playing lesser roles.” — Richard Posner, blogging at the Becker-Posner blog on the Economics of discrimination
A great article in the New York Times, see here.
A couple of snippets:
Mr. Prasad was born into the Pasi community, once considered untouchable on the ancient Hindu caste order. Today, a chain-smoking, irrepressible didact, he is the rare outcaste columnist in the English language press and a professional provocateur. His latest crusade is to argue that India’s economic liberalization is about to do the unthinkable: destroy the caste system. The last 17 years of new capitalism have already allowed his people, or Dalits, as they call themselves, to “escape hunger and humiliation,” he says, if not residual prejudice.
There are about 200 million Dalits, or members of the Scheduled Castes, as they are known officially, in India. They remain socially scorned in city and country, and they are over-represented among India’s uneducated, malnourished and poor.
The survey, financed by the Center for the Advanced Study of India at the University of Pennsylvania, finds that Dalits are far less likely to be engaged in their traditional caste occupations — for instance, the skinning of animals, considered ritually unclean — than they used to be and more likely to enjoy social perks once denied them. In rural Azamgarh District, for instance, nearly all Dalit households said their bridegrooms now rode in cars to their weddings, compared with 27 percent in 1990. In the past, Dalits would not have been allowed to ride even horses to meet their brides; that was considered an upper-caste privilege.
Mr. Prasad credits the changes to a booming economy. “It has pulled them out of the acute poverty they were in and the day-to-day humiliation of working for a landlord,” he said.
The full article can be found here.
The Obama presidency is already sending a message.
It is still too early to tell but Allen C. Guelzo, the Henry R. Luce Professor of Civil War Era Studies at Gettysburg College, Pa. lists what he thinks are The Five Best Things He Ever Did.
“Democrats also have to get serious about school choice. The unions oppose it because they don’t want one student or one dollar to leave the regular public schools, where their members teach. So the Democrats have been timid and weak in putting choice to productive use — even though their constituents are the ones trapped in deplorably bad urban schools, whose futures are being ruined, and who are desperate for new educational opportunities. If children were their sole concern, Democrats would be the champions of school choice. They would help parents put their kids into whatever good schools are out there, including private schools. They would vastly increase the number of charter schools. They would see competition as healthy and necessary for the regular public schools, which should never be allowed to take kids and money for granted. —Terry M. Moe, William Bennett Munro professor of political science at Stanford University, in an article in the WSJ arguing that Democrats should put children before teachers unions
“Democrats favor educational “change” — as long as it doesn’t affect anyone’s job, reallocate resources, or otherwise threaten the occupational interests of the adults running the system. Most changes of real consequence are therefore off the table. The party specializes instead in proposals that involve spending more money and hiring more teachers — such as reductions in class size, across-the-board raises and huge new programs like universal preschool. These efforts probably have some benefits for kids. But they come at an exorbitant price, both in dollars and opportunities foregone, and purposely ignore the fundamentals that need to be addressed.” —Terry M. Moe, William Bennett Munro professor of political science at Stanford University, in an article in the WSJ arguing that Democrats should put children before teachers unions