Archive for January, 2009

This recession & JMK (John Maynard Keynes)

According to N. Gregory Mankiw, professor of Economics at Harvard, in a NY Times article in the Business Section on Sunday, November 30th, “If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes.”

And “According to Keynes, the root cause of economic downturns is insufficient aggregate demand.” This thinking makes Keynes a ‘demand-side’ economist (as opposed to supply side economists who have been responsible for much of the economic policy decisions made in the US since the Reagan administration).

Mankiw discusses the 4 primary components of national economic product: consumption, investment, net exports and government spending. He explains that the first 3 are all currently unlikely to provoke much increase in demand.

When it comes to government purchases, the fourth component, he says “Calls for increased infrastructure spending fit well with Keynesian theory. In principle, every dollar spent by the government could cause national income to increase by more than a dollar if it leads to a more vibrant economy and stimulates spending by consumers and companies.” [emphasis mine]

However, he continues by saying that the potential boost in the short run provided by such government spending might well be offset by transferring that national debt to our kids and grandkids.

It is a sticky wicket, to be sure.

Read the entire article at:

http://www.nytimes.com/2008/11/30/business/economy/30view.html?_r=1&scp=2&sq=N.%20gregory%20Mankiw&st=cse

“Put not your trust in princes!”

Every Sunday morning I sit down with the NY Times and quickly move to the Business Section to read the latest from Ben Stein – we may not agree on many things, but his analysis of the current economy is usually spot to me!

In the January 11, 2009 column entitled “Ordinary People vs. Extraordinary Problems” which contains the title line of this post.

He says of members of the Obama administration:  “…they are just human beings, albeit in some cases human beings with glowing résumés. I do not see the supermen and superwomen. They do not have the gift of foresight. They have never been in a situation like this, at least not exactly. There is simply no good reason to believe they will get it right except by trial and error, turning the tumblers until the safe eventually opens. The problems we face now are so large that they humble the average and the above average and even the very much above average.”

Read the entire column:  http://www.nytimes.com/2009/01/11/business/11every.html

Who is Ferdinand Pecora?

If  you’re half as interested as I am in how we got into our current economic mess you’ll want to read the New York Times Op-Ed piece of today’s date entitled “Where is our Ferdinand Pecora?”.

“Under Pecora’s expert and often withering questioning, the Senate committee unearthed a secret financial history of the 1920s, demystifying the assorted frauds, scams and abuses that culminated in the 1929 crash.”

The more I read, the more similarities I found, including this paragraph:

“Bankers had been demigods in the 1920s, their doings followed avidly, their market commentary quoted with reverence.  They had inhabited a clubby world of chauffeured limousines and wood-paneled rooms, insulated from ordinary Americans.”

Makes you want to read more, right?

http://www.nytimes.com/2009/01/06/opinion/06chernow.html?_r=1&scp=1&sq=January%206,%202009%20Ferdinand%20Pecora&st=cse

Is the term “Rational Man” an oxymoron?

Adam Gopnik, in the January 5th issue of  The New Yorker compares our current economic crisis with “the moment when a small child hits his forehead on a doorknob … and then the long seconds of red-faced anticipation, breath drawn, while everyone waits for the explosion of tears.

‘…we have all bumped our foreheads, hard, on the edge of reality.  But how bad will the bruise … really be?’

He continues by recalling a portion of “It’s a Wonderful Life” saying “when George and Uncle Billy prevent a run on the bank by urging people to withdraw not all the money they had invested in the Building & Loan but just what they need to tide them over, he is persuading them to act not as rational-economic man but as social-emotional man.”

And then the best line from Gopnik’s article – “What makes Bedford Falls thrive is people feeling good about its future.”

I wager this downturn will be really bad and the inevitable crying will go on for a long time.

But the answer for me is working more on the social-emotional side of the equation:  we have control over that, we can make the days and weeks better for others and ourselves.  By building on that side of the equation, we build hope for our future and the future of our industry, our country and our world!

Read the article:

http://www.newyorker.com/talk/comment/2009/01/05/090105taco_talk_gopnik

The End of the Financial World as We Know It!

Michael Lewis and David Einhorn begin this piece “AMERICANS enter the New Year in a strange new role: financial lunatics.”  The article questions how a crisis of this magnitude could happen here – to the nation where “half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street”.

It can’t be explained purely by greed, they say:  “Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy.  The fixable problem isn’t the greed of the few  but the misaligned interests of the many.”

Read the rest of this long and deeply disturbing article:

http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?scp=1&sq=January%204,%202009%20Michael%20Lewis&st=cse