Stop Blowing Bubbles

Thomas Hoenig, the hawkish Fed governor,
Says: "The Dollar has way too much dove in 'er;
With a null target rate,
I doubt we'll deflate,
But inflation is bound to be stubborner."  

Retiring Kansas City Federal Reserve Bank President Thomas Hoenig summed up his argument for tighter money in a speech at the London School of Economics yesterday.  In what may be his valedictory address, Hoenig stressed the urgent need for a transition from short-term liquidity crisis management to longer-term inflation-fighting.  As he pointed out, the Fed's overly accomodative policy in 2003 set the stage for the asset bubble that crashed five years later.  Hoenig also added his voice to those blaming "QE2" for the recent round of commodity inflation, though without really making the case for it.

Washington Doesn't Get the Housing Bust

The index of US home prices
Shows no end to the real estate crisis
Ev'rywhere but DC;
Counter-cyclically,
There the job market more than suffices.  

The S&P Case-Shiller Index of existing home prices showed continuing weakness in the residential market in January. Year over year, prices fell by an average of 3.1%, in every metropolitan area except Washington DC. There, a combination of a crowded housing market and a resilient job picture for politicians, bureaucrats, military and lobbyists contributed to a 3.6% annual increase.  San Diego was essentially unchanged at +0.1%, no doubt demonstrating the calming effects of warm Pacific breezes.

Why We Fly

"The grounds to take action are legion,
When applied to the Middle East region,
That the Libyan rise
Does not compromise
The Egyptian, much less the Tunisian."  

US President Barack Obama took to the airwaves last night to explain his typically nuanced approach to foreign intervention to a skeptical audience of hawks and doves. Aside from the prevention of atrocities at the hands of Col. Moammar Qaddafi and his supporters, one of the President's chief objectives is to prevent the spread of chaos to the neighboring countries of Egypt and Tunisia, where nascent democracies are struggling to take root.

Fashion Police Warning

We should check, before leaving our houses,
The reaction our clothing arouses,
In view of the sights
Of those asses in tights
Who should rather have put on their trousers.    

Dr. Goose's informal survey of New York streetwear corroborates this report of the Fashion Police, who admonish ladies everywhere to remember that "leggings are not pants, and tights are not leggings."

A Fruitless Market

Said a husband: "The Lord will not bless me,
Dear wife, with descendants, unless we
Make a deal with a neighbor
The fruit of his labor
To compensate with a success fee."

Many offers came in by the bunch,
And a contract was drawn up at once,
But later said Eve:
"I cannot conceive
Why it hasn't worked out in six months."

So the laws of supply and demand
May not always function as planned,
For sometimes you need,
For a deal to succeed,
More than just the Invisible Hand.    

Via Tyler Cowen's Marginal Revolution blog comes the story of a couple in Stuttgart, Germany who hit upon a commercial solution to the age-old problem of male infertility.  To compensate for the husband's shortcomings, they elected to pay a neighbor to impregnate the wife.  As with so many forms of economic stimulus however, and despite months of earnest endeavor on the part of the neighbor, the results fell short and there were unintended consequences.  You can read the entire story in a surprising source: the July 27, 1978 issue of Jet magazine.

Time to Buy a Home?

A house on the market, priced rightly,
Will sell at a pace that is sprightly,
So a backlog that grows
Leads one to suppose
That homes are expensive, if slightly.  

The Commerce Department announced that new home sales fell to 250,000 in February, the lowest number on record.  Moreover, the supply of homes on the market has increased from 7.4 to 8.9 months of sales.  These among other factors prompted investment strategist Barry Ritholtz to ask: "Should You Buy a Home?"  Based on a comparison of home prices and home-owning costs to 1) personal income, 2) renting and 3) US GDP, Mr. Ritholtz concludes that the residential real estate market, though fallen from great heights, is still a bit pricey.

Progressively Taxing Debate

Overtaxed, an economist meant,
Are America's top ten percent,
But his figures, while true,
Don't progressively view
The top tent' o' da tent' o' da tent'.

The Tax Foundation, a Washington-based think tank, concluded based on figures  published by the OECD that "no country leans on upper-income households as much as the US."  They based this conclusion on the fact that the income tax share of the top-earning 10% of US households is 1.35 times its income share, compared to the OECD average of 1.11 times.  However... the OECD economist behind the Tax Foundation's figures points out that the overall level of taxes and social spending in such countries as Sweden is far higher than in the US, resulting in more income equality there than here.  Moreover, a UC Berkeley study showed that the average tax rate actually paid by the US' top-earning 0.1% (where wealth is really concentrated) has declined from 65% in 1970, to 45% in 1994, to less than 35% in 2004.  

Hat tip to Harvard's Professor Greg Mankiw, who linked to the Tax Foundation on his blog and became the lightning rod for progressive criticisms such as this one.

AT&T's Lessons on Lobbying

"Since the need's too uncertain to time it,
One must keep at the pump so to prime it;
Thus largesse we have spread
To the Blue and the Red
For an easier anti-trust climate."    

AT&T's announced $39 billion acquisition of rival T-Mobile USA would combine the second- and fourth-largest US mobile providers, setting the stage for a potential confrontation with the regulators who would have to approve the transaction.  Fortunately for AT&T, as the top contributor to members of Congress for the last generation, they may find a receptive audience.  So, for example, their $15 million in annual contributions to Republicans and Democrats may weigh against the fact that the proposed merger would leave 3 out of 4 US mobile users in the hands of two carriers.

The Obama Doctrine

In crises of foreign affairs
When hostility suddenly flares,
The force one projects
Is enhanced, one expects,
If one's allies, as well, project theirs.

As noted in the Wall Street Journal on Sunday, the international campaign in Libya marks the first usage of the "Obama Doctrine," receiving "unambiguous legal authority through the United Nations, getting clear support from Arab states and then letting others—France and Britain —lead the military charge."  It remains to be seen how effectively this doctrine can help to replace the mad dictatorship of Qaddafi with popular representation, at a minimum of popular casualties.