The West In Decline

Said a banker of world reputation:
"It's an Age of Reduced Expectation. 

For workers, the answer

Is less social transfer;
The rich face diminished taxation."

HSBC Chief Economist Stephen King, in a New York Times op-ed piece entitled When Wealth Disappears, argues that "We are reaching end times for Western affluence."  While the Post-War generation seemed to live in a world in which rising prosperity and markets guaranteed a comfortable future, now "the numbers no longer add up. Even before the Great Recession, rich countries were seeing their tax revenues weaken, social expenditures rise, government debts accumulate and creditors fret thanks to lower economic growth rates."

What's interesting about this quote, and many others like it, is the degree to which economic forces that the writer wishes to portray as unstoppable waves actually resulted from government policy choices that he himself likely supported, and for which his industry energetically lobbied. 

Over the last generation, US tax revenues have weakened largely because tax rates have fallen. The most important reason that our social expenditures have risen is the cost of healthcare. Years ago, some Republican think tanks, alarmed at runaway medical spending as well as the prospect of a single-payer system to fix it, proposed a "social market" alternative, which was actually successfully implemented in Massachusetts. Why don't any of them acknowledge that now that a similar system is being implemented federally?

I do not mean to denigrate Mr. King's economic forecasting ability or the depth of his social concern. But one has to be skeptical when one hears the representatives of the 1% arguing that the 99% must accept diminished expectations as their destiny.  

Lowdown on the Shutdown

You may think that this poem's on the deficit,
So kindly allow me to preface it
That the shutdown impending
Is not about spending;
There's no one who even professes it.

It's a high-stakes political drama,

Unneeded if heads had been calmer,

A tactical ruse

By those who refuse

Affordable Care from Obama. 

The Tea Party Capitol faction

Appears to take no satisfaction,

Though we're not in the black

In the age of Barack,

That the deficit's cut to a fraction. 

The foregoing limerick is just a reminder that, as the US federal government heads toward a shutdown over the parties' inability to agree on a budget, that the budget itself is not the issue; neither are debts and the deficit. Although the fact is not well publicized, and has more often been deliberately obscured, the federal budget deficit has been cut in half since President Obama took office in 2009. 

The the intractability of the fight over the budget is therefore a strategy by the House Republicans, and especially their Tea Party faction, to throw yet another attempted roadblock in front of the rollout of Obamacare. 

Crowdfunding Gets A Jumpstart

The SEC softened the rules

On investment publicity tools

So that now you're allowed

To pitch to the crowd

And separate money from fools. 

Once your IPO had to be edited

To keep the investors accredited -

No public appeal
For an IPO deal -
But did Congress know better? You bet it did!

No more need for advisors advisin' it,

To prevent any legal surprise in it;

Just poke ev'ry friend

For cash they can send

To your shack with a couple of guys in it.

As the Wall Street Journal put it: Bring on the fundraising billboards!  Yesterday new rules under the JOBS Act went into effect, lifting the longstanding ban on general solicitation of private investments.  For the last 80 years, for an IPO or other securities offering to get exemption from SEC registration requirements necessitated compliance with Regulation D. Under Reg D, a company or fund looking for investors had to avoid any "general solicitation" and ensure that every investor was "accredited;" essentially, wealthy and sophisticated. 

Under the Jumpstart Our Business Startups Act, however, investments can be solicited as generally as you want - through blogs, tweets, TV, radio, Facebook, LinkedIn, YouTube, you name it. Such openness puts the onus on entrepreneurs to take "reasonable steps" to ensure that angel investors are also accredited investors, and puts a higher burden of trust and due diligence on investors, who must be sure that they can place not only their money, but also their private financial data in the hands of up & coming impresarios. 

Let the crowdfunding begin!

Surprisingly Easy

The Fed has decided "No Taper"

Of its purchase of fixed-income paper;

Without the renewal

Of stimulus fuel,

The economy's running on vapor. 

Says Bernanke: "It's certainly bad enough

That employment amounts didn't add enough,

Given all of our pains

To stimulate gains;

Think of what it would be if we hadn't've."

"My economists tell me, statistically,

That it's hard to project optimistically,

When the Capitol sounds -

On political grounds - 

Unlikely to stimulate fiscally."

"QE should never be cut down

With the risk of a government shutdown,

So you'll just have to wait

'Til growth may reflate

And the jobless rate's more than somewhat down."

The Frontrunner

If the smart money can be believed

Dr. Summers' retreat has achieved

That Yellen looks strong

For Fed Chair, as long

As the President isn't too peeved. 

 

Barack wants a servant devoted;

For Larry, his voice was full-throated,

But some would impugn

His trial balloon

As too freighted with bags to be floated.

Who the next Chair will be there's no tellin',

Though the bond market clearly loves Yellen,

And stock market buys

Reacted with highs,

While the dollar was laden with sellin'. 

Janet's a calm, steady hand

When tapering QE is planned,

And it's all to the good

That the Chairmanship would,

With a woman, be ably manned. 

The Wall Street Journal reports that, now that Larry Summers has officially removed himself from consideration for the Fed Chairman's post, current Vice Chair Janet Yellen is the front-runner. This is somewhat surprising in that President Obama and his White House team were said to be very upset at the public resistance to Prof. Summers, their preferred choice, and might have resented the liberal pressure to go with Dr. Yellen instead. The reaction of the markets shows that traders expected a quicker tapering of quantitative easing from him than her, though a close reading of their relevant remarks does not offer clear confirmation of such a distinction. 

What is clear is that Dr. Yellen's career offers a wealth of reassuring experience to indicate a likelihood of consistent leadership on issues of not just monetary policy, but also financial sector regulation, which the country very much needs. 

Economics Takes A Back Seat

As the Congress debated criteria

To punish the leaders of Syria,
They discussed what was planned,
And whether we stand
On a footing that's clearly superior.

It's an issue remarkably grave
Of lives we may take or may save,
And the president's foe
May not "just say no,"
Though to do so they certainly crave. 

In the midst of this deliberation

Came a man from the econ vocation
Who said: "I have checked
Its likely effect
On oil, FX and inflation."

Though no-one may doubt the veracity

Of remarks in an econ capacity,

At the juncture we faced

They're seen in bad taste, 

As is gen'rally understood tacitly. 

As Congress and the nation debate the morality, strategy and efficacy of punitive attacks on the Syrian military, economic issues take a back seat. Even the most stridently partisan voices on such issues as fiscal and monetary stimulus or the debt ceiling are muted this week, as those whose forte is defense and foreign policy take center stage. 

One welcome result is that boundaries of Capitol partisanship are at least temporarily redrawn, as Republican leaders such as Senators McCain and Graham side with President Obama (as does the Democratic leadership), while leftists and Tea Partiers may be thrown together in opposition.  Is it too much to hope that, when the Debt Ceiling deadline comes up again in October, the partisans will have less appetite for the usual theatrics?

Is Economics A Science?

Science may help to convey
The world that we live in today,

To predict and construe
And hypothesize, too,
In a rational, testable way.

 

Economists have their devices

To model employment and prices

And cloak their decrees in

The mantle of reason;

The question is: if that suffices. 

The label of "science" may serve

To misname economists' oeuvre,

When considering deeply

Their failure to keep the

Investors ahead of the curve. 

It's been said that the econ profession

Made an unscientific impression 

When the models they picked

Could rarely predict

How soon we will have a recession. 

An incontrovertible fact is 

That theory may falter in practice

When we try to project

And falsely expect

That people are rational actors. 

If we try not to place our reliance

That with logic man stays in compliance,

It might be allowed 

By the PhD crowd:

Economics, though dismal, is science. 

Greetings to all those making the trek back to college or graduate school this weekend, as I am with our college sophomore today (go Greyhounds!). Here is a special shout-out to those of you returning to study the Dismal Science, which has recently come under attack in a New York Times opinion piece for a surplus of the former and a surfeit of the latter.  Though highly regarded economists arose in honorable and forthright defense of the profession, it seemed as though the gates had been opened for Wall Street skeptics to voice long-held doubts. 

Take heart, students, and be not troubled by such thoughts. Remember though, that while the science of economics may labor to measure and model how prices and employment have done and will do, the philosophy of economics may not shrink from the debate over what they should do. While studying social science, consider toward what sort of society you are working, and remember that all of those economic actors are people. 

Advance Draft of Next FOMC Statement

"If employment & prices are strong,

We can give up QE before long,

So we're tapering it,

But just by a bit,
In case we turn out to be wrong."

The drumbeat of tapering talk continues, with various members of the Fed Open Market Committee making public comments that suggest the question isn't "if", or even "when", but "how".  Expectations have begun to coalesce around the next FOMC meeting on September 17-18, in part because it is seen as advisable to remove the uncertainty surrounding the unwinding of QE before the White House announces the President's nominee to succeed Chairman Ben Bernanke. The current Chairman's term ends on January 31. 

Comments yesterday by James Bullard, president of the Federal Reserve Bank of St. Louis, put the spotlight on the tactics the Fed might employ when starting down the long, unwinding road: "A larger move would be interpreted as a faster pace of reduction," he said, while "a smaller move would be considered a more hedged bet, a slower rate of reduction in purchases." In other words, the FOMC could test the waters before making a big commitment to unwinding its extraordinary monetary stimulus. 

Summers vs Yellen

Wall Street is looking for men

For the mantle of leadership when,

As the President knows,

He'll have to propose

A successor to Fed Chairman Ben. 

It's increasingly frequently said

By economists very well read

That Obama may stiff

The recovery if

He picks the wrong head of the Fed. 

Dr. Yellen's CV is the nicest

To manage employment and prices

From the days when she ran

The Fed bank in San

Francisco and warned of the Crisis. 

Dr. Summers has those who would vote 'im

'Cause his "gravitas" serves to promote 'im,

While other folks showed 

That's really a code

For the candidate having a scrotum. 

Whatever your partisan views

On the better of qualified Jews,

It's the President's pick

And we'll know pretty quick

The mensch that Obama may choose.