- We're waiting for the Fed to say something about interest rates.
- Commodity traders "realized profits" yesterday (read: "commodity prices fell a little yesterday"), perhaps to do something while they wait for the Fed's decision. Will the "low US interest rates have lead to speculation on commodities" crowd have more or less ammo if prices bounce back up/ the Fed does something different than cutting 25 basis points? (Full disclosure: for whatever it's worth, I'm part of the bubble-crowd. For a brief, but comprehensive discussion of the different explanations for the rise in commodity prices, see here. The bubble crowd tries to distinguish the continuous, fundamentals-led growth of the last few years from the vertiginous phenomenon of the last few months.)
- Growing business inventories kept the US's GDP from contracting (it grew by 0.6% in the first quarter). While this is obviously better than a falling GDP, could there a less encouraging reason (looking forward) to have avoided the fall?
- Thanks to Hillary Clinton, the mainstream media is awakening to the idea (ripped from McCain in a deepening of her mind-bogglingly bizarro attempt to contrast herself from Obama in the primaries by looking more and more... Republican?) of the gas-tax holiday. Can there a more idiotic, nonsensical policy proposal this campaign? Even Robert Reich's against it! The founder of the Pigou Club (and no Obama fan himself) says "Score one for Obama."
- We're still waiting for Ben...
Wednesday, April 30, 2008
Thursday, April 17, 2008
It's such an ad-hoc corollary to my last post that I couldn't resist the temptation to blog about it even a day late. As you must know by now if you bother to keep up with the US's presidential campaign, John McCain has asked for a "gas tax holiday:"
[McCain] said he would push Congress to suspend the 18.4 cents a gallon tax on gasoline and 24.4 cents a gallon tax on diesel between May and September – a move his advisers said would cost $8bn-10bn in revenues.
He also reiterated his call for the government to stop adding to the US Strategic Petroleum Reserve so as to ease pressure on supplies. US crude oil prices rose to a fresh record high of $113.93 on Tuesday.
Mr McCain has become increasingly populist in tone over recent weeks as he competes with Barack Obama and Hillary Clinton, the Democratic presidential hopefuls, to appear most responsive to economic concerns.Source
At least Senator McCain is true when boasting (?) about not understanding much economics and incentives. Either that or we have to question his campaign's claim that global warming is one of his main concerns, up there with education, health, and national security.
Tuesday, April 15, 2008
In ancient times (a week ago), I went to a presentation at the Urban Institute by Douglas J. Holtz-Eakin, ex-Director of the CBO and currently John McCain's senior policy adviser. The purpose of the talk: to find out what that campaign had to say about tax policy.
Unfortunately, what I found out (and in quite the dramatic fashion as it came at the very, very end of the talk, which was otherwise going nicely given what can be expected from such an exercise) was a textbook example of a policy disaster waiting to happen: an instrument labeled as a global-warming-busting environmental policy whose implementation is unfortunately designed in such a way that it begs to be hijacked by special-interests and converted into the Mother of All Industrial Policies (and Granny to One Huge Redistribution). Very sad.
DHE is undoubtedly a smart economist, but above all he now is a political operator; as such, he handled the couple-of-hours worth of questions with outstanding professionalism, seamlessly mixing sound economics with political obfuscation... which made it oh-so-very-frustrating as it meant that each time we began to scratch the surface enough to know there was something interesting there, we veered into some politically-safe generic statement.
(Having said that, one could sort of tell, by the shifts in his tone and body language, when he was talking as DHE, the economist, and as DHE, the Candidate's Senior Policy Adviser.)
But what really gave me the evil goosebumps was when I asked him about the environmental policy. As you might know, McCain has declared that doing something to stop global warming is among his top priorities; as you might also know, he has chosen tradeable carbon permits over Pigouvian taxes. Oh well, nevermind: at least an argument can be made for their equivalence if the former are auctioned off. At least in principle (god knows how car-drivers would be equivalently-taxed, for example, but nevermind).
Now, what I wanted to know was this: since most of the discussion had been about balancing the budget, but the tax and expenditure measures discussed had not included any revenues from internalizing pollution externalities, was this revealing the campaign's true expectations about passing this reform?
The answer that I got came as a disappointment: it started well, presenting tradeable permits as the constrained-efficient option given all sorts of real-world implementation problems, including much more working knowledge on permit markets... and a greater ease to achieve political support (suspicion alarms warming up)... through transitional issues (alarms starting to fire as this is the time where special interests lay waste to the best laid plans)... which would all have still been fair and square within the realm of "they're still serious about it, they're just trying to also be realistic," until we find out that this will mean that not all permits will be auctioned off, but rather that what sounds like a sizable amount (most of them? it hasn't been decided) will be allocated based on... OMG: on issues such as trade competitiveness, strategic interests, etc!
And since giving out permits = subsidizing, this is, pure and simple, an undercover industrial policy waiting to happen.
Now, I'm not remotely trying to suggest that McCain (or DHE) are themselves planning to create a system they can then game for personal gain, but just think of the opportunity for all policy-makers involved to add a clause here and a special consideration there to end up with a Mutant Morphing Monster that achieves little-to-non of the intended environmental purposes, but instead acts as yet another channel to redistribute fiscal resources back to pet sectors while increasing economic distortions to a whole new level.
Another reason, methinks, to prefer a uniform, across-the-board, carbon-emissions tax. When will the Pigou club become a party?
The guy in charge of the Department of Housing and Urban Development (HUD), the "Housing Czar," if you wish, has quit. And if even a fraction of what the Washigton Post reports is correct... let's just say a lot is explained on the political econ side.
In late 2006, as economists warned of an imminent housing market collapse, housing Secretary Alphonso Jackson repeatedly insisted that the mounting wave of mortgage failures was a short-term "correction."
Jackson, who declined to be interviewed, will be remembered as a Cabinet secretary so committed to carrying out President Bush's goal of increasing homeownership that he encouraged policies that threatened to exacerbate the mortgage crisis, according to interviews with more than 30 current and former HUD officials and housing experts, and a review of numerous HUD documents and audits.
In speeches, he urged loosening some rules to spur more home buying and borrowing. "I'm convinced this spring we will see the market again begin to soar," Jackson said in a June 2007 speech at the National Press Club to kick off what HUD dubbed "National Homeownership Month." He also told the audience that he had no specific laws to recommend to prevent a repeat of the lending abuses that caused the mortgage crisis.
Jackson had insisted he would stay in office until the end of Bush's term. But last month, several Democratic senators who hold HUD's purse strings called for his resignation. He had refused to answer their questions about allegations that he was engaged in political favoritism and cronyism. A federal grand jury is investigating whether Jackson lied to Congress about his involvement in contracts and whether he steered millions of dollars in government work at the Virgin Islands and New Orleans housing authorities to his friends.
Read the whole thing here; the quotes above are just the tip of the indignation iceberg.
(HT to Tanta at Calculated Risk.)
Tuesday, April 8, 2008
Have you also been sent into hysterical giggling by the US markets' ability to rally at the sound of any news, good or bad?
Optimism, hope, faith when unexpected good news come out is endearing. But the current favorite rationale to buy, buy, buy when unexpected bad news come out, "it must mean we're near the bottom," is as intellectually satisfying as explaining price drops in "normal" markets as "profit taking." (Are price gains then the result of "loss taking"?)
Anyway, I digress. I read two weeks ago this nice little piece by John Authers in the FT. Now, I know two weeks is unbearably old for a blog, but there you go; it seems an appropriate snippet to have around the next time, the umpteenth time, that analysts come out to tell us that we must have touched bottom because stocks have gone up two days in a row (notice the prediction of a "bear market rally in the next few weeks"):
Perhaps the most convincing argument that we are not yet at the bottom is that so many people think that we are. The clamour to call an end to the crisis in recent weeks in itself shows that optimism has not been extinguished. History’s worst bear markets have been punctuated by many rallies when people thought the worst was over.
The collapse of the Dow Jones Industrial Average after 1929, and of the Nasdaq Composite after 2000, saw falls of about 80 per cent over three years. And yet both saw several “bear market rallies” when the index recovered by 20 per cent or more. Hope springs almost eternal.
In both cases the declines ended with the markets bumping along for a while, and then making advances that went unremarked at first. As Ian Harnett of Absolute Strategy puts it: “We’ll know we’ve hit the bottom when we look and see that share prices are a lot higher than they were a few months ago – we won’t know at the time.”
The case for a bear market rally in the next few weeks looks strong, provided the market can avoid more bad news on the credit front. But it looks hard to call a bottom. One sceptical analyst says: “The bottom will come when everyone at last gives up ever trying to find it.” That moment, unfortunately, is not yet in sight.