Bob Cropf

Deflation heats up in the UK

In economics on May 20, 2009 at 8:09 AM

Troubling news wafts across the pond as the signs indicate that deflation is the biggest problem facing the British economy now. According to the Telegraph, a British newspaper, deflation is at the lowest level since 1948, just three years after World War Two ended. Leading the decline in prices is the collapse in the housing market and falling energy and food prices. The article goes on to point out that:

Deflation poses a further threat to the economy if people expect prices to fall further and put purchasing plans on hold which can, if the trend persists, lead to lower output and even more job losses.

So far, the deflationary wolf has not succeeded in entering our door. However, as the situation in the UK develops, there may be a growing chance that it will become a problem here too.

Did Obama’s team incorrectly diagnose the economic crisis?

In Keynesianism, Obama, stimulus on May 4, 2009 at 1:34 PM

In the April/May issue of the liberal-leaning Washington Monthly, James K. Galbraith writes that the team behind Obama’s economic recovery plans all share the same background and creed (you can find the article online here.). The problem with that, according to Galbraith, is that this leads to severe limitations in their vision of the possibilities of the economy.

Geithner, Summers, Romer, Orszag, et al. all share the underlying belief that the economy will right itself. The chief difference between Obama’s economic team and conservatives, however, is that Obama’s advisers believe that the economy needs a little help from the government to get back whereas economic conservatives assert that such help would actually do more harm than good. Galbraith argues that this could lead to a weak approach to fixing the current mess:

“If recovery is not built into the genes of the system, then the forecast will be too optimistic, and the stimulus based on it will be too small.”

Interesting point: The article claims that the hopes for a quick recovery are based on the assumption that this recession will be no worse than the 1981-82 downturn, the worst in recent history. However, if this is not the case, then the models that have been used to predict a rapid turnaround would be wrong.

If we discard as “normal,” postwar economic experience, then there might not be a near-term recovery at all. A strong argument could be made that the situation we now find ourselves in is vastly different from the postwar economic regime that we are familiar with.

Galbraith argues that Geithner, Summers, et al. are primarily concerned with restoring the pre-crash economic order, which was built on the predominance of private banks. Galbraith quotes the Treasury Secretary, Geithner as telling CNBC:

“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”

In the past, economic downturns were shallow enough to permit a bank-led recovery. However, this time things are radically different, according to Galbraith. Millions of families have lost a huge proportion of their wealth. As a dire consequence, for many Americans, Social Security and Medicare represent their chief source of wealth.On top of that, the nation’s largest banks are bankrupt or nearly so. Thus, any attempt to restore the pre-crisis regime is automatically doomed to failure.

The article goes on to say much more. Galbraith is a respected economist, who holds a prestigious chair in Government/Business Relations at LBJ School of Public Affairs, University of Texas at Austin, so he is someone whose words count for something in Washington, DC.

I bring it to the class’ attention because while much of the mainstream media focuses on the conservative attacks on the Obama economic plan, there is also a liberal critique that has not received quite as much attention. Galbraith is a good example of the “loyal opposition” within the left.

RC

The Happiness Index defined– move from Callifornia to Nebraska

In 1 on May 3, 2009 at 11:24 AM

If it’s financial happiness you’re seeking for your next move, then the Midwest may be your best bet because according to a new study Nebraska tops the list of happiest states, fiscally.

Which state has the sunniest disposition in this gloomy economy?

The home of the Cornhuskers, Kool-Aid and the world’s largest porch swing ranked No. 1 on MainStreet.com’s Happiness Index, which used unemployment figures, foreclosures and nonmortgage debt to determine a state’s overall financial well being.

“We don’t go clear out on the edge with projects. We kind of go pay as you go. That’s more what we like to do in Nebraska. We don’t get the huge good time, but we don’t get the huge bad time either,” said Hastings Mayor Vern Powers. “We kind of stay in a little flatter area. In the long term, we think that’s what’s best.”

Financial experts said other states can learn from Nebraska’s conservative attitude toward money, as well as its efforts to grow a diversity of industries.

Its ethanol plants, in particular, have flourished and the ongoing effort to grow industry has enabled people who lose jobs to find new ones relatively easily.

In fact Nebraska’s unemployment rate in February was a 4.2 percent. It also had one foreclosure per 25,187 households.

Happy, Happy, Joy, Joy for These States
The first-of-its-kind index also included Iowa, Kansas, Hawaii and Louisiana, which followed Nebraska on the list respectively.

And according to MainStreet.com, it’s no coincidence that the nation’s three happiest states all are in the Midwest.

“I think that on the coasts — In New York and California — we have a lot of people living beyond their means. But in the Midwest that’s often not the case,” said MainStreet.com general manager Harleen Kahlon. “Maybe the take-away is that living large is not the answer.”

Take the financially savvy billionaire Warren Buffet. The frugal Nebraskan still lives in the same modest home he bought in 1958 for $31,000.

The Least Happy States: Unemployment and Foreclosures
High unemployment and foreclosure rates elevated Oregon to the moniker of the least happy state financially. The Pacific Northwest state was preceded by Florida, California, Nevada and Rhode Island with the Sunshine State fairing the best among the quintet.

The nation’s unemployment rate rose to 8.5 percent, the highest in nearly 26 years, but these states’ statistics were even dimmer.

Both Rhode Island and California’s unemployment rate was 10.5 percent in February, while Nevada had 10.1 percent. Oregon had 10.8 percent and Florida had 9.4 percent.

But MainStreet.com said it expects movement in the happiness index. Oregon is expected to climb thanks in part to its investment in the green sector, which MainStreet.com predicts will experience a great deal of growth in months and years to come.