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December 31, 2011

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Posted: 31 Dec 2011 12:06 AM PST

Brad DeLong: America’s Financial Leviathan

Posted: 30 Dec 2011 10:03 AM PST

Brad DeLong:

America's Financial Leviathan, by J. Bradford DeLong, Commentary, Project Syndicate: In 1950, finance and insurance in the United States accounted for 2.8% of GDP... Today, it is 8.4% of GDP, and it is not shrinking. The Wall Street Journal's Justin Lahart reports that the 2010 share was higher than the previous peak share in 2006.
Lahart goes on to say that growth in the finance-and-insurance share of the economy has "not, by and large, been a bad thing....Deploying capital to the places where it can be best used helps the economy grow..."
But ... the extra 5.6% of GDP that it is now spending on finance and insurance ... is a good bargain only if it boosts overall annual economic growth by ... 6% per 25-year generation. ... But it is not obvious that the US economy today would be 6% less productive if it had had the finance-insurance system of 1950 rather than the one that prevailed during the past 20 years.
There are five ways that an economy gains from a well-functioning finance-insurance system. ...[discussion of each]...
Overall, however, it remains disturbing that we do not see the obvious large benefits, at either the micro or macro level, in the US economy's efficiency that would justify spending an extra 5.6% of GDP every year on finance and insurance. ...
Why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends? There are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money. Are we sure that most of the growth in finance stems from a rising share of financial professionals who undertake the former rather than the latter?

The ratings agencies are supposed to solve this problem, i.e. provide the clueless the information about risks that they need to avoid getting taken to the cleaners. We know how well that worked out.

December 30, 2011

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Paul Krugman: Keynes Was Right

Posted: 30 Dec 2011 12:16 AM PST

There are quite a few people in denial about one lesson from the crisis -- the value of the Keynesian perspective:

Keynes Was Right, by Paul Krugman, Commentary, NY Times: "The boom, not the slump, is the right time for austerity at the Treasury." So declared John Maynard Keynes in 1937, even as FDR was about to prove him right by trying to balance the budget too soon, sending the United States economy — which had been steadily recovering up to that point — into a severe recession. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.
Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover... And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.
In declaring Keynesian economics vindicated ... the real test ... hasn't come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real GDP in both countries down by double digits.
This wasn't supposed to happen, according to ... the Republican staff of Congress's Joint Economic Committee ... report titled "Spend Less, Owe Less, Grow the Economy." It ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence, and that this might well lead to faster, not slower, growth.
They should have known better...
Now, you could argue that Greece and Ireland had no choice about imposing austerity ... other than defaulting on their debts and leaving the euro. But another lesson of 2011 was that America did and does have a choice; Washington may be obsessed with the deficit, but financial markets are, if anything, signaling that we should borrow more. ...
The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren't actually a problem and, in the process, made the real problem — a depressed economy and mass unemployment — worse.
The good news, such as it is, is that President Obama has finally gone back to fighting against premature austerity — and he seems to be winning the political battle. And one of these years we might actually end up taking Keynes's advice, which is every bit as valid now as it was 75 years ago.

Links for 2011-12-30

Posted: 30 Dec 2011 12:06 AM PST

"Guideposts on the Road Back to Factville"

Posted: 29 Dec 2011 11:48 AM PST

Getting tired of the best set of graphs articles, but this is a nice set.

It's the Season for Optimism

Posted: 29 Dec 2011 10:17 AM PST

This is the time of year when we get to read all the stories about how the economy is poised to do better in the coming year. There have been a couple of these today, and I expect more will follow.

Better than what? Yes, signs are pointing in the right direction, but we are still in a deep, deep hole and the signs also point to a long, long road to recovery. The economy still needs help, job creation in particular, but, unfortunately, these stories create an elevated sense of optimism about the coming year. This lets policymakers off the hook and helps them avoid the difficulties they would face if they proposed more aggressive policy actions.

Doing better is not the same as doing well enough, and policymakers have no reason to relax yet. I hope the people writing these stories will make that clear.

Maybe we'll be surprised by the strength of job creation in the coming year, I certainly hope so, but we shouldn't count on it.

December 29, 2011

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"Desperate for Work or Fearful about Losing Their Job"

Posted: 29 Dec 2011 01:35 AM PST

Dean Baker:

The Daily Beast Acts Up on the Economy, by Dean Baker: ...The unemployment rate for the year [2011] is likely to average above 9.0 percent. The number of people who are involuntarily underemployed has generally been 8.5 and 9.0 million, close to double the pre-recession level. Millions more have given up looking for work altogether. Real wages have been stagnant or falling for the last 4 years, with little prospect of turning around any time soon as the high rate of unemployment continues to depress wages.
In addition, tens of millions of baby boomers are approaching retirement with almost nothing to support themselves other than their Social Security. According to a recent study by the Pew Research Center, the median older baby boomer (ages 55-64) had just $162,000 in wealth. This is roughly enough to buy the median home. This means that if this household took all of their wealth, they can pay off their mortgage. They would then be completely dependent on their Social Security to support them in retirement. And, half of older baby boomers have less wealth than this.
In short, most of the country is looking at a situation where they are desperate for work or fearful about losing their job. Older workers are looking at a retirement where they are not far above the poverty level, even after spending a life working in middle class jobs. ...

Then we should surely impose austerity immediately to make the jobs picture even worse, and focus it on social insurance programs for older workers looking forward to a retirement near the poverty level. Asking those who are far, far from poverty to help, and waiting until the economy is on solid footing before taking steps to address long-run budget issues is, of course, out of the question.

Links for 2011-12-29

Posted: 29 Dec 2011 12:06 AM PST

Obama-Clinton?

Posted: 28 Dec 2011 12:53 PM PST

Robert Reich argues it will be Obama-Clinton in 2012. Seems unlikely to me.

Feldstein: France Should Quit "Lashing Out at Britain"

Posted: 28 Dec 2011 11:07 AM PST

Martin Feldstein says The French Don't Get It:

The French government just doesn't seem to understand the real implications of the euro, the single currency that France shares with 16 other European Union countries.
French officials have now reacted to the prospect of a credit rating downgrade by lashing out at Britain. The head of the central bank, Christian Noyer, has argued that the rating agencies should begin by downgrading Britain. The finance minister, Francois Baroin, recently declared that, "You'd rather be French than British in economic terms." And even the French Prime minister, Francois Fillar, noted that Britain had higher debt and larger deficits than France.
French officials apparently don't recognize the importance of the fact that Britain ... has its own currency, which means that there is no risk that Britain will default on its debt. When interest and principal on British government debt come due, the British government can always create additional pounds to meet those obligations. By contrast,... the French central bank cannot create euros. ... That is why the market treats French bonds as riskier and demands a higher interest rate...
There is a second reason why the British situation is less risky than that of France. Britain can reduce its current-account deficit by causing the British pound to weaken relative to the dollar and the euro, which the French, again, cannot do without their own currency. Indeed, that is precisely what Britain has been doing with its monetary policy: bringing the sterling-euro and sterling-dollar exchange rates down to more competitive levels. ...
France should focus its attention on its domestic fiscal problems and the dire situation of its commercial banks, rather than lashing out at Britain...

"The Proposition is Not Mainstream in the Sense of Being Fully Accepted by Most Economists"

Posted: 28 Dec 2011 10:58 AM PST

I haven't said much about the (most recent) recent flare up over Ricardian equivalence. Why? The answer's simple, the empirical evidence does not support it. Why argue about something when we already know it fails to adequately explain the data? Making the Ricardian equivalence assumption might be okay as a first approximation for some questions -- though I'd argue that it mostly isn't -- but in any case the theory does not adequately capture economic behavior.

But let me turn the microphone over to one of the architects of the modern version of the theory, Robert Barro. In the following interview with the Minneapolis Fed (from 2005), Barro emphasizes the point Krugman makes here, i.e. that Ricardian equivalence says nothing about the effectiveness of fiscal policy as a stimulus for the economy (a point that IS worth noting since this point is often confused in discussion of this topic. As Barro tries to make clear, "It's never part of Ricardian equivalence that the level of government expenditure doesn't matter.":

Region: The Ricardian equivalence hypothesis, which you brought to prominence in 1974, might be taken to suggest that deficit spending isn't inherently harmful since rational people, expecting to pay higher taxes in the future to pay off government debt, will save more, so private savings will balance out the public deficit.
Does that imply that concerns about "irresponsible" levels of debt are unfounded? And is it puzzling to you that the Ricardian equivalence hypothesis isn't a mainstream belief in macroeconomics?
Barro: Let me say first that I think the Ricardian equivalence idea is basically right as a first-order proposition. However, people get confused as to exactly what it says. Before I say what that is, I should mention that, although the proposition is not mainstream in the sense of being fully accepted by most economists, the idea has had tremendous influence on the way economists think about this issue.
Analysis often begins with Ricardian equivalence as a first-order proposition and then goes on to investigate why there are deviations from precise equivalence. Thus, like the Modigliani-Miller theorem on corporate finance, Ricardian equivalence has become a common starting point for the way people think about budget deficits. This situation is vastly different from what it was before the mid 1970s.
To illustrate the potential pitfalls in what Ricardian equivalence says and does not say, one can consider the famous quote attributed to Vice President Cheney to the effect that President Reagan proved that budget deficits don't matter. The Cheney quote is often interpreted to mean that the level of government expenditure does not matter, and that surely is not what Ricardian equivalence says. The Ricardian proposition is about the consequences of paying for a given amount of public expenditure in different ways. Specifically, does it matter—or does it matter a lot—whether the government pays for its spending with current taxes or with current borrowing, which entails higher future taxes?
So, a central part of the proposition is that the amount of public expenditure—today and tomorrow—is being held constant. It's never part of Ricardian equivalence that the level of government expenditure doesn't matter. As [University of Chicago economist] Milton Friedman put it, the costs or benefits of government outlays depend on the amount and nature of what the government spends—there is no free lunch about paying for that spending. So whether you pay for it now or later is secondary.
As a first-order proposition, it is right that it matters little whether you pay for government spending with taxes today or taxes tomorrow...

[For a more academic discussion of this topic, see this discussion from David Romer's graduate macro text. Romer explains (contra Barro) why ""there is little reason to expect Ricardian equivalence to provide a good first approximation in practice."]

December 28, 2011

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Posted: 28 Dec 2011 12:06 AM PST

"I Can't Think of a Better Intellectual Qualification"

Posted: 27 Dec 2011 01:29 PM PST

Richard Green on Jeremy Stein (nominated earlier today to fill an open position on the Federal reserve Board):

Personally, I am a big fan of Stein's work. The shortest way to explain why is to list the titles of his five most cited papers:

  • Herd Behavior and Investment
  • A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
  • Rick Management: Coordinating Investment and Financing Policies
  • Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies
  • Internal Capital Markets and the Competition for Corporate Resources.

Stein has spent his career trying to figure out how capital markets really work instead of pledging fealty to models that don't work very well.  I can't think of a better intellectual qualification for a Federal Reserve Board member.

Obama Noninates Jeremy Stein and Jerome Powell to Fed Board of Governors

Posted: 27 Dec 2011 10:42 AM PST

During the biggest financial panic in many, many decades, Congress has refused to confirm nominees to the Federal Reserve Board leaving the Fed short-handed. David Wessel reports there's some chance that will change:

President Barack Obama will announce Tuesday that he plans to nominate a Harvard University finance professor and a former private-equity executive to fill the two vacancies on the seven-member Federal Reserve Board, a White House official said.

The nominees are Jeremy Stein, 51 yeas old, an economist who did a five-month stint in the Treasury and White House in the early months of the Obama administration, and Jerome Powell, 58, who was undersecretary of the Treasury for domestic finance in the early 1990s during the George W. Bush administration.

If confirmed by the Senate...

A Republican and a Democrat -- this looks like an attempt to get both through by allowing one from each side of the political fence. But as Justin Wolfers said, "An independent Fed is not one that is half from one team, and half from the other."

More on Stein from Noam Scheiber.

...he's an absolutely terrific choice. He was consistently on the side of more capital for banks (often to the discomfort of other Obama officials and regulators throughout Washington). Relatedly, he was in favor of bank shareholders suffering large losses through dilution, and even favored foisting losses onto some of the banks' junior debt-holders, which put him at odds with colleagues in Tim Geithner's Treasury Department. Anyway, anyone frustrated with a generally overly-credulous, overly-sympathetic posture toward the banks among the powers-that-be in Washington should want to see Stein confirmed. ...

Powell is more of a mystery. From the first link above:

Mr. Powell would fill a different niche on the Fed board, which has been without a governor with Wall Street experience since Kevin Warsh, a Morgan Stanley alumnus, left in April. A lawyer, Mr. Powell worked before and after his Treasury stint at investment bank Dillon Read & Co. He also has worked at private-equity firms Carlyle Group and Global Environment Fund and at Bankers Trust Co.

Known as Jay, Mr. Powell ... took a high-profile role over the summer warning about the adverse consequences of a failure to lift the federal debt ceiling.

One outcome would be for Powell to get confirmed, but not Stein (the reverse -- Stein but not Powell -- is harder to imagine).

Un-Unpivoting

Posted: 27 Dec 2011 08:46 AM PST

While I try to find something to post, a quick thought.

A few weeks ago Paul Krugman said:

what strikes me is just how wrong-headed the Obama administration's "pivot" away from jobs and toward the deficit back in 2010 really was. It was bad economics; but it was also really bad politics, shifting the debate to exactly the ground where the right tends to have an (undeserved) advantage.

The good news for Democrats is that Obama is now in the process of unpivoting.

But the political establishment and the Very Serious Pundits are doing their best to turn the discussion back to deficit reduction.They already are.

Don't let them.

December 27, 2011

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Posted: 27 Dec 2011 12:06 AM PST

The Futility of Moving to the Middle

Posted: 26 Dec 2011 09:48 AM PST

Will the real Robert Samuelson please stand up:

Robert Samuelson Again Forgets What He Said About the Budget Deficit, by Dean Baker: Less than a month ago Robert Samuelson told readers that it was unreasonable to expect the Super Committee to solve the country's deficit problem since the real issue is health care. He said that the Super Committee was not going to come up with a politically acceptable way to fix health care in three months so it was unrealistic to imagine that it would produce a solution to the long-run deficit problem.
His comments in today's column suggest that he is unfamiliar with the piece he wrote last month. (Hot rumor: there are two Robert Samuelsons.) This one tells us that the problems is that the Republicans don't want to raise taxes and the Democrats refuse to consider cuts in spending, therefore we are going to have a long-term budget problem that will lead to an enormous economic crisis.
Of course Samuelson's column last month was completely right. We pay more than twice as much per person as the average for other wealthy countries. If we get out health care costs in line with other countries we would be looking at budget surpluses not deficits. ...
There are a few other points worth hitting Samuelson on in this piece. First, if we get military spending back down to its pre-September 11th share of GDP (3.0 percent), it will go far towards getting our future deficits down to sustainable course. (This would imply a savings of roughly $2 trillion over the next decade, if the reduction took place immediately.) ...
Finally, the idea that if we don't get the deficit down something really bad is going to happen ignores the fact that something really bad is happening now. ... It is remarkable how easily Samuelson can ignore the disaster in front of his eyes, and would instead have us divert our attention to a vaguely defined really bad disaster in the indeterminate future. ...

The Democrats "refuse to consider cuts in spending"? This reminds me of something Paul Krugman said not too long ago:

Reality just doesn't matter here — which is why Obama might as well reach out to his base instead of the unreachable right.

What Samuelson and others like him need to understand is that failing to place blame where it belongs enables the very behaviors they find so appalling (of course, if the real target is social insurance rather than the deficit, then the strategy of blaming the Democrats for spending no matter the reality makes more sense).

"One in Five American Families Have Medical Bill Problems"

Posted: 26 Dec 2011 09:02 AM PST

Melissa Jacoby at Credit Slips notes some bad news on medical bills:

One in Five American Families Have Medical Bill Problems ... according to this new report.

The error bands are relatively large:

As Mirya Holman and I have explained in the bankruptcy context, measuring medical bill problems and debt is notoriously contested, but the Center for Studying Health System Change does try to make clear its methods and also uses similar metrics over time. The report also contains statistics on the proportion of their sample that considered filing for bankruptcy and actually did file. Definitely worth reading.  

Even allowing for the uncertainty, the numbers are much larger than I find tolerable.

December 26, 2011

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Paul Krugman: Springtime for Toxics

Posted: 26 Dec 2011 12:33 AM PST

The EPA's new rules on mercury and other airborne toxics should produce large benefits -- if they can survive opposition from the GOP:

Springtime for Toxics, by Paul Krugman, Commentary, NY Times: Here's what I wanted for Christmas: something that would make us both healthier and richer. And since I was just making a wish, why not ask that Americans get smarter, too?
Surprise: I got my wish, in the form of new Environmental Protection Agency standards on mercury and air toxics for power plants. ...
As far as I can tell, even opponents of environmental regulation admit that mercury is nasty stuff. It's a potent neurotoxicant... The E.P.A. explains: "Methylmercury exposure is a particular concern for women of childbearing age, unborn babies and young children, because studies have linked high levels of methylmercury to damage to the developing nervous system, which can impair children's ability to think and learn."
That sort of sounds like something we should regulate, doesn't it?
The new rules would also have the effect of reducing fine particle pollution, which is a known source of many health problems... The ... payoff to the new rules is huge: up to $90 billion a year in benefits compared with around $10 billion a year of costs in the form of slightly higher electricity prices. ...
And it's a deal Republicans very much want to kill.
With everything else that has been going on in U.S. politics recently, the G.O.P.'s radical anti-environmental turn hasn't gotten the attention it deserves. ... And I'm not exaggerating: during the fight over the debt ceiling, Republicans tried to attach riders that ... would essentially have blocked the E.P.A. and the Interior Department from doing their jobs. ...
More generally, whenever you hear dire predictions about the effects of pollution regulation, you should know that special interests always make such predictions, and are always wrong. For example, power companies claimed that rules on acid rain would disrupt electricity supply and lead to soaring rates; none of that happened, and the acid rain program has become a shining example of how environmentalism and economic growth can go hand in hand.
But again, never mind: mindless opposition to "job killing" regulations is now part of what it means to be a Republican. And I have to admit that this puts something of a damper on my mood: the E.P.A. has just done a very good thing, but if a Republican — any Republican — wins next year's election, he or she will surely try to undo this good work.
Still, for now at least, those who care about the health of their fellow citizens, and especially of the nation's children, have something to celebrate.

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Posted: 26 Dec 2011 12:06 AM PST

Merry Christmas, Happy Holidays, or, For Some, Just Plain Old Have a Nice Day

Posted: 25 Dec 2011 09:15 AM PST

I hope everyone has a great day.

December 25, 2011

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Posted: 25 Dec 2011 12:06 AM PST

Twas the Night Before Christmas

Posted: 24 Dec 2011 06:31 PM PST

This is a repeat from previous years, something my grandfather read to us each Christmas Eve, Twas The Night Before Christmas (other repeats: What Happens at the North Pole Stays at the North Pole... and "Sinte Klaas"):

G1

G2G3

L2_1 was the night before Christmas, when all through the house
Not a creature was stirring, not even a mouse;
The stockings were hung by the chimney with care
In hopes that St. Nicholas soon would be there;

G26 G4

L3 he children were nestled all snug in their beds,
While visions of sugar-plums danced in their heads;
And mamma in her kerchief, and I in my cap,
Had just settled our brains for a long winter's nap,

G5

L4 hen out on the lawn there arose such a clatter,
I sprang from the bed to see what was the matter.
Away to the window I flew like a flash,
Tore open the shutters and threw up the sash.

G6

L5 he moon on the breast of the new-fallen snow
Gave the lustre of mid-day to objects below,
When, what to my wondering eyes should appear,
But a miniature sleigh, and eight tiny reindeer,

G7 G8   G9

L6 ith a little old driver, so lively and quick,
I knew in a moment it must be St. Nick.
More rapid than eagles his coursers they came,
And he whistled, and shouted, and called them by name:

G10 G11

L7 ow, Dasher! now, Dancer! now, Prancer and Vixen!
On, Comet! on, Cupid! on, Donder and Blitzen!
To the top of the porch! to the top of the wall!
Now dash away! dash away! dash away all!"

G12

 

G13

 

G14   G15

L8 s dry leaves that before the wild hurricane fly,
When they meet with an obstacle, mount to the sky;
So up to the house-top the coursers they flew,
With the sleigh full of Toys, and St. Nicholas too.

G16   G17

L9 nd then, in a twinkling, I heard on the roof
The prancing and pawing of each little hoof.
As I drew in my head, and was turning around,
Down the chimney St. Nicholas came with a bound.

L10 e was dressed all in fur, from his head to his foot,
And his clothes were all tarnished with ashes and soot;
A bundle of Toys he had flung on his back,
And he looked like a peddler just opening his pack.

G18

L11 is eyes—how they twinkled! his dimples how merry!
His cheeks were like roses, his nose like a cherry!
His droll little mouth was drawn up like a bow,
And the beard of his chin was as white as the snow;


G19

L12 he stump of a pipe he held tight in his teeth,
And the smoke it encircled his head like a wreath;
He had a broad face and a little round belly,
That shook when he laughed, like a bowlful of jelly.

G20

L13 e was chubby and plump, a right jolly old elf,
And I laughed when I saw him, in spite of myself;
A wink of his eye and a twist of his head,
Soon gave me to know I had nothing to dread;

G21

L14 e spoke not a word, but went straight to his work,
And filled all the stockings; then turned with a jerk,
And laying his finger aside of his nose,
And giving a nod, up the chimney he rose;

G22

L15 e sprang to his sleigh, to his team gave a whistle,
And away they all flew like the down of a thistle.
But I heard him exclaim, ere he drove out of sight,
"Happy Christmas to all, and to all a good-night."

G23 G24
G25

Fiscal Policy Can Help the Economy

Posted: 24 Dec 2011 02:46 PM PST

For the doubters:

Fiscal Policy Works, by Paul Krugman: Via Brad DeLong, there's a paper by David Romer (pdf) summarizing recent research on fiscal policy, inspired by the crisis and aftermath. And his conclusion is not at all what you hear on the talk shows; it is that there is now overwhelming evidence that fiscal policy does in fact work when it's not offset by monetary policy. And since we're now in a liquidity trap in which conventional monetary policy has no traction, that's the world we're in.

And for the austerity minded, stabilization policy works the same in both directions -- expansionary policy is expansionary, and contractionary policy is contractionary.

Hoping Employment Takes Off...

Posted: 24 Dec 2011 12:51 PM PST

Landing...but can't help worrying that this will happen.

Things do look better, but assuming recent trends don't end up like the skier in the link the question is how strong growth will be. Will it be just enough to absorb population growth, but no more? Or will there be an acceleration of growth that allows us to provide jobs for new entrants to the labor force and also begin to reemploy the milllions of people who lost jobs during the recession and have had no luck finding new ones?

I wish I was confident that will happen, and happen fairly soon. In the past, such bursts of activity during the recovery phase were normal and expected. But as I noted recently, it's hard to see where the needed jump in demand will come from:

...no matter which sector you point to, government, business, households, or foreigners, there is little reason to expect the large increase in demand needed to drive an economic recovery. Things are looking better, and the green shoots might just be real this time around, but we are still a long, long way from returning to whatever our new normal might be.

It doesn't have to be this way. Although recessions that are caused by financial collapses are among the most difficult to recover from and lost decades are not at all unusual, as Christina Romer recently highlighted effective government policy (monetary and fiscal) can shorten the recovery time considerably.

As policymakers head home for the holidays, I hope they will give some thought to the families that could be having a much merrier Christmas if they had pursued more aggressive policy. And if they (and the powerful interests pulling their strings) do have such a "Christmas Carol" revelation, I hope they will also realize that it's not too late to do more.

I know this is a wish that's unlikely to come true -- we'll be lucky to avoid job-killing austerity measures in the coming year (lumps of coal for all!). But it's Christmas Eve, and maybe Santa will bring a surprise.

Totally Doable?

Posted: 24 Dec 2011 10:28 AM PST

The Atlantic says:

There are just over 526,000,000 Christian kids under the age of 14 in the world who celebrate Christmas on December 25. In other words, Santa has to deliver presents to almost 22 million kids an hour, every hour, on the night before Christmas. That's about 365,000 kids a minute; about 6,100 a second. Totally doable.

On the "totally doable" point, an old post (2005) gives the physicist's view:

Is there a Santa Claus? - a physicist view : Consider the following:

1) No known species of reindeer can fly. But there are 300,000 species of living organisms yet to be classified, and while most of these are insects and germs, this does not COMPLETELY rule out flying reindeer which only Santa has ever seen.

2) There are 2 billion children (persons under 18) in the world. BUT since Santa doesn't (appear) to handle the Muslim, Hindu, Jewish and Buddhist children, that reduces the workload to 15% of the total - 378 million according to Population Reference Bureau. At an average (census) rate of 3.5 children per household, that's 91.8 million homes. One presumes there's at least one good child in each.

3) Santa has 31 hours of Christmas to work with, thanks to the different time zones and the rotation of the earth, assuming he travels east to west (which seems logical).

This works out to 822.6 visits per second. This is to say that for each Christian household with good children, Santa has 1/1000th of a second to park, hop out of the sleigh, jump down the chimney, fill the stockings, distribute the remaining presents under the tree, eat whatever snacks have been left, get back up the chimney, get back into the sleigh and move on to the next house.

Assuming that each of these 91.8 million stops are evenly distributed around the earth (which, of course, we know to be false but for the purposes of our calculations we will accept), we are now talking about .78 miles per household, a total trip of 75-1/2 million miles, not counting stops to do what most of us must do at least once every 31 hours, plus feeding and etc.

This means that Santa's sleigh is moving at 650 miles per second, 3,000 times the speed of sound. For purposes of comparison, the fastest man- made vehicle on earth, the Ulysses space probe, moves at a poky 27.4 miles per second - a conventional reindeer can run, tops, 15 miles per hour.

4) The payload on the sleigh adds another interesting element. Assuming that each child gets nothing more than a medium-sized lego set (2 pounds), the sleigh is carrying 321,300 tons, not counting Santa, who is invariably described as overweight.

On land, conventional reindeer can pull no more than 300 pounds. Even granting that 'flying reindeer' (see point #1) could pull TEN TIMES the normal amount, we cannot do the job with eight, or even nine.

We need 214,200 reindeer. This increases the payload - not even counting the weight of the sleigh - to 353,430 tons. Again, for comparison - this is four times the weight of the Queen Elizabeth.

5) 353,000 tons traveling at 650 miles per second creates enormous air resistance - this will heat the reindeer up in the same fashion as spacecraft re-entering the earth's atmosphere. The lead pair of reindeer will absorb 14.3 QUINTILLION joules of energy. Per second. Each.

In short, they will burst into flame almost instantaneously, exposing the reindeer behind them, and create deafening sonic booms in their wake. The entire reindeer team will be vaporized within 4.26 thousandths of a second.

Santa, meanwhile, will be subjected to centrifugal forces 17,500.06 times greater than gravity. A 250-pound Santa (which seems ludicrously slim) would be pinned to the back of his sleigh by 4,315,015 pounds of force. In conclusion - If Santa ever DID deliver presents on Christmas Eve, he's dead now.

(NOTE: This appeared in the SPY Magazine (January, 1990) )

Of course Santa, like markets, is magic and that is not accounted for in this analysis.