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September 8, 2012

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Latest Posts from Economist's View


Paul Krugman: Cleaning Up the Economy

Posted: 07 Sep 2012 12:36 AM PDT

Things may be looking up:

Cleaning Up the Economy, by Paul Krugman, Commentary, NY Times: Bill Clinton's speech at the Democratic National Convention was a remarkable combination of pretty serious wonkishness ... and memorable zingers. Perhaps the best of those zingers was his sarcastic summary of the Republican case for denying President Obama re-election: "We left him a total mess. He hasn't cleaned it up fast enough. So fire him and put us back in."
Great line. But is the mess really getting cleaned up? The answer, I would argue, is yes. The next four years are likely to be much better than the last four years — unless misguided policies create another mess. In saying this, I'm not making excuses... Job growth has been much slower and unemployment much higher than it should have been... 
Now,... in telling this story about a disappointing recovery I [won't] mention any of the things that Republicans talked about last week in Tampa, Fla. — the effects of high taxes and regulation, the lack of confidence supposedly created by Mr. Obama's failure to lavish enough praise on "job creators" (what I call the "Ma, he's looking at me funny!" theory of our economic problems). Why the omission? Because there's not a shred of evidence for the G.O.P. theory of what ails our economy, while there's a lot of hard evidence for the view that a lack of demand, largely because of excessive household debt, is the real problem.
And here's the good news: The forces that have been holding the economy back seem likely to fade away in the years ahead. ... Does this mean that U.S. economic policy has done a good job? Not at all.
Bill Clinton said of the problems Mr. Obama confronted on taking office, "No one could have fully repaired all the damage that he found in just four years." If, by that, he meant the overhang of debt, that's very much the case. But... The policies we actually got were far from adequate. Debt relief, in particular, has been a bust — and you can argue that this was, in large part, because the Obama administration never took it seriously.
But, that said, Mr. Obama did push through policies — the auto bailout and the Recovery Act — that made the slump a lot less awful than it might have been. ...
So Bill Clinton basically had it right: For all the pain America has suffered on his watch, Mr. Obama can fairly claim to have helped the country get through a very bad patch, from which it is starting to emerge.

Recent Developments in CEO Compensation

Posted: 07 Sep 2012 12:24 AM PDT

Links for 09-07-2012

Posted: 07 Sep 2012 12:06 AM PDT

Draghi Takes 'A Step in the Right Direction'

Posted: 06 Sep 2012 06:34 PM PDT

Paul Krugman:

Draghi: ...I guess I'd better weigh in on what would, if it weren't for the DNC, be the story of the day: the latest announcement from the European Central Bank.
What I've been arguing for a while is that saving the euro requires two things: (a) large ECB purchases of peripheral bonds (or at least a declared willingness to do so, to cap yields), and (b) an indication that the ECB will be willing to allow higher inflation to make adjustment possible.
It looks as if we sorta kinda got (a), although the details are hard to interpret. Nothing on (b) yet, and market indicators of inflation expectations are still too low.
So, a step in the right direction, probably enough to buy a significant amount of time, but not enough unless more follows.

[Greg Ip comments here.]

Amazon's 'Business Model' Competition with Apple

Posted: 06 Sep 2012 01:33 PM PDT

Joshua Gans:

Amazon diversifies on the business model: Amazon had its new Kindle announcements today. The news is that prices came down; at least on devices. Basically, everything about Amazon is about getting their devices into people's hands. ...
It is tempting to suggest that Amazon are clearly competing on price compared with Apple. But, in reality, it is a different business model. Apple don't try to make money from content (apps, books etc) and various calculations suggest they don't which is why they cede pricing control to others. That means they make money when they sell devices... And that is why Apple's content store is tied to its devices and available nowhere else.
Amazon want to maintain pricing control over content (and that has been a challenge) and pursue a 'retailer model.' What retailers do is provide a distribution centre for free to shoppers and then make money off sales inside the store. That is what Amazon are doing both with really cheap shipping for physical goods and also a really cheap distribution outlet in the form of Kindles. To be sure, they'll happily set up shop elsewhere (such as the free Kindle apps on devices) but they don't have the same control there (i.e., you can't buy books directly from a Kindle app but you can buy them from a browser on an iPad). Of course, you will note that the content Amazon sells (in all its forms) is actually no more expensive and often cheaper than the content sold on iTunes and the like. The same was true for physical goods. ... On digital content, there are margins in every sale. Amazon intend to make it all up on volume. If Kindles are ubiquitous, they have a good shot at that.
The thing about this is that 'business model' competition is very different from a price war. A price war suggests there will be one winner or, alternatively, a commodification of the market. Business model competition means that coexistence is possible. Apple will likely win out on performance and so appeal to those who need that reliability — higher end consumers and commercial or industrial applications — while Amazon will appeal to those who just want to consume content cheaply and easily. To be sure, what Amazon does will constrain what Apple does and vice versa. But my guess is that it won't result in the victory of a single business model. There is room here for a few.

Fed Watch: Quick Employment Report Preview

Posted: 06 Sep 2012 11:39 AM PDT

Tim Duy:

Quick Employment Report Preview, by Tim Duy: Everyone has their eyes on tomorrow's employment report, considered to be especially important as it could clear any final hurdles to additional Federal Reserve easing at the next meeting. Can this week's data give us any hints of the outcome?
The week began with the ISM manufacturing report, with the headline number ticking down just a notch:

Ism

Many of the underlying details were also little changed, with some notable exceptions. The inventory component climbed 4 points while the prices paid component rose 14.5 points, suggesting that firms are being hit by both weaker demand and higher costs. Not a great combination for profit margins. The production measure slid 4.1 points, pushing it into negative territory:

Ism1

And the import component also slid into negative territory, suggesting additional domestic weakness in the sector:

Ism2

In short, softer, but not devastatingly so. Generally consistent with Fed easing in the past. On the other side of the coin, the ISM non-manufacturing report came in higher, and, notable as far as the employment report is concerned, the employment component rose 4.5 points:

Ism3

Also on the generally positive side was the gain in the ADP payrolls numbers, with private employees rising by 201k in August. Finally, initial claims were somewhat lower than in August. You can take these bits and pieces to create a quick model of the monthly change in nonfarm payrolls as a function of the ISM employment index (NMFEI), the monthly change in the ADP report, and the monthly change in initial claims:

Nfpregress

Fitted

The model forecasts a nonfarm payroll gain of 198k for August. To be sure, the standard error of 88k is large in terms of payroll forecasts; I wouldn't be surprised by anything between 110k and 290k. That said, the current consensus is 125k with a range of 70k to 177k, which seems low to me. So when Bill McBride concludes:

Overall it seems like the August report will be somewhat stronger than expected.

I find myself in agreement.

Bottom Line: The range of consensus forecasts for the August employment report look to be on the low side of what we should expect. If the consensus is correct, then the odds of the Fed easing further this month will swell; 125k or lower seems too low to rapidly alleviate what Federal Reserve Chairman Ben Bernanke describes as a "grave" employment situation. But something closer to the top of the consensus range and above could throw a wrench in expectations for the next Fed meeting.

Vote for the Guy You Disagree With?

Posted: 06 Sep 2012 09:49 AM PDT

I'm not buying this. Do you? (Even if the benefit described below exists, there are also costs to weigh against the benefits, and I don't see any way to make the potential benefits larger than the potential costs. And as to the claim that opposite day prevails in politics -- that Republicans would be more likely to implement policies Democrats favor -- I'm skeptical. Republicans would be more likely to impose austerity than stimulus if they controlled both Congress and the presidency, and with John Taylor, or someone like him, as head of the Fed you can forget about more monetary stimulus):

Vote for the Guy You Disagree With, by Justin Fox: There's a case to be made (and, in fact, it has been made) that, if what you think the U.S. economy needs is more fiscal and monetary stimulus, you should vote for Mitt Romney and Paul Ryan in November... This is despite the fact that Romney and Ryan say they're against fiscal stimulus, and ... monetary stimulus... The reasoning is pretty simple: the likely Republican majority in the House and the possible Republican majority in the Senate will work against any attempt by President Obama to stimulate the economy — or do much of anything else, for that matter. Whereas if Romney moves into the White House, Republican lawmakers will cut him slack and the Democrats will too if he pushes policies that they wanted in the first place. A similar if less-stark dynamic could play out on the monetary-policy Federal Open Market Committee, where inflation hawks with Republican leanings would discover they weren't so hawkish after all.
What I hadn't really thought of ... is that you could just as easily make the opposite argument. If you think what the nation needs above all is austerity and entitlement reform — meaning entitlement cutbacks — you're likelier to get your way in a second Obama administration than under Romney/Ryan. ...
I shouldn't overstate my case here. Sometimes presidents deliver what they promise on the campaign trail. Ronald Reagan said he'd cut taxes, and he did. Barack Obama said he'd expand health insurance coverage to all, and he's getting pretty close. ...

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