Category: Economics

Another day, another blooper. Mudflats notes Sarah Palin’s clueless gaffe when she was asked about Fannie Mae and Freddie Mac. The important thing is not what she said, but how she handled the question:

But notice that Palin didn’t dodge the question. She didn’t panic and say she’d need to check with someone, or that she needed more information, or skirt around it. She actually felt confident enough to answer, and lay it all out there – and be completely wrong. She had no clue.

At least we now know that McCain, who admitted he didn’t really know much about the economy, decided to balance the ticket by choosing a running mate who doesn’t know ANYthing.

No wonder the McCain team wants to keep her away from real journalists…

There’s a fascinating piece in the latest New Yorker by James Surowiecki on the difference between rules-based and principle-based regulation:

It’s something like the difference between football and soccer. Football, like most American sports, is heavily rule-bound. There’s an elaborate rulebook that sharply limits what players can and can’t do (down to where they have to stand on the field), and its dictates are followed with great care. Soccer is a more principles-based game. There are fewer rules, and the referee is given far more authority than officials in most American sports to interpret them and to shape game play and outcomes. For instance, a soccer referee keeps the game time, and at game’s end has the discretion to add as many or as few minutes of extra time as he deems necessary. There’s also less obsession with precision—players making a free kick or throw-in don’t have to pinpoint exactly where it should be taken from. As long as it’s in the general vicinity of the right spot, it’s O.K.

The focus of Surowiecki’s piece is financial: he notes that

… a principles-based system has real virtues. It can make life easier for honest corporations, since they have to spend less time complying with overly complex rules, and also thwart dishonest ones, since regulators can spend more time looking at the substance, rather than the minutiae, of corporate bad behavior. It has been argued that Enron might have found it harder to get away with its shenanigans under a principles-based system, since many of the company’s gambits, while following U.S. accounting rules, nonetheless violated fundamentals of financial reporting.

But I really think this reflects a much deeper difference between the U.S. and (particularly) Europe. I see it in the legal systems, in politics, in education…
In any case, as Surowiecki notes, the bottom line is inescapable: good regulation requires good regulators. And that’s true worldwide – just as any Premier League fan about the state of refereeing!

Yesterday I went to Town Hall Seattle to hear Dan Ariely talking about his new book, “Predictably Irrational”. He has a blog, here, which includes rather disconcerting reflections on the process of giving a book reading, and a delightfully strange (?strangely delightful) website here. There was a pretty full house at Town Hall, and I didn’t wait to buy an autographed copy of the book; fortunately it is available for the Kindle.
Rather than describing Dan’s work, I’ll let him speak for himself:

Dan writes, and speaks, in a very accessible and witty style, and it’s easy to enjoy his work on a purely personal level, laughing as we recognize how “predictably irrational” we are. But of course there’s a lot more to it than that; like Colin McGinn in “Mindfucking”, Dan shows us very clearly how easily our decisions can be manipulated.
An example, from Dan’s talk: Commonsense would suggest that if you are trying to choose between two items with somewhat different attributes, the addition of a third item which is worse in every respect than each of the other two should make no difference whatsoever. But commonsense would be wrong.
Highly recommended (especially for web-site designers!).

Back on November 5, 2004, I wrote a little piece entitled “Follow the bouncing ball” about the tumbling US dollar:

What will this mean for the US economy? Unless the budget and current account deficits are slashed, the probable consequences are rising interest rates, rising inflation, a depressed housing market, and recession. We’ve seen this before: it’s called stagflation. Welcome to the 1970s. Even the oil prices look familiar….

I pointed the reader at an online tool for displaying currency rates, and quoted the BBC correspondent that “It looks like the dollar has further to fall.” Interestingly, the dollar actually staged a bit of a recovery for a couple of years, before resuming its slide. Here’s the graph:

So why am I revisiting the topic today? From today’s Washington Post: talk about a sign of the times:

NEW YORK — “Euros Only” reads a handmade sign in Billy’s Antiques & Props on East Houston Street in Manhattan. But that’s really just an attention grabber. Actually, owner Billy Leroy explains, the store will accept Canadian dollars and British pounds, and U.S. dollars, too….
Leroy began accepting euros after a buying trip to a Paris flea market in November, when the exchange rate meant he couldn’t afford to purchase his usual volume of dressers, mirrors and wax figurines. This is his way to raise euros back home….
U.S. currency is the only legal tender money in the United States, but parties can agree to satisfy a debt by other means….
However, some people in the United States don’t appreciate stores here dealing in foreign currencies. “I get mail saying I’m un-American,” said Leroy, the antique shop owner. “But it’s American to adapt.”

As the US economy lurches towards recession, the WSJ came up with an appropriately pessimistic survey piece: Economists React: ‘Looking for a Bunker to Hide in’. This attracted various comments, including the following gem:

Gosh, I knew that $300 tax rebate Bush gave me six years ago couldn’t fuel the economy forever, but I was hoping it would at least last through his term so we could blame the Democrats for the recession. Darn it!
Comment by James – January 4, 2008 at 3:54 pm

A sad day here at Sun, as the previously-announced layoffs (involuntary severance, reductions in force, downsizings, pick your euphemism) started to take effect. On some previous occasions I have been a manager, and have therefore had some insight into how the process unfolds. This time I was just another individual contributor, and had no advance warning of any kind. The managers and HR department are (unfortunately) getting quite good at this kind of thing – it’s not a skill that I would wish them to cultivate.
I have no particular wish (nor, per Sun’s Policy on Public Discourse, would it be appropriate) to discuss the business issues surrounding the layoffs. Nor is it time to discuss the consequences of all of the project changes and cancellations that accompany a RIF, although some of my colleagues whose blogs are syndicated on PlanetSun have done so. Instead, this evening I find myself thinking about the friends and colleagues whom I will miss going forward. The familiar (if distorted) face at the other end of a video conference. The presence on the mailing list always ready with a sardonic quip or a helpful suggestion. The now-empty office that used to be a rendezvous when I travelled out to Menlo Park or Santa Clara. (But not empty for long – space consolidation will swallow up empty offices rapidly.)
Tonight I’d like to thank all of the people that I’ve worked with over the many years that I’ve been at Sun, particularly those who are no longer with the company and whose departure was involuntary. I wish you were still here. You know who you are.

I caught a few minutes of Lou Dobbs on CNN this evening. He was interviewing Catherine Mann, from the Institute for International Economics, on the subject of trade policy and outsourcing jobs (see my blog entry about my epiphany. She went on and on about the economic benefits of increased trade, and you could see Lou Dobbs getting more and more incredulous. Eventually he asked her about the practical consequences for those whose jobs were outsourced; seemingly surprised, she acknowledged “short-term dislocations” and the need for “workforce flexibility”. Dobbs asked her if she was in effect saying that all we could do was spend a few extra dollars on retraining, but that otherwise this was inevitable, and she concurred.
Shortly afterwards, Lou Dobbs revealed the result of an instant poll on the CNN website: 93% of respondents said that outsourcing U.S. jobs is “a threat to the American way of life”, 1% said it was “no big deal”, and 6% said it was “the price of doing business today”. He closed by quoting Thomas Jefferson: “The selfish spirit of commerce … knows no country, and feels no passion or principle but that of gain.”
This issue is going to have political consequences. “Sophisticated” people may decry it as crude populism (and may even attempt to characterize it as “class warfare”), but 93% is significant, especially in a medium where the audience tends to be skewed to the right.
P.S. In editing this blog entry, I Googled “Institute for International Economics” and noticed that Ms. Mann’s latest publication is Policy Brief 03-11: Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth. This makes the point very nicely, I think: we’re going to get people chosing sides on whether outsourcing is, first and foremost, “productivity growth” or “a threat to the American way of life”. Which side are you on….?