Potpourri
* Here is Nouriel Roubini explaining that laissez-faire capitalism has failed. I’m not sure how the Federal Reserve (which caused the boom) or the trillions in bailouts and other rescue moves (which caused/exacerbated the financial panic) qualifies as laissez-faire. But beyond that quibble, I love how Roubini lists all of the things that can go wrong with more regulation (such as regulatory capture and jurisdictional arbitrage), and basically says, “So the politicians should avoid those pitfalls when saving the world.”
* Have you ever wondered how economies got out of liquidity traps before the advent of wise countercylical fiscal policy? Krugman explains in this post. Apparently what happens is that the capital stock wears out and thus businesses have no choice but to go invest. (BTW Krugman links to this New School outline of Keynesian Business Cycle Theory, which I haven’t read but looks like it might be interesting.)
* Here’s a disgusting story of two Pennsylvania judges who took payoffs from “private” juvenile prison camps–that’s my term, but it’s what they were!–in exchange for finding defendants guilty and shipping them to the companies. (Presumably the companies got paid per “criminal” processed.) I am sure a lot of leftist prisoner advocates are going nuts about this, saying that you can’t bring in the profit motive to something like justice. But on the contrary, this just shows how screwed up the government is. It was the government judges who abused their awesome power over these kids’ lives. To switch contexts, suppose it turns out that the owners of that Georgia peanut butter factory paid off the FDA inspectors to look the other way. Would that prove profits and peanut butter don’t mix, and that the government should nationalize Skippy and Jif along with Bank of America?
* Wintery Knight has an interesting follow-up discussion to my post from last Sunday. I had wondered why Jesus spoke in parables (rather than plainer language), and Wintery Knight discusses God’s “hiddenness” more generally.
Consumer Price Inflation at 4.9% Annualized Rate
Longtime readers know that I care little for the Bureau of Labor Statistics’ “seasonal adjustments” to their data. If you know where to look in their latest report, you’ll see that the unadjusted index of consumer prices rose 0.4% from Dec 08 to Jan 09, which is an annualized increase of 4.9%.
As I said with regard to the PPI numbers yesterday, a single month’s numbers don’t mean all that much. But I think this is the beginning of the Great Reflation of 2009.
Stocks Down, Gold Breaks $1,000
I’m starting to notice a pattern… Anyway, gold broke $1,000, though as of this post it’s down to $990. And the S&P 500 right now is down about 1% for the day. It’s down 43 percent from a year ago.
I think the investors of the world are finally starting to read this blog.
Mario Rizzo on the Misdirection of Resources
Folks, you don’t understand that my dissertation chairman Mario Rizzo is normally a low-key guy. He has been summoned into the policy debate much as Batman heeds Commissioner Gordon’s signal.
Anyway, here’s Rizzo’s talk to the Club for Growth meeting. It’s really good. An excerpt:
To create value, stimulus will have to steer clear of a number of problems.
First, it will have to attract resources that are currently producing less value than would be produced in uses engendered by the stimulus package. Given that more than 90% of the labor force is currently employed, and that leisure does have a value, this is not obvious. The areas stimulated by government spending will not conveniently use only unemployed resources.
Second, the actual activities promoted by new government spending would have to be of positive value, especially in the aggregate. This problem will be exacerbated by the political reality that areas in which misallocations are already greatest will experience the greatest pain, thus attracting compensatory spending.
Third, the debt created to finance this spending will require either higher taxes in the future or it will generate inflation. In either case, future wealth will be lost as productive activities will be penalized. Will the wealth created today, if any, be worth the cost of future losses in wealth?
Ay Caramba! The Spanish Should Cut Taxes for the Right Reasons
Details here. An excerpt:
En conclusión, los críticos del plan de “estímulo” de casi un billón de dólares tienen razón en apoyar recortes de impuestos antes que aumentar el gasto público. Sin embargo, muchos de éstos justifican su crítica de tal forma que ellos mismos demuestran la superioridad del gasto gubernamental. Un correcto análisis muestra que es mejor permitir a los contribuyentes que mantengan su dinero, incluso si dedican el 100% para amortizar sus deudas. No hay nada mágico en el consumo para pensar que nos saque de ésta. De hecho, fue el exceso de consumo lo que nos metió en la crisis actual.
The Chicago Tea Party?
This was all over the internet yesterday, but just in case you missed it: CNBC’s Rick Santelli goes nuts from a Chicago trading floor. The anchors back at the station keep chuckling and making dumb jokes; I can’t tell if they were really thinking, “Whoa, Rick, tone it down!”
Producer Prices Rise Quickly in January
Now you never want to put too much into a single month’s readings, but if you–like me–have been wondering when the serious price inflation is going to start kicking in, the latest PPI report is sobering.
If you take the raw numbers–i.e. not the “seasonally adjusted” ones–the following shows the monthly and annualized percent change in producer prices in the following stages, going from Dec 08 to Jan 09:
Finished consumer goods ====> +1.1%, or 14% annualized
Capital equipment ====> +0.5%, or 6% annualized
Are the floodgates finally opening? Are people ready to accept that you can have rising prices even with high unemployment?
Wenzel Makes the Insider Case: Get Gold NOW
I knew that if I overlooked his ill-conceived attacks on Jeff Tucker and me, that Robert Wenzel would eventually justify my daily visit to his site. And he did not disappoint. Really, you need to read this whole blog post. Wenzel points out the government’s deception regarding money market fund withdrawals in September 2008, and gives decent evidence showing that Bernanke panicked that month. And then Wenzel ends with this:
Since the Congressman Kanjorski comments about the panic withdrawals, the Fed has obviously decided, given that we live in the the age of the internet, to simply go with the flow and act as though it was a known fact about heavy mutual fund withdrawals across the board. It wasn’t. I was looking for such stories back in September because of the problems at Primary Reserve. They weren’t there. But more important than acknowledgements of the withdrawals, is the panic it caused. It completely reversed Fed policy. The problems at Bears Stearns didn’t do this. The problems at Lehman didn’t do this. Not even the sub-prime mortgage crisis caused such panic. Congressman Kanjorski is right. It was an electronic run on the banks. If it had been allowed to continue, it would have resulted in trillions in withdrawals, the system would have collapsed. That’s what caused Bernanke to within a matter of a couple of days completely change Fed money growth policy. The problem now is that he can’t stop printing or the same threat comes back. He’s trapped in a major monetary inflation spiral that will ultimately lead to a huge price inflation spiral.
Gold has been going up for a reason. My guess is the players, the Paulson’s and Rubin’s know what is coming and while they have “The Kid” Geithner run distraction plays, they are loading up on the yellow metal. It’s the one thing that will survive the financial panic ahead. Gold won’t melt in an overall financial meltdown. I hope you own some.
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