Notes on the Economy|Part 4

I am presently taking a course entitled "Macroeconomic Policy & Financial Markets" and in the first chapter of the Textbook it talks about dealing with all the clutter of news or how the information is provided in such disjointed and random patterns that any broader analysis of Macroeconomics is tough at best. So without further ado let me look at the chaff and see if any wheat is there...

Let me at least start off with some good news inU.S. Dec durable goods orders surge 5.2%! But of course employment in manufacturing may still be going down during this time. I can only hope that some day that Libs (like Thom Hartmann) understand that our manufacturing base is still on a long term upward trend and we produce more now than we ever have. It is only that employment in manufacturing has gone done. Just think what happened to all the farmers in our economy over the last 2 to 3 hundred years.

I expect this to be spun by some nihilists to say RECESSION:IMF sees severe U.S. slowdown, but no recession. Most indicators for the past 3 months have already indicated a slow down in the US economy. I did like this comment by Johnson:

The global economy will not be immune from the effects of a U.S. slowdown, the IMF said. "Reports of decoupling have been greatly exaggerated," Johnson said.

Yes the world is dreaming. And the nihilists here are praying hard that we lose power in any form possible, but just as long as it does not effect them.

Of course if the nihilists pray hard enough, maybe their wish will come true. Of course then they will blame someone else if that happens. Which brings us up to a nice little argument entitled Recession Worries Help Fuel Recession. I agree with the economic analysis but I disagree with his gun analogy. Benjamin starts out talking about crime reporting but then says getting guns does not make a person safer. While the later may be true that is comparing oranges and apples.

For a look at how the last theory looks in real life the following link is a good read (even if from just a CPA): Is the Downbeat Business Press Right About the Economy?

The following article points out some slowing that occurred over 2007 inU.S. GDP slows to 0.6% growth in fourth quarter. But this does count as a recession and even with strong head winds in the housing market we are still making ground forward. Anyway a short article so here it is:

The U.S. economy slowed sharply in the fourth quarter, growing at a 0.6% annual rate, the weakest growth since the economy was pulling out of recession in 2002, the Commerce Department reported Wednesday. The growth rate was lower than the 1.1% expected by economists. The economy grew at a 4.9% pace in the third quarter. Consumer spending and business investments slowed slightly in the fourth quarter. Investments in houses fell at the fastest rate in 26 years. Exports grew at a slower pace. For all of 2007, gross domestic product grew 2.2%, the slowest growth since 2002. GDP increased 2.9% in 2006.

Remember from my Dweeb of the Week and how PGL talked about the dangerous drug of tax and spend through the excuse of the Balanced Budget Multiplier. PGL also made this comment in the comments section:

2slug - you are correct. The impact of a $1 cut in government spending is larger than the impact of a $1 tax cut. Alas, my link did a better job of this history behind this theorem than the exposition of the theorem itself. So thank you for adding the exposition, which is a point I should have made more clearly.

I guess I understand the difference they are trying to point out that the marginal propensity for imports of consumers is higher than the government outlays. But that is just the first round in the multiplier and even there many national defense parts are contracted out also. There is also the effect that consumers would also save (MPS) part of the tax rebate but again we seem to be talking fractions and effects that may be minimal at best. I also question the impact statement. A $1 of less government spending will be a negative effect and $1 tax cut is a stimulus. Ultimately, this stimulus may be more psychological than anything else. Not to even say that is bad.

The following article seems to take a different approach to the tax cut debate Why Tax Rate Reductions Are More Stimulative Than Rebates: Lessons from 2001 and 2003. But I will have to wait to explore this article more in another post.

And now for something completely different...Societe Generale slammed by $7B fraud. In the end this may not affect the economy much but this does put into question France's regulatory agencies and Societe Generale for not paying more attention to what a bank was doing as well as a client. Luckily in our economies now, there will be steps taken to mitigate contagion effects on the economy/markets.

So far I think Ben Bernanke is doing as good as job as possible unlike someone at Motley Fool in Why Bernanke Was Wrong. Not sure what industry he works in, but I would just advise not to throw bricks in a glass house...


Links:
Robert Reich on the credit crisis

House Passes Economy Stimulus Package

Deal Reached on Tax Rebates for Stimulus

Stimulus deal announced by White House, House leaders