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Thursday, July 30, 2009

Cash for Clunkers is a Dud or Best Stimulus Ever

It is being rumored that the US DOT is pulling the plug on the program due to the FAILURE of the federal government to be able manage this stimulus program. That's right, you guessed it... the bureaucracy is creating a backlog so that so many dealers are involved in the program that the government doesn't know how much money it's committed.

This, like all the rest of the fiscal stimulus, due to its hasty debut on the national scene, is failing to meet the needs of the public, and creating huge lags.

What's so unnerving about this is that dealer's have already made all these promises, people have already planned their purchases, etc. ... all because of this program - which the government may abruptly stop because it can't handle it.

Story here

On the other hand, the program has been so well used that it may turn out to be the quickest way the government has spurred consumer spending ever! In that case, maybe they should just spend all the rest of the stimulus money via 'trade in' rebates - for all sorts of new goods. Could be the best stimulus ever.

Monday, July 27, 2009

Whatever Queeny Wants, Queeny Gets

Apparently scores of British economists decided they should apologize to the Queen for the financial crisis. I applaud that. Mainstream economists should own up to their massive failure. Such honesty would, of course, never come forth in US.

But, I disagree that the failure to predict the crisis was a failure of "collective imagination." It wasn't the lack of realizing the problem by itself that failed to stall the crisis, it was the complete lack of acknowlegment of scores of others that DID realize there was a problem (and of those that WERE speaking about it) by mainstream economists. It wasn't the lack of collective imagination. It was an abundance of collective segregation and of (by keeping out heterodox voices), of collective arrogance (for thinking other fields and lesser accepted models had nothing to offer).

I Changed My Mind (I'm Back). "The Problem with Public Institutionalism."

First off, I've decided to cut my 'hiatus' short. I just can't stay away ;).

Ok, let's dive right in. Those who follow my blog probably know that I lean slightly liberal, though much less so on the fiscal side of the spectrum than it may seem at a distance. To this point, I've been thinking about the hazards of public ownership and operation of institutions that are pivotal to a healthy economy (things like health care, education - one of which is going to become more public, the other already is largely public).

In a world where public institutions are prevalent and perhaps even dominate a society (not in the US, but hypothetically speaking), there is a serious problem when major recessions happen. As most introductory econ students learn, according to mainstream econ, recessions eventually end due to lower price expectations in the future (etc.).

But, I read the news today, and 5 of the top 10 local headlines are about how various major public schools (Purdue, Ball State, Vincennes....) are all hiking tuition (by almost 4%). In a world where short-term inflation is essentially 0%, that is scary. They are forced, nevertheless, to hike prices (as most all public schools are forced to do short of teacher layoffs) because they receive the bulk of their funding from government (State, etc.). But in recessions, States get less revenue, so less money flows to schools (or to public funded health care, or whatever service you can think of). And unlike private industry, the level of many services 'demanded' by the public is forced to be roughly constant (ie. the public expects such services to be maintained even in recession). It is only logical, therefore, to predict that, contrary to the private market adjustment, prices (and price expectations) will RISE for public-funded goods. So, while private industries (motor vehicles etc.) are slashing prices, public funded institutions are 'fighting' the recovery by raising prices.

In a largely public-funded world where the self adjusting properties of aggregate supply/demand breakdown, what is the solution? The only solution is government intervention --- which furthers the problem.

What this means is not that certain institutions (like health care etc) shouldn't be at least partially public ran/funded. What it suggests is that, in aggregate, there is a limit by which we take on more and more risk of destroying market mechanisms with our meddling.

Thursday, July 2, 2009



You may have noticed I haven't posted anything in a month and a half. I have decided to take an indefinite hiatus from my econ blog. I'm taking this action for a couple reasons: (i) I'm a bit burnt out from blogging and all the research etc. that entails, and (ii) my workload is such that i don't feel I'd be able to currently keep up blogging at a decent level.

If and when I decide to relaunch, I will let everyone know! Thanks everyone! I've appreciated commenters and general visitors alike.