More Ramirez 5:58 AM

Ramirez on Obama

Ramirez on Global Warming

Ramirez on the Economy

Here we go (Roy Rodgers) 12:04 AM

Big kev is back and he is back in a big way.

Yesterday’s declaration of kev's next election winning platform is guaranteed to bring on the laughs. 100%

Here is, the next self declared saviour of social democracy, announcing that Australia needs to return to the productivity levels of the 90s. That we need to pull our socks up and work that bit extra.

See the Australian

Big kev has said its all up to us, only we the workers can save the economy. We need to achieve the 2% annual productivity gains that were delivered under the Hawke, Keating and Howard tripartite.

Well smack me over the back of the head, am I missing something or isn’t it true that these productivity gains were the result of one of the most liberalising eras in Australian history? These productivity gains were the direct result of microeconomic reform, of privatisation and corporatisation, of tax reform of labour market reform ... reform as in liberalisation ... reform as in the freeing up of markets. It was the 80s and 90s that saw Australia transform itself from a social democracy into a liberal democracy, and it was this transformation that gave us the wealth we have now.

Obviously this simple observation is totally lost on big kev. Or is big kev now going to change colours ... is he no longer going to be the pinkly tinged social democrat of his dreams? I doubt it, I’d say he just hasn’t twigged that the 90s productivity growth is solely attributable to stuff that he doesn’t want to and is not ever prepared to do.

Let's have a look at his run on microecomic reform to date;

• Removal of work choices ... the very first roll back of a liberal reform in the last 30 years
• Re-union-ification (I know there’s no such a word) of the workforce. This year, for the first time in a decade or so we were subject to the labour phenomenon of Christmas strikes ... thank you santa
• Promotion of protectionist policies ... see recent decision in relation to Australian publishing and anti dumping laws
• Selective handouts to industry ... here go and make me a green car, oh you were already making one ... well you might as well take the cash anyway!
• Reintroduction of progressive taxation and payments ... see the robin hood delusion wayne swan is currently suffering under
• Reintroduction of the welfare orientated approach ... see response to housing affordability crisis ... ie more public housing

The list just goes on and on. While I have to admit big kev is very hard to pin down on anything the one thing we can say with any certainty is that he is NOT a microeconomic reformer.

Do you think for a second that big kev may seek to address our current issues in the provision of health services by decentralising health planning, privatising assets, empowering consumers to make their own choice ... I DOUBT IT

Do you think for a second that big kev may want to reform the tax base by removing exemptions from GST, moving the focus away from income based taxation or instituting flat rate income taxes, abolishing distortions such as negative gearing, abolishing company tax, distributing mineral royalties through positive tax returns, getting rid of absurdities such as payroll tax and stamp duties.... I DOUBT IT

Do you think for a second big kev will want to reform the labour market by abolishing the minimum wage, promoting individual workplace agreements, abolishing unfair dismissal ... I DOUBT IT

Do you think big kev has the stomach to tackle issues associated with the provision of basic services such as water and sewerage (can you honestly see any privatisation in these areas). Do you honestly think big kev has an agenda of reducing government service provision. If we need money lets sell the ABC, that would free up approximately a billion a year in budgetary funds and would also provide government with some ready cash to retire the mountain of debt it now has.... I DOUBT IT.

Do you think for a second that big kev will want to address housing affordability by removing constraints on land supply, abolishing hidden taxes such as developer charges, abolishing stamp duties, removing heritage overlays ... I DOUBT IT

That’s not to say that Mr Abbot has the necessary where-with-all either.

Undoubtedly big kev's form of reform is going to be regulate ... interfere ... coerce ... spend money. None of which is going to have a positive impact on productivity.

The hilarious thing is that he is going to ask us to deliver productivity growth similar to that associated with the advent of market based reforms by .... wait for it ... wait for it .... wait for it .... doing exactly the type of things those original reforms were aimed at addressing.

The good oil 12:19 AM

The following pod cast gives a couple of alternative views about the lessons to be learnt from the great depression as they apply to our current global crisis. Worth a listen.

The New Financial Deal: What Do the 1930s Teach About Reforming Today's Financial Markets?

Speakers:	John H. Cochrane, Myron S. Scholes Professor of Finance, University of Chicago Booth School of Business
	Thomas F. Cooley, Dean, Leonard N. Stern School of Business, New York University
	Charles Geisst, Professor of Finance, Manhattan College; Author of Wall Street: A History
	Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance, and Ethics, Leonard N. Stern School of Business, New York University

Link to pod cast

A difference of opinion (Roy Rodgers) 5:40 PM

The hype has settled down and enough time has now passed that its worthwhile to start asking questions about the great recession (in our case the great almost recession). Although there are alot of different opinions floating around, we seem to be seeing the emergence of two different schools of thought. For convenience sake well call them the type1 and type 2.

Type 1

One school focuses primarily on "greed" and places the blame well and truly on the private sector. This school of thought inevitable avoids as much as possible any mention of fanny may or freddy mac and instead seems to focus on regulating financial instruments.

Type 1 cares more about why people bought dodgy financial instruments and not why the instruments were dodgy in the first place. The reason for this distinction appears to be that it allows them to claim that the inefficient actions of participants belie the efficient market hypothesis and as such provide an obvious invitation to increase centralised control. They promote the idea that more intrusive regulation would have saved us from the calamity.

Type 2

The second school of thought places the blame well and truly on the shoulders of regulators. this school of thought focus more on the genesis of the crisis rather than contagion. In particular it draws attention to a long history in the US of monetary expansion, making interest rates too low and the moral hazard associated with shielding investors from the normal ups and downs of a business cycle. The argument is that investors had access to artificially cheap money and also lacked the skills to properly manage risk. All of which feed into a spectacularly huge housing bubble in the US.

Alongside easy money was a bizarre push by government to promote housing mortgages on a welfare basis. This school often draws attention to fanny mae and freddy mac (both government sponsored entities) and the legislative changes made by Bill Clinton.

Put these two things together and BAM one subprime crisis coming up. And its this subprime crisis that made all those financial instruments dodgy.

At the end of the day

At the end of the day the truth probably lies somewhere between the two extremes of type 1 and type 2.

The following abstracts were lifted from the most recent version of Critical Review. This addition of the journal is dedicated to the crisis and I thought there would be value in reproducing the abstracts as they are illustrative of the breadth of argument regarding the cause of the recession.

Along with the mandatory economic haters they also represent the opinions of some very well respected economists including nobel laureates Smith and Stiglitz (ps I love the way Stiglitz cant help himself from putting forward a highly politicised viewpoint).

Its worth noting that those that spend their time knocking down markets never present a viable alternative, and those that call for regulation never seem to consider that the financial sector is already regulated at an extremely high level. So while the market may have produced an outcome they don't like, they should also acknowledge that the vast body of regulation all ready in place failed to stop the correction.

INTRODUCTION: A OF POLITICS, NOT ECONOMICS: COMPLEXITY, IGNORANCE, AND POLICY FAILURE
Jeffrey Friedman
ABSTRACT: The financial crisis was caused by the complex, constantly growing web of regulations designed to constrain and redirect modern capitalism. This complexity made investors, bankers, and perhaps regulators themselves ignorant of regulations previously promulgated across decades and in different “fields” of regulation. These regulations interacted with each other to foster the issuance and securitization of subprime mortgages; their rating as AA or AAA; and their concentration on the balance sheets (and off the balance sheets) of many commercial and investment banks. As a practical matter, it was impossible to predict the disastrous outcome of these interacting regulations. This fact calls into question the feasibility of the century-old attempt to create a hybrid capitalism in which regulations are supposed to remedy economic problems as they arise.

THE CRISIS OF 2008: LESSONS FOR AND FROM ECONOMICS
Daron Acemoglu
ABSTRACT: The financial crisis is, in part, an embarrassment for economic theory. Economists tended to think that severe business cycles had been conquered; that free markets require no regulations to constrain self-interest; and that large, established companies could be trusted to monitor their own behavior so as to preserve their reputational capital. These three beliefs have proved to be inaccurate. On the other hand, economists justifiably believe that as a process of creative destruction, capitalism requires institutions that allow for innovation and the reallocation of resources toward firms that have successfully innovated. This suggests that we should not condemn wholesale even the financial innovations that played a role in the crisis, which have been remarkably productive and will continue to be, given the right regulations. Nor should economists hesitate to say that political reactions to the crisis that hamper such innovation and reallocation may do far more harm than good.

CAUSES OF THE FINANCIAL CRISIS
Viral V. Acharya and Matthew Richardson
ABSTRACT: Why did the popping of the housing bubble bring the financial system—rather than just the housing sector of the economy—to its knees? The answer lies in two methods by which banks had evaded regulatory capital requirements. First, they had temporarily placed assets—such as securitized mortgages—in off-balance-sheet entities, so that they did not have to hold significant capital buffers against them. Second, the capital regulations also allowed banks to reduce the amount of capital they held against assets that remained on their balance sheets—if those assets took the form of AAA-rated tranches of securitized mortgages. Thus, by repackaging mortgages into mortgage-backed securities, whether held on or off their balance sheets, banks reduced the amount of capital required against their loans, increasing their ability to make loans many-fold. The principal effect of this regulatory arbitrage, however, was to concentrate the risk of mortgage defaults in the banks and render them insolvent when the housing bubble popped.

AN ACCIDENT WAITING TO HAPPEN
Amar Bhidé
ABSTRACT: Banks provide a valuable but inherently unstable combination of deposit-taking and lending functions that were successfully held together for several decades after the New Deal by tough banking rules. The weakening of the rules after the 1970s promoted the displacement of traditional relationship-based banking with securitized, arms-length alternatives that encouraged banks to undertake activities about which bankers lacked deep relationship-based knowledge of the risks. Ironically, this risky behavior, encouraged by loosened regulation, was reinforced by progressively tightened securities regulation, which promoted stock-market liquidity but also deprived large banks (and other publicly traded companies) of oversight by investors with “insiders’” knowledge. Both the underregulation of banking and the overregulation of securities were underpinned by economic theories that favored blind diversification in liquid, anonymous markets, and that ignored the value of relationship-based knowledge and case-by-case due diligence.

THE FINANCIAL CRISIS AND THE SYSTEMIC FAILURE OF THE ECONOMICS PROFESSION
David Colander, Michael Goldberg, Armin Haas, Katarina Juselius, Alan Kirman, Thomas Lux, and Brigitte Sloth
ABSTRACT: Economists not only failed to anticipate the financial crisis; they may have contributed to it—with risk and derivatives models that, through spurious precision and untested theoretical assumptions, encouraged policy makers and market participants to see more stability and risk sharing than was actually present. Moreover, once the crisis occurred, it was met with incomprehension by most economists because of models that, on the one hand, downplay the possibility that economic actors may exhibit highly interactive behavior; and, on the other, assume that any homogeneity will involve economic actors sharing the economist’s own putatively correct model of the economy, so that error can stem only from an exogenous shock. The financial crisis presents both an ethical and an intellectualchallenge to economics, and an opportunity to reform its study by grounding it moresolidly in reality.

MONETARY POLICY, CREDIT EXTENSION, AND HOUSING BUBBLES: 2008 AND 1929
Steven Gjerstad and Vernon L. Smith
ABSTRACT: Asset-market bubbles occur dependably in laboratory experiments and almost as reliably throughout economic history—yet they do not usually bring the global economy to its knees. The Crash of 2008 was caused by the bursting of a housing bubble of unusual size that was fed by a massive expansion of mortgage credit—facilitated, in turn, by the longest sustained expansionary monetary policy of the past half century. Much of this mortgage credit was extended to people with little net wealth who made slender down payments, so that when the bubble burst and housing prices declined, their losses quickly exceeded their equity. These losses were transmitted to the financial system—including banks, investment banks, insurance companies, and the institutional and private investors who provided liquidity to the mortgage market through structured securities. It seems that many of these institutions became insolvent; it is certain that they became illiquid. Liquidity loss and solvency fears created a feedback cycle of diminished financing, reduced housing demand, falling housing prices, more borrower losses, and further damage to the financial system and eventually the stock market and the real economy. There are important parallels with the housing and financial-market booms that led up to the Crash of 1929 and the Great Depression.

THE REGULATED MELTDOWN OF 2008
Juliusz Jablecki and Mateusz Machaj
ABSTRACT: Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks’ balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of them, in off-balance-sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse.

THE ANATOMY OF A MURDER: WHO KILLED AMERICA’S ECONOMY?
Joseph E. Stiglitz
ABSTRACT: The main cause of the crisis was the behavior of the banks—largely a result of misguided incentives unrestrained by good regulation. Conservative ideology, along with unrealistic economic models of perfect information, perfect competition, and perfect markets, fostered lax regulation, and campaign contributions helped the political process along. The banks misjudged risk, wildly overleveraged, and paid their executives handsomely for being short-sighted; lax regulation let them get away with it—putting at risk the entire economy. The mortgage brokers neglected due diligence, since they would not bear the risk of default once their mortgages had been securitized and sold to others. Others can be blamed: the ratings agencies that judged subprime securities as investment grade; the Fed, which contributed low interest rates; the Bush administration, whose Iraq war and tax cuts for the rich made low interest rates necessary. But low interest rates can be a boon; it was the financial institutions that turned them into a bust.

ECONOMIC POLICY AND THE FINANCIAL CRISIS: AN EMPIRICAL ANALYSIS OF WHAT WENT WRONG
John B. Taylor
ABSTRACT: The financial crisis was in large part caused, prolonged, and worsened by a series of government actions and interventions. The housing boom and bust that precipitated the crisis were enabled by extraordinarily loose monetary policy. After the housing boom came to an end, the Federal Reserve misdiagnosed financial markets’ uncertainty about the location and value of risky subprime mortgagebacked securities as being, instead, a liquidity problem, and it took inappropriate compensatory actions that had side effects that included raising the price of oil. Finally, in mid-September 2008, the government’s ad-hoc bailouts, and the unpredictable terms of the proposed TARP legislation, appear to have caused a sharp spike in uncertainty in the financial markets.

CAUSE AND EFFECT: GOVERNMENT POLICIES AND THE FINANCIAL CRISISPeter J. Wallison
ABSTRACT: The underlying cause of the financial meltdown was much more mundane than a “crisis of capitalism”: The real origins lay in mostly obscure housing, tax, and regulatory policies of the U.S. government. The Community Reinvestment Act, the affordable-housing “mission” of Fannie Mae and Freddie Mac, penalty-free refinancing of home loans, penalty-free defaults on home loans, tax preferences for home-equity borrowing, and reduced capital requirements for banks that held mortgages and mortgage-backed securities combined with each other to create the incentives for both subprime lending and the housing bubble that eventually led to the financial collapse.

CREDIT-DEFAULT SWAPS ARE NOT TO BLAME
Peter J. Wallison
ABSTRACT: Though accused by critics of helping to cause the current financial crisis, credit-default swaps are blameless. The accusation is understandable, however, given misunderstandings about how a credit-default swap actually works. A careful look into its mechanism shows that it is not only simpler than thought, but that it is also vital to keeping the financial system strong by enabling financial institutions to better manage their risks. The risk taken on in a credit-default swap (CDS) is no different from the risk of making the underlying loan. CDSs allow risks to be spread more widely instead of being concentrated at vulnerable points, but they do not add to the total amount of risk.

THE CREDIT-RATING AGENCIES AND THE SUBPRIME DEBACLE
Lawrence J. White
ABSTRACT: By means of the high ratings that they awarded to subprime mortgagebacked bonds, the three major rating agencies—Moody’s, Standard & Poor’s, and Fitch—played a central role in the current financial crisis. Without these ratings, it is doubtful that subprime mortgages would have been issued in such huge amounts, since a major reason for the subprime lending boom was investor demand for high-rated bonds—much of it generated by regulations that made such bonds mandatory for large institutional investors. And it is even less likely that such bonds would have become concentrated on the balance sheets of the banks, for which they were rewarded by capital regulations that tilted toward high-rated securities. Why, then, were the agencies excessively optimistic in their ratings of subprime mortgage-backed securities? A combination of their fee structure, the complexity of the bonds that they were rating, insufficient historical data, some carelessness, and market pressures proved to be a potent brew. This combination was enabled, however, by seven decades of financial regulation that, beginning in the 1930s, had conferred the force of law upon these agencies’ judgments about the creditworthiness of bonds and that, since 1975, had protected the three agencies from competition.

(post by Roy Rodgers)

I’m sure macroeconomists are very nice people its just that I’m starting to think that the economics they are proffering may be pure snake oil. The stinky slimy kind of snake oil.

What they taught us in school

I sat through the macro lectures at uni and even managed to get pretty good grades. But all I can remember from undergrad is some overly simplified flow charts that somehow magically added up to GDP and aggregate demand and supply curves with some sort of pretence to grandness … the all important ISLM.

What I do remember quite clearly was macro at honours where we were duly informed that all the hours spent learning this ISLM framework were a great big conspiracy. Apparently it had been abandoned long ago by all self respecting economists. We were duly informed not to be too cranky for although it was all rubbish, apparently we were all the better for it, better intellectually for having sat through three years of the crap.

And then there was postgrad ...

Well, I don’t know about you, but post grad macro for me was two models a lecture, two lectures a week over 14 weeks and a final exam that covered all of the models. That’s 56 models that our sadistic bastard of a lecturer required us to memorise. When queried on the educational value of such an approach his response was “I spent my post grad crying myself to sleep, and I’m a better man for it, so you will be too”.

This particularly loathsome human being prepped us for our final exam with the following statement “the exam is composed of three questions, don’t read the third until you’ve completed the first two. I have set the question so that it’s impossible for anyone in this theatre to answer and if you read it before you complete the other two you will most likely freak out and not be able to complete the exam at all”. When queried how he intended to grade us if the test was set so that we could only achieve a maximum of 66% he responded with “don’t worry … the bulk of you will actually fail the exam … and I’ll have to adjust you all upwards anyway”. There is a special room in hell put aside for this arsehole, a bare cold room where he has to spend all eternity being examined on stuff he can’t possibly answer … again and again.

That was the mandatory macro postgrad component, needless to say I stayed the hell away from anything remotely macro in the electives. By the way I got a distinction for postgrad advanced macro (despite the fact that I’m pretty sure I only got 40/100 for the final) and to this day I have absolutely no idea what he was trying to teach us other than how to do calculus. All I know is that I never want to see another Hamiltonian in my life.

Are we picking up on a bit of a theme in Australian tertiary education? Paternalism as a mask for sadism or paternalism as a mask for lazy teaching … take your pick.

Trust me… I am a macroeconomist and I’m here to help….

This brush with macroeconomics has left me with a deep rooted distrust. I don’t trust macroeconomics, its theories, its models or its policy prescriptions. And given the policy responses to the global credit crisis … I’m starting to believe its pure snake oil.

On what planet does it make sense to squander money on purely consumptive rubbish when your smack bang in the middle of a recession? If you ran a business and you started to experience a contraction in revenue, would you think to yourself, ‘now would be a good time to spend a couple hundred thousand on that feng shui consultant’. No of course not! Collectively our nation’s macroeconomists seem to be advocating history’s most massive spendathon and none of them to date seem to have registered any concern for what this will do at the microeconomic level.

At the end of the day it doesn’t matter what a macroeconomist says, the truth is that all economies are driven by their microeconomic health. If you want to increase income then you have to increase productivity … and this is well and truly in the domain of microeconomics. But these macro guys just don’t seem to care about the micro.

Macro vs Micro

The vast bulk of economics falls under the category of microeconomics. Micro is your basic classical liberal economic approach. Most microeconomists tend to agree on all the important issues. All of the fundamental theorems are readily observable in everyday data, and we know that its policy prescriptions by and large work to the betterment of an economy. Microeconomics has been tried and tested.

Macro on the other hand is a small sub branch of economics whose participants don’t seem to be able to agree on anything. Its theories and hypothesis are not readily observable in the data, in fact in some instances they are non testable. All a macroeconomist has to do is admit that there is no humanly possible way to model the actual complexity of an economy and they have a get out of jail free card. After all, you can’t prove my theory false if you lack the statistical sophistication to adequately test it (then again, you can’t really prove it to be true can you?).

10 reasons to feel a bit uneasy

There are a couple of basic fundamental characteristics of macro that really get under the skin. Given my general level of ignorance on the subject I could be totally wrong on this, but I suspect not.

1. In Macro, there seems to be a universally held belief that people are stupid. I don’t know how else to explain their dogged determinacy that you can fool people into thinking that consumption resulting from a government pork barrelling stimulus actually represent real demand. Our macro colleagues ask us to believe, ‘Hey, if I owned a factory producing widgets and gadgets I would have just bought four new expensive widget machines because of that unanticipated percentage point increase in demand over Christmas.’ Who are they kidding? Mr Widget knows Christmas was a big kev special and most likely a one off. The other thing is that stimulus are founded on the assumption that you are so dumb you won’t realise that although the government is giving you money now, at some point someone has to pay, and given that the governments main source (only source) of income is taxation that means you are going to have to pay for it at some point in the future.

2. The seeming indifference between government spending and private spending. Just because you have some crappy formula stating income equals the sum of investment, consumption, net exports and government expenditure, doesn’t mean a dollar spent by big kev is the equivalent of a dollar spent by your local entrepreneur. When big kev spends money its called pork barrelling, it goes to his mates or his mate’s mates. Not every one got a big kev Christmas bonus … I certainly didn’t. But big kev made sure the traditional labour party base got their goodies. In the same vain it also appears that a major requirement for a bailout package is that your industry be heavily unionised, cars get money but hospitality gets to suck its thumb. Not only does big kev lack the proper commercial incentive for investment he also lacks a base respect for money. Big kev doesn’t have to make money, he takes money and he takes it for free without asking … at the end of the day he doesn’t care if it’s well spent… after all, he can always just take a bit more. Your local entrepreneur on the other hand is usually living off the skin of his arse, respects money like you wouldn’t believe and only invests in things that people actually want and will voluntarily pay for … unlike big kev he/she has no power to take. So on average, a dollar spent by an entrepreneur is most likely to go towards something much more meaningful than a dollar spent by a bureaucrats.

A perfect example of this is the June government spending rush. At around June every year, whether you know it or not, busy little bureaucrats all over the country are trying to spend as much money as they can to ensure they make budget. You see… the incentive structure for government isn’t to do what you do as cheap as you can, it’s to make darn sure you spend every last dollar of your budget before the end of the year. Other wise Treasury is going to take it away from you next year. Law firms with government clients love this time of year, all of a sudden bureaucrats are seeking legal opinion on just about anything they can.

3. There doesn’t seem to be an explicit recognition that all economies are primarily driven by microeconomics. Macro is only good for the short term and I’ve got to say, as a microeconomist, after you consider all the market distortions resulting from subsidies grants and bailouts, any macro gain we get comes at a not insubstantial micro cost. You get the feeling that we may be cutting our own nose off to spite our face.

4. The science of it seems to be driven by political agendas not by scientific inquiry. Guys like Krugmen and Stiglitz are undeniably political.

5. They don’t seem to be able to cobble together a reliable model. One of the oldest running jokes is that economics has come so far its been able to predict nine of the last two recessions. Coupled with this failure at producing reliable models is a bizarre faith that modelling is the answer to everything and the more complex the model the better it is. Macroeconomists appear fully committed to the idea that you can engineer an economy, they actually appear to have whole heartedly swallowed that philosopher king rubbish.

6. Other than agreement on their own importance, macroeconomists don’t seem to be able to agree on much else. Of course the proposition that consensus is necessary in science is fallacious, but these guys have been at it a fair while and you would think that if they had uncovered any fundamental truths that there would be some level of agreement. This bunch of slippery buggers can’t even agree on a definition for what constitutes a recession. Are we having one or aren’t we, is it real or not blah blah blah.

7. Macroeconomics seems hell bent on promoting intervention. Any good economist should have a healthy dislike for government intervention. We know that time and time again the government with all its good intentions invariably stuffs things up. With this in mind, it’s quite alarming to encounter a stream of thought that holds intervention as one of its basic foundational building stones. Where are the macroeconomists that believe less is more?

8. Macroeconomics doesn’t seem to want to allow markets to operate. Most, if not all, macro policy prescriptions are aimed at softening the blow, protecting people from the downturn etc etc…. Well that’s all fine and dandy but what if the down turn is the market seeking to correct. By blocking the correction you become part of the problem not the solution (see FDR and the new deal). It was Joseph Schumpeter that said “Gentlemen, a depression is for capitalism like a good, cold douche.”

9. The consequences of their actions are so large they are downright scary. The scale of the stuff they are working on is so large that the risk associated with their failure makes the hair on the back of your neck stand up. It sometimes looks like they lack the humility you would expect of someone whose advice has the potential to not only effect one firm or an industry but an entire country. You would expect some of this humility to come through when you consider that to date this approach of kick starting an economy through stimulus packages has met with universal failure. Stimulus packages have not helped Japan, they did nothing for Germany post unification and the current consensus amongst economists is that they played a large part in putting the great in the great depression. By and large history has shown that the best you get from a Keynesian stimulus package is a short temporary burst in consumption.

10. I’m sick of people at BBQs asking me what’s going to happen to the interest rate. Most if not all non-economists think macroeconomics is economics … so I worry that when everyone wakes up from the heady intoxication of spending money they didn’t earn and realise that the only outcome from the latest round of stimulus is a deep and long lasting state of perpetual debt and higher taxation, my problem at BBQs will not be trying to explain how I’m an economist with no idea what is going to happen to interest rates, rather it will be trying to dodge the fist of the hairy ape that thinks I’m just another snake oil salesman.

US stimulus based cartoons 7:04 AM

Given that the bulk of aussie media is still very kev centric I thought you may appreciate some of the comment comming out of the US, especially some of the political cartoons.

Although they obviously pertain to a different government, there are enough parallels between the two that may allow an australian audience to appreciate the humor.

Would Johny and Pete have done it different (Roy Rodgers) 3:53 AM

Of late I've been getting the impression that people believe the liberals would have reacted to the threat of recession in much the same way that big kev has. And while its probably true of turnbull, its probably very untrue of howard and costello.

I suspect there would have been nowhere near the amount of bailing out. Howard and Costello proved that they were willing to let large firms go under .... let the market have its way .... every one should remember ansett, one tel and HIH. Do you think for a second that big kev has the ticker to let the market discipline these firms.

And i also suspect they wouldn't have embarked on the same keynesian response. See the attached interview from stanford uni in April 2009.

The aussie way

If for nothing else its worth a gander just to remind yourself of how different the libs used to be. Its also interesting to note that in just one short interview howard is able to evidence more understanding of the the current global credit crisis than big kev could muster in 7000 words.

Are crappy tea bags sticky? (Roy Rodgers) 6:44 PM

An interesting question is whether the quality tea bags will be reinstated during recovery or wether tea bag quality will prove to be sticky? Is this simply an opportunity for the firm to achieve cost savings by riding on the coat tales of recessionary expectations (despite the fact we are now officialy not in recession).

You would think these non pecuniary benefits are a fairly good indicator of how sensative a firm or department is to the ebb and flow of the labour markets assoicated with its human capital. In the case of the Lone Ranger I think the firm in question may be acting a bit brashly given the counter cyclical nature of economics. It would not appear rational for a firm to reduce nonpecuniary benefits for economists during a period in which their skillls are in demand.

Lone you should jump on your horse ride into the head cheeses office and demand the reinstatement of quality teabags.