Home » 2008 » May » 21

Daily Archives: May 21, 2008

Buiter worries about central banks losing credibility on inflation


Central bankers talk about inflation more than a teenage boy thinks about sex. Perhaps they talk about it too much. In contrast to teenage boys, for whom less action would probably be a good thing, central banks would be well advised to talk less and act more. In the US, the Euro Area and the UK, the track record of inflation during the past few years has deteriorated to the point that a material loss of credibility may well be imminent for all three central banks involved – the Fed, the ECB and the Bank of England.

more here


Bear market rally?

The US stock market had a nice rally since mid March. Dow has surged almost 11%. Yet, we are in recession and problems in the in the financial sector are far from over and the outlook for both consumer spending and employment is quite murky, if not perssimistic. WSJ asks the question, “Is the rally for real?

[Is the Rally for Real?]

Related, market volatility as measured by VIX has been dropping sharply. Are we going to see the volatility bounce back again some time soon? Just to repeat the previous 3 (or 4) rounds? (see the graph below).


Lagging behind in the Internet

The U.S. is lagging behind other developed countries in both Internet speed and subscriptions. WSJ analyzes why this is the case.  If you consider the Internet as public goods and is likely to bring great welfare to the society, you would have no problem with public investment in this area.
[Logged On]

Corporate bailout history

Business Week has a slideshow of corporate bailout history. But it included some cases that shouldn't be considered as bailout.  I thought bailout should involve public or taxpayers' money.  It is quite confusing to say the least.  

The logic of collective action

In 1965, Mancur Olson wrote a classic book called “The Logic of Collective Action,” which pointed out that large, amorphous groups are often less powerful politically than small, organized ones. He followed it up with “The Rise and Decline of Nations.” In that book, Olson observed that as the number of small, organized factions in a society grows, the political culture becomes more divisive, the economy becomes more rigid and the nation loses vitality.
If you look around America today, you see the Olson logic playing out. Interest groups turn every judicial fight into an ideological war. They lobby for more spending on the elderly, even though the country is trillions of dollars short of being able to live up to its promises. They’ve turned environmental concern into subsidies for corn growers and energy concerns into subsidies for oil companies.
The $307 billion farm bill that rolled through Congress is a perfect example of the pattern. Farm net income is up 56 percent over the past two years, yet the farm bill plows subsidies into agribusinesses, thoroughbred breeders and the rest.