Friday, November 26, 2010
Thursday, November 25, 2010
Wednesday, November 24, 2010
Despite the protestations of some acquaintances who were once in investment banking, this is going to be a long and slow recovery. The Fed's efforts (QE2) to lower mid- and long-term interest rates, even if successful, will have limited impact.
Increased housing construction has historically been important in recoveries from recessions. It won't be this time. It won't be even if mortgage interest rates fall.
Historically, housing construction is the most interest-rate-sensitive component of spending in the economy, but not this time. The housing construction boom of a few years ago left us with a lot of houses. Speculation and low lending standards led to a lot more than the usual number of new houses being built. Now we are stuck with the surplus. Since houses wear out rather slowly, we'll be stuck for a long time.
The first chart with the blue bars shows how the inventory of unsold houses has skyrocketed from the early part of the past decade.
The second chart's red line puts the existing housing inventory in terms of the number of months it would take to sell them. 11 to 12 months of inventory is a lot. This is not a good sign.
Even if the houses sold, we would still have an awful lot of houses selling at low prices. Prices that will stay low for years. Lowering mortgage rates won't cause people to desire to pay for new houses if the supply of existing houses is large.
A Policy Proposal. What can the government do? A three-step process: 1) Speed up foreclosures; 2) have the Fed buy up about eight or nine months of the inventory of unsold houses; and 3) then burn those houses to the ground.
A modest proposal, yes?
Without that happening, don't expect a quick rebound from the Great Recession.
[ Source for charts]
Posted by RB at 2:35 AM
Tuesday, November 23, 2010
Monday, November 22, 2010
Here is a presentation by Zambian author Dambisa Moyo and followed by comments by Todd Moss. Next semester I am teaching African Economies (Economics/African Studies 228). Among the books I am using are Moyo's Dead Aid and Moss's African Development. [Warning: Moss's comments may seem a bit more academic.]
[RB's textbooks for Spring '11]
Posted by RB at 9:53 AM
Tuesday, November 16, 2010
Thursday, November 11, 2010
I am a student of economic growth and development. In last Saturday's issue of the Wall Street Journal Scott Adams, creator of the cartoon Dilbert, had a column outlining an important key to economic progress heretofore unnoticed: hamster-brained sociopath bosses.
The Wall Street Journal
November 6, 2010, p. C3
The Perfect Stimulus: Bad Management
If no one had a hamster-brained sociopath for a boss, who would start new businesses?
By SCOTT ADAMS
One of my earliest childhood jobs involved shoveling manure at my uncle's dairy farm in upstate New York. Things were going well until my uncle explained that no matter how well I performed, I would never be promoted to farmer. Or even cow. I had hit the manure ceiling.
I consider that experience my first economic stimulus package—the unwelcome realization that my current job was a dead end. While my classmates were building snowmen with carrot noses (mostly the girls) and carrot genitalia (mostly the boys), I started to do some serious career planning about how to get out of the fecal relocation profession and into the warm embrace of a loving corporation. I studied hard, and I earned money for college by mowing lawns, shoveling snow, shoveling even more manure, and (my personal favorite) shoveling frozen manure covered with snow. I saved my meager funds, and with the help of my parents, who both took extra jobs, plus a few scholarships, I clawed my way into college.
Years later, my dream came true. I got a job with a large bank, and I never again needed to shovel manure. Corporations use something called PowerPoint instead. Thanks to my farm training, I was so good at designing PowerPoint slides that my coworkers called me "The Natural." Jaws dropped when I introduced my signature move: the frozen PowerPoint slide with snow on top.
In those days, I was a furious bundle of ambition and determination. The old-timers told me I had a "rocket strapped to my ass." All I needed to do was get my "ticket punched." It wasn't long before I was able to enjoy my second economic stimulus package: bad management.
Though most of my immediate bosses were entirely reasonable and competent, the organization at large was riddled with hamster-brained sociopaths in leadership roles. Surely, I thought, this must be a problem that exists no place else on Earth. Otherwise we'd all be living in caves and holding long meetings on the feasibility of using sticks as stabby things.
One day, a position opened above me, and I was the most obvious candidate to fill it. My boss called me into her office and said she had some bad news. She explained that the media was giving our company a lot of heat because almost all of our managers and executives were white males. Promoting me, she explained, would only make things worse. I asked how long I might need to wait for all of this to blow over. My boss was vague, but she said the timeline involved smoothing out the effects of two centuries of corporate discrimination.
I decided to jump ship and go where my talent and hard work would be rewarded. I took a job at the local phone company and soon discovered, to my horror, that banking was not the only industry in the world managed by hamster-brained sociopaths. Once again, my immediate bosses were quite capable, but interacting with other departments was like being the last human in Zombieville and trying to buy groceries at dusk. Still, it was marginally better than shoveling manure, so I doubled down. I finished my MBA classes at night and distinguished myself as an up-and-comer. One day my boss called me into his office and explained that the media was giving the phone company a lot of heat because almost all of the managers and executives were white males. So, he explained, promoting me would only make things worse. You might say that was the day that the "Dilbert" comic strip was born, although I had not yet drawn one. Let's call it a tipping point. From that day on, I considered myself an entrepreneur. All I had to do was figure out what business I was in. The phone company was willing to pay for almost any sort of semi-relevant training or education that I was willing to endure. It was like an accidental school for entrepreneurs. From an economic viewpoint, I was in exactly the right place, with exactly the right amount of career discomfort.
I wasn't suffering alone. Many of my co-workers already had active side businesses and ambitious expansion plans. The guy in the cubicle behind me was running a concert equipment rental business. Across from me was a guy running a computer tech support business. We had Amway dealers, Mary Kay sales people, inventors, authors and just about any other business you can imagine. That's not counting all of the business plans in the incubation phase. I think we all understood that working in a cubicle and being managed by Satan's learning-challenged little brother was not a recipe for happiness.
The way I describe it may sound pessimistic, but consider the alternative. Imagine a parallel universe where employees enjoy going to work. They feel empowered and fulfilled—so much so that they don't care about the size of their paychecks and never want to leave their jobs. That's exactly the sort of nightmare scenario that would destroy the economy. The last thing this world needs is a bunch of dopey-happy workers who can't stop humming and grinning. Our system requires a continuous supply of highly capable people who are so disgruntled with their jobs that they are willing to chew off their own arms to escape their bosses. The economy needs hamster-brained sociopaths in management to drive down the opportunity cost of entrepreneurship. Luckily, we're blessed with an ample supply.
To put it in plainer terms: The primary purpose of management is to kill any hope that staying in your current job will work out for you. That sort of hope is like gravel in the engine of progress. The economy needs workers who are fed up, desperate and willing to quit their jobs for something better. Remember, only quitters can be winners, because you can't do something great until first you quit doing something that isn't.
You see this same dynamic with countries. The United States is a nation founded by people who couldn't stand the leaders of their old homelands. I'm no geneticist, but I suspect that the "screw it, I'm out of here" attitude can get passed on. We're probably the most disgruntled, self-loathing, hard-to-satisfy people on Earth. It's no wonder our GDP is awesome.
Israel is another perfect example. The entire nation is full of people who were displeased with their last situation. And Israel's economy is one of the most vibrant in the world. If every Israeli became satisfied at once, they couldn't keep the lights on for a week.
I have always assumed there's a correlation between imagination and risk-taking. You wouldn't leave an unpleasant but relatively safe situation unless you could imagine a better outcome. So the people who leave a company first tend to be the visionaries who can best imagine entrepreneurial success. The last wave of people who leave are usually excreted just before the door is chained. They didn't imagine it would happen so soon. Bad management is how imagination gets wings.
—Scott Adams is the creator of 'Dilbert.'
Posted by RB at 12:08 PM