Castro admits defeat? Awesome!

When I was a young fellow (editor: you were young?) I was a big time admirer of Castro.  Those were the days when I thought everything was wonderful about the Soviet Union, too.

In many ways, like in this situation, I guess I do practice Keynes' idea to change one's opinion if the facts presented change.

Looks like Castro, too, is changing his idea; I almost fell of the chair when I read that he said:

We have to erase forever the notion that Cuba is the only country in the world in which people can live without working

and:

The Cuban model doesn't even work for us anymore

 Viva revolucion :)

Definitions that will make non-economists go nuts :)

When the government relieves an excess demand for liquid money by printing up cash and swapping it out for government bonds, we call that expansionary monetary policy. When the government relieves an excess demand for bonds by printing up more Treasuries and selling them to finance its own purchases of goods and services, we call that expansionary fiscal policy. And when it prints up cash and bonds and swaps them for risky private financial assets, or when it guarantees private assets and so raises the supply of high-quality and reduces the supply of low-quality bonds, we call that banking policy.

I suppose Brad DeLong knew he was addressing readers well versed in the discipline--after all, this is in the Financial Times where he was arguing in favor of expansion.  Still ...
Compare this with how Niall Ferguson writes against:

deficits are being run at a time when the US is heavily reliant on foreign lenders, not least its rising strategic rival China (which holds 11 per cent of US Treasuries in public hands); at a time when economies are open, so American stimulus can end up benefiting Chinese exporters; and at a time when there is much under-utilised capacity, so that deflation is a bigger threat than inflation.

So, can we kind of settle this debate on whether or not a "surge" is in order to fight the economic slump?  How about a third economist, with equally impressive credentials--Kenneth Rogoff?

much of the world is going to be facing huge macroeconomic uncertainty for years to come. There is uncertainty about regulation, sovereign debt, the state of our banking and healthcare systems as well as about political fallout from the financial crisis. In this environment, measures to gradually stabilise debt burdens – to restore normality – surely make sense. If things turn radically worse for a sustained period, then yes, absolutely, further action will be necessary. But until then, a panicked government fiscal surge is far more likely to destabilise the nascent recovery than to nurture it.

So, there you have it.  No wonder then that President Truman asked for a one-handed economist!

One can also easily then see why there are endless discussions in the Senate, where mis- and ill-informed parade about.  And worse, outside, like this populist leader who wants to refudiate everything :)

On the stimulus package

“One man's expenditure is another man's income.” 

 

That was the succinct remark from the economist John Maynard Keynes, describing the world that was trapped in the Great Depression where tightening spending and loss of income worsened the situation for each other. 

 

Now, as we try to deal with the worst recession ever since that awful Great Depression, Keynes’ ideas are again rapidly gaining favor among economists and policymakers alike.  And, yet again, the fundamental struggle is to figure out how to get households and businesses to spend such that it will trigger “another man’s income.”

 

The latest economic data show that retail sales were down almost ten percent compared to a year ago.  What a dilemma: on the one hand, unnecessary material consumption being down can be good for the environment.  However, in a consumption-driven economy, a dramatic and sudden decrease in expenditures will only ensure that the economic recession that we are in will get nastier.  In the quite strange and complex global economy that we operate in, it turns out saving money is not a virtue if it completely dampens the spending.   

 

I was thinking about all these when my neighbor walked over to remind me about getting the gutters in my home cleaned.  When I told him that we are planning to get the exterior of our home painted this coming summer, he lightheartedly remarked that I might be the only one in town spending money a few months down the road.  As our conversation on the economy ended after only a few minutes in the freezing cold, we parted company and rushed to the warm interiors agreeing that it is not going to help the economy if everybody stopped spending. 

 

This unique quality of money is best summed up by Dolly Levi—the lead character in “Hello, Dolly!”—who  often quotes her late husband’s words: “Money, pardon the expression, is like manure. It's not worth a thing unless it's spread around encouraging young things to grow.”  Yes, the words from the musical are far more meaningful today as economic interpretation than as mere Broadway lyrics more than forty years ago.

 

Dolly’s advice to spread the money, or Keynes’ observation, imply that when people and businesses stop buying, the economy has no growth opportunity whatsoever.  As corporations tighten their expenditures, for instance, corporate aircrafts are being shunned, and we feel the impact right away in terms of job losses at the Cessna plane factory in Bend. 

 

And households tightening their spending and eating only at home quickly leads to job losses at local eateries—sometimes even permanent closures of those establishments, as has been the case with Café Zenon and El Vaquero. When consumers are no shows at eateries, it affects the jobs of those who work there, which in turn affects their own spending habits. These horrible multiplier effects can have disastrous impacts causing a massive downward spiral.

 

After driving myself crazy with such half-baked analysis of the global economic meltdown, I decided to take my daughter’s advice and simply stop reading and thinking.  For a while, at least. 

 

Thus, on a cold but sunny Saturday morning, I headed out to The Country Bakery on the remarkably picturesque Peoria Road.  It was past nine in the morning, and about 31 degrees, when I parked on the gravelly driveway.  The moment I stepped in to the bakery, I knew I had forgotten my worries about the economy.  How could I not, when I was greeted with the warmest smile, and with fresh pies, breads, and doughnuts on the shelves?    

 

As I walked out with a marionberry pie and a glazed doughnut, two other vehicles pulled up.  I wondered whether they too came in for that simply delicious home-baked comfort food, made by a baker who wakes up at midnight to get things going. 

 

Sitting in the car, I bit into the doughnut, which had quickly cooled down with that momentary exposure to the freezing temperature.  That is when I thought that maybe we do have a guaranteed way out of the recession: every man, woman, and child in America will get a pie from The Country Bakery.  Now, that is a package with a lot of stimulus in it.