How much of the Toyota hysteria is just that?

The Toyota joke that I came up with, which I shared with my students as well, was:

You know why the latest model Prius has problems stopping?
Because, when Toyota upgraded the battery, they used the Energizer batteries and now the Prius keeps on going :)

But, of course, there is a difference between joking around and systematically understanding social issues.  As I posted earlier, I think we are overplaying the Toyota recall issue.  And, as we get more into the data, well, I will use Megan McArdle's words:

[You] don't usually make a profit by killing your customers.  It's too risky, in this age of nosy regulators and angry consumer activists.

Their behavior becomes a bit more explicable when you consider this argument from Ted Frank:

The Los Angeles Times recently did a story detailing all of the NHTSA reports of Toyota "sudden acceleration" fatalities, and, though the Times did not mention it, the ages of the drivers involved were striking. 

In the 24 cases where driver age was reported or readily inferred, the drivers included those of the ages 60, 61, 63, 66, 68, 71, 72, 72, 77, 79, 83, 85, 89--and I'm leaving out the son whose age wasn't identified, but whose 94-year-old father died as a passenger.

 These "electronic defects" apparently discriminate against the elderly, just as the sudden acceleration of Audis and GM autos did before them. (If computers are going to discriminate against anyone, they should be picking on the young, who are more likely to take up arms against the rise of the machines and future Terminators).

And based on the data, McArdle has the following chart:

I tell you, the story is a lot more complicated than a simple narrative that we might prefer.

The other day, a colleague and I were walking from the parking lot to our offices, and I asked him if his wife was enjoying her retired life.  "Yes" he said, and added that she is recovering from an accident.  What happened?  His wife was walking towards her car with a couple of shopping bags when she was hit by a Lexus.  Nothing major, but nothing minor either. 
I asked him whether it was related to brakes/speeding up problems of Toyota--after all, Lexus is a Toyota product.  He said that the driver apologized profusely because it was her fault, and then he noted that it was quite an old woman who was driving it. 
Why mention this?  Because, McArdle reports that it is not only the age, but also ....

a slight majority of the incidents involved someone either parking, pulling out of a parking space, in stop and go traffic, at a light or stop sign . . . in other words, probably starting up from a complete stop. 

and has the following chart:

So, who you gonna believe? :)

I am thankful that I am not unemployed

First the graph here shows (ht):

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 6.31 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.1% of the civilian workforce.

More than six million people unemployed for more than half-a-year and still not discouraged enough and are looking for jobs!  What a recession this has been ....

Krugman messes up my mind some more:

We’ve been through the second-worst financial crisis in the history of the world, and we’ve barely begun to recover: 29 million Americans either can’t find jobs or can’t find full-time work.

So, can we help out the unemployed?:

House Speaker Nancy Pelosi took a shot across the Capitol at Sen. Jim Bunning, slamming the Kentucky Republican for his one-man filibuster of unemployment benefits, which are due to expire Sunday.

"It is really hard to understand why one senator in the United States Senate is holding up the extension of unemployment insurance at this time," said Pelosi. "But he is, and I'm pleased that the Senate Democrats are trying to make a move to dislodge that."

Adds Megan McArdle:

His cunning plan to put a hold on the reauthorization of unemployment benefits until the Democrats agree to fund them out of existing stimulus dollars will not do much good, and it could do great harm.

China's industrial revolution

In "whom" we trust now?

As problems pile up on all fronts, I am increasingly worried that our fate lies in the hands of semi-intelligent people with an enormous ability to pontificate.
No, I am not talking about university professors; wait, am I? :-) I am not convinced about the wisdom of the crowds either.

David Rothkpof, take it away:

Watching the House interrogation of Wall Street leaders demonstrated conclusively to me that one of the greatest causes of the problems we face is that members of the House (and the Senate) simply do not have a clue about how finance works. Ask any group of 10 of these honorable yabos how a credit default swap works and one might know the answer, if that.

This is a broader problem. In a recent conversation with a retired Senator, a very prominent, respected former committee chair, he said that he guessed on a critical issue, like energy, there are only perhaps 3 or 4 legislators who actually understand our energy choice options well enough to write sensible legislation or understand what is said in a hearing. The problem is getting worse as technology, finance, even international affairs are getting more and more complicated, our legislators are falling farther and farther behind in their understanding of the fields for which they have oversight or other responsibilities.

This is not a snipe at Congress...okay, it is, but that almost seems too easy, like joking about Bush's intellect or Simon Cowell's man-boobs, but this is a serious problem, one of many with what is by far the most dysfunctional branch of the United States government.

Sitting back is not an option.

The problem is, we have very, very few examples to test on:  America during the Great Depression, and Japan in the 1990s.  And neither America nor Japan managed to stimulate their way out of their troubles.  You can argue--and many do--that this is because we, and they, didn't stimulate enough.  That may be true.  But unless you can forward test your theory, it's a just so story . . . as we just painfully found out about the "It was all the Fed's fault" narrative of the 1930s banking collapse.  There is no excuse for calling people who question your highly theoretical model fools and charlatans.

What we've got, since Japan really never did emerge from its lost decade, is basically one fact: America entered World War II in a depression, and emerged from World War II without one.  Hopefully, the relevant variable was the massive, massive amount of spending, rather than any of the other explanations one can plausibly build about the effect of Total War on depressions--like the slaughter of some of your excess labor force, or the substitution of more immediate fears of being killed for panic about the financial future.

That was Megan McArdle.  

The fact that we don't have successful lessons from the past to lean on, and learn from, is why I am so convinced that we need the Warren Buffett honesty as we tackle the recession.  Buffett remarked that:

The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

So, this is a Depression, not a Recession?

Economists and politicians alike are afraid to even utter the "R" word, so we wouldn't expect them to use the "D" word at all, even if in the back of their minds they are thinking that this is an awful economic depression.

It looks like that is not the case anymore.

Here is Paul Krugman:

Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.
So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out.
We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy.

And, Tyler Cowen:
Eight reasons why we are in a depression

1. We have zombie banks.
2. There is considerable regulatory uncertainty in banking and finance.
3. There is a negative wealth effect from lower home and asset prices.
4. There is a big sectoral shift out of real estate, luxury goods, and debt-financed consumption.
5. Some of the automakers are finally meeting their end, or would meet their end without government aid.
6. Fear and uncertainty are high, in part because they should be high and in part because Bush and Paulson spooked everyone.
7. International factors are strongly negative.
8. There is a decline in aggregate demand, resulting from some mix of 1-7.

I got the link to Cowen from Megan McArdle, who writes:

My reasoning for thinking of this as a depression, rather than a recession: roughly, that we don't understand how to get in or out of it. The recession of the early 1980s was very deep, but we knew pretty much what caused it, and hence how it would end. Even the 1970s slump had an obvious proximate cause in the oil shocks. This kind of perfect financial storm is a rarer bird, and no one has plausibly claimed to have mapped the way out yet.

Economic crisis means no money for elections?

Everything here is from Megan McArdle:

• Icelanders turn from finance to fishing
• Grain piles up in ports as buyers can't get letters of credit
• Watching crime for signs of an upsurge
• Currency market goes crazy
• An interactive map of US financial troubles
• Ukraine wonders if it can afford an election
• GM now worth less than it was in 1929.
  
  

The market meltdown and your 401K

Don't look. Seriously, don't look. I have no idea what's going on with any of my equity investments, because that is not short term money that I need to keep my eye on.
If you look you will get upset, and you will be tempted to do something stupid. I can't guarantee that the market won't drop further and you won't regret having held on. But as a general rule, selling into a massive liquidity crisis is a pretty bad idea. Selling in a panic because your assets just dropped 30% is almost certainly a bad idea.
The good news is that while the stock market can take a long time to recover, it historically doesn't actually go down for more than a couple of years.
Yeah, that's not very good news. But unless you're planning to retire right now, my advice remains the same: don't look.

Sage advice from Megan McArdle

The ultimate worry about the global economic collapse?

Remember how much members of the House and Senate seem to be rattled after their meeting with Paulson and Bernanke a couple of weeks ago? I don't know what happened behind those doors, but at least this commentary on how things are unfolding in Iceland suggests that members of Congress might have been briefed on some really scary, and probable, scenarios:

[They] couldn't anticipate that when a tiny country bails out a bank whose assets vastly exceed the country's own GDP, then the sovereign itself loses much creditworthiness. One scary datapoint: the assets of Kaupthing Bank amount to 623% of Iceland's GDP, which is possibly why its own credit default swaps are trading somewhere over 2500bp.
How bad can things get in Iceland?
Here's what one local emailed Tom Braithwaite:
They are fighting powers that they are powerless to fight. It's like tackling a storm raging in the sea with a teaspoon.The main supermarket can't get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We're running out of oil. And winter came last night - about a month early.

Tyler Cowen has a link to the Financial Times that has a list of European banks with assets greater than the gdp of their respective home countries. UBS, which was one of the earliest banks to admit to its messed up books, had assets that were 484% of the Swiss GDP!

China with money more powerful than USSR with guns

More commentaries, in addition to my earlier blog, on the Fannie/Freddie takeover zoom into the Chinese angle: that when the Chinese and others bought billions of debt, they did so because the feds were guarantors. So, when Fannie/Freddie tanked, well, here is Tyler Cowen (via Megan Mcardle)

In essence we already agreed to the bail out some time ago. Have you ever spent $17,000 on a car and asked the dealer what the warranty for the car "really meant"? Well, the Chinese spent $340 billion on agency debt and probably asked the same question at least once or twice. They live in a world of secret agreements with leaders, not transparent democratic arrangements. So when it comes to the U.S government decision, we're not just starting from scratch here. How many phone calls do you think Hank Paulson has received from the Chinese central bank since August 2007?
"Are you *sure* that paper is safe enough for us to keep on buying?"
We'll never know exactly what kind of verbal dance Paulson concocted in response, but just look at the resulting flow of purchases and the relatively slight mark-up over Treasuries over that period of time. The Chinese (among others) thought we were standing behind the securities, at least in any world-state short of federal government quasi-bankruptcy. (In fact Paulson is in a total bind once that phone call comes in. He doesn't have much incentive to just say "tough luck" and precipitate a crisis when otherwise no crisis is on the horizon.)
So should we try this: "Oh, is that what you thought? Guaranteed? Did we use that word? Sorry, try reading our signals better next time. We love you. Great job with those Olympics. And when it comes to those Treasury Bills, we really do still mean it. And don't forget to support us on Iran and North Korea."

And we pretend that we are the world's sole super-power who can do anything we want. It is bizarre that China has more influence on our policies than the USSR ever did.

Money is more powerful than guns! No wonder that Putin too is going the same route of flexing his petroleum riches.