Miscellanea: Charlie Rose, Netflix and The Heartbreak Kid [Miscellanea is a real word and it’s better than hodge-podge, no?]
1. Charlie Rose
(A) Check out Charlie Rose’s interviews and you can find one of Roger Federer the year he first won the US Open (beating Lleyton Hewitt), in 2004. It shows Roger at his best, a thoughtful and unpretentious superstar. Rose is a superb interviewer and he helps me to understand better why I like Roger so much, apart from the fact that I detest blowhards like Connors and in-your-face players like Nadal used to be (on the court). After watching the interview, I realized that what makes Roger so exciting on the court is his masterful footwork. He seems to glide over the court and that’s what enables him to make so many sensational shots.
Charlie Rose
(B) But check out also (or instead, if watching Roger doesn’t do much for you) Charley Rose’s interviews and find the one done about a week ago of Paul Krugman (after he had won the Nobel prize). You can learn a lot about what’s happening in the economy by listening. And again, Rose understands a lot of economics and is a terrific interviewer.
2. Netflix
Somehow, Marianne and I have become "addicted" to Netflix. It’s so convenient. Choose the movie on their web site, open the envelope when it arrives one or two days later, seal the pre-stamped envelope (when finished) and mail it back.
Last week we saw "True Romance," a Quentin Tarantino film (1993). It has violence but Marianne who can’t stand to watch violence in movies got through this one. It’s a love story between two people who are totally different from anyone we know, played by Christian Slater and Patricia Arquette, and it is a very engaging–perhaps enchanting might be the word–love story (given the crazy and violent setting), as well as a drug story, all of this with an Elvis theme. Having relatively minor roles are Dennis Hopper, Val Kilmer, Brad Pitt and Samuel Jackson.
But what we have also watched and enjoyed are a number of TV series, ordering them a year or so after they originally appear on TV, either here or in Great Britain. One is The Wire, enjoyed more by MA than I–she thought it was a genuine intellectual achievement–which just ended its 5 year run on HBO (about drugs and cops in my home city of Baltimore); Foyles War (a detective series about wartime England); Cracker (a British crime drama) and Prime Suspect (a British police drama). We order these discs, one by one, in order.
And then we watch old favorites, which we have completely forgotten though we had seen them years ago, such as (recently) Nashville–very recommended. Marianne saw On the Waterfront for the first time and that one I did remember a lot–also recommended. One recent viewing that I especially liked was 12 Angry Men, with Henry Fonda. (By chance, I just finished my jury duty obligation and was not even picked to sit and be interviewed by the lawyers.)
Just as I sit down to read or write, Marianne says "do you want to watch a movie?" How can I resist?
3. The Heartbreak Kid.
I haven’t seen this in maybe 15 years, but I’ve seen it about 4 times, since it first appeared in 1972. It was directed by Elaine May and the writers were Bruce Jay Friedman (story) and Neil Simon (screenplay). Charles Grodin realizes by North Carolina or Georgia on the ride to Florida for his honeymoon that he married the wrong "girl," played wonderfully by Jeannie Berlin (Elaine May’s daughter). She is boring him (and us) to death. And then as he lies on an empty beach (Jeannie is in the hotel bedroom with sunburn), Cybell Shepherd walks by and she accuses him of "lying in her space." Grodin then manipulates his wife mercilessly in order to win over Cybill (who of course looked beautiful).
Years later, I was sent a clipping, by a friend, that sums it all up wonderfully. [It has on the top VIDI VIDI VIDI and then is entitled DVD PICK:] "(May) takes Neil Simon’s adaptation of Bruce Jay Friedman’s story "A Change of Plan" and turns it into a kind of perverse answer film to former collaborator Mike Nichol’s The Graduate. The incomparable Charles Grodin plays the smooth, blankly earnest Jewish climber who ditches his sad-sack bride (Jeannie Berlin) during their honeymoon and sets off after WASP princess Cybill Shepherd. As the abandoned bride, May provocatively casts her own daughter, eliciting a performance of heroic self-abasement from Berlin–perhaps the ultimate portrait of female abjection in American cinema. But the film’s farcical premise, which might have devolved into creepy misogyny in a male director’s hands, allows May to carry out a merciless dissection of masculine anxiety and fantasy. One of the most excruciating comedies ever made, it’s up there with any of Fassbinder’s sado-masochistic satires."
The times I saw it audiences would laugh uproariously at the preposterous manipulations of Grodin. (It’s called a comedy and May is an "unsung genius" of American comedy.) However, I never laughed, not even a smile. Though I thought the Grodin character behaved terribly, and was absolutely immoral, I would have done exactly what he did, to be with Cybill Shepherd. I didn’t laugh, I guess, because my conscience wouldn’t let me laugh, even though it was just a movie. Grodin was absolutely great, ending up being out of place with a well-to-do WASP family, one that wasn’t happy that their daughter married a Jew. (Actually, I can’t remember whether they had gotten married yet.)
Sunday, October 26, 2008
Stocks and Fiscal Policy
[Don’t be put off by the words, "Fiscal Policy." There is monetary policy which is engaged in by the Federal Reserve and there is fiscal policy, which refers to the spending, tax and borrowing policies of government–in this case the Federal government.]
Stocks and Fiscal Policy
About a month ago a knowledgeable friend of mine (and an economist) said he thought the Dow would go down to 8000. At the time it had just dropped below 10,000, if I recall, and I thought he was unduly pessimistic.
I now think he may have been unduly optimistic. A trend line of the Dow, from about 1955 (after, for the most part, the effects of World War II had been played out and in the middle of a recovery from a recession) to about 1995 (again in the middle of a recovery and before the dot-com bubble), shows that the Dow would be about 7500 had that trend line been projected until 2008. The Dow, even after the bursting of the bubble, has had a price-earnings ratio that is higher than what has existed historically. On a price-earnings calculation, if earnings in 2009 reflect the decline in sales that seem all but inevitable, I suspect that the Dow could easily drop as low as 6000, or about 25% below where it is now. And often the Dow overshoots in both directions–it goes too low when it declines and goes too high when it increases.
In my previous entry on Buffett, I refer to the pessimism of the distinguished conservative economist, Gregory Mankiw. It’s hard to find anything to be optimistic about or anyone who is optimistic. Not only do we have no idea where we are in the toxic debt situation, but even if the $700 billion can handle this, and handle it sooner rather than later, the situation is still perilous. The mainstay of the economy–consumption–is surely going to be weak and much lower than what it has been for a good while–see my previous entry on the economy.
In that entry, I specified four fiscal things the government should do: spend more on aiding states; spend more on health; spend more on infrastructure; and spend more on alternate energy. (A variation on the last is to offer house owners (and landlords) and businesses a super-duper low rate loan (and perhaps have part of it be a gift) for insulating houses, apartment buildings, factories, whatever.) What I should have added is that government should also immediately increase the time period, now 26 weeks–maybe by as much as another year–in which people can collect unemployment compensation. That is undoubtedly money that will be spent and not saved.
But here is the problem. I suspect that Obama, assuming he is elected, will be unduly cautious. He too will favor aid to the states, but I suspect his proposal will be in the area of $25 or hopefully $50 billion. May there be economists–Jamie Galbraith, for example, or perhaps Krugman–who will convince this very smart man that what we need is $250 or $500 billion going to the states. Not even obstructionist Republicans can call aid to the states, "socialism," or "unpatriotic." Infrastructure improvements, such as highways and bridges, are badly needed, but spending on these or other useful infrastructure areas takes time. So do the other things I argued for, except the extension of unemployment compensation.
Unfortunately, time is of the essence, if we are to ensure the current crisis doesn’t become an absolute and total catastrophe. In the current situation, better to be pessimistic and spend more, then wait (hoping) and then find out we need the spending, because then it will be too late. [Yes, I know that once we are out of danger, we absolutely must find ways to reduce our deficit. But first things first.] (My partial solution is a higher tax rate on those who earn over $1 million a year and an increased rate of taxation on high level estates, an indirect way of getting back the all-but-stolen money that financial executives siphoned out of their corporations and us.)
[For a table showing how many are employed by states and localities–16.4 million–by category (the largest being education, followed by hospitals, then police and so on, see Sunday’s Business Section of the Times, October 26.]
Stocks and Fiscal Policy
About a month ago a knowledgeable friend of mine (and an economist) said he thought the Dow would go down to 8000. At the time it had just dropped below 10,000, if I recall, and I thought he was unduly pessimistic.
I now think he may have been unduly optimistic. A trend line of the Dow, from about 1955 (after, for the most part, the effects of World War II had been played out and in the middle of a recovery from a recession) to about 1995 (again in the middle of a recovery and before the dot-com bubble), shows that the Dow would be about 7500 had that trend line been projected until 2008. The Dow, even after the bursting of the bubble, has had a price-earnings ratio that is higher than what has existed historically. On a price-earnings calculation, if earnings in 2009 reflect the decline in sales that seem all but inevitable, I suspect that the Dow could easily drop as low as 6000, or about 25% below where it is now. And often the Dow overshoots in both directions–it goes too low when it declines and goes too high when it increases.
In my previous entry on Buffett, I refer to the pessimism of the distinguished conservative economist, Gregory Mankiw. It’s hard to find anything to be optimistic about or anyone who is optimistic. Not only do we have no idea where we are in the toxic debt situation, but even if the $700 billion can handle this, and handle it sooner rather than later, the situation is still perilous. The mainstay of the economy–consumption–is surely going to be weak and much lower than what it has been for a good while–see my previous entry on the economy.
In that entry, I specified four fiscal things the government should do: spend more on aiding states; spend more on health; spend more on infrastructure; and spend more on alternate energy. (A variation on the last is to offer house owners (and landlords) and businesses a super-duper low rate loan (and perhaps have part of it be a gift) for insulating houses, apartment buildings, factories, whatever.) What I should have added is that government should also immediately increase the time period, now 26 weeks–maybe by as much as another year–in which people can collect unemployment compensation. That is undoubtedly money that will be spent and not saved.
But here is the problem. I suspect that Obama, assuming he is elected, will be unduly cautious. He too will favor aid to the states, but I suspect his proposal will be in the area of $25 or hopefully $50 billion. May there be economists–Jamie Galbraith, for example, or perhaps Krugman–who will convince this very smart man that what we need is $250 or $500 billion going to the states. Not even obstructionist Republicans can call aid to the states, "socialism," or "unpatriotic." Infrastructure improvements, such as highways and bridges, are badly needed, but spending on these or other useful infrastructure areas takes time. So do the other things I argued for, except the extension of unemployment compensation.
Unfortunately, time is of the essence, if we are to ensure the current crisis doesn’t become an absolute and total catastrophe. In the current situation, better to be pessimistic and spend more, then wait (hoping) and then find out we need the spending, because then it will be too late. [Yes, I know that once we are out of danger, we absolutely must find ways to reduce our deficit. But first things first.] (My partial solution is a higher tax rate on those who earn over $1 million a year and an increased rate of taxation on high level estates, an indirect way of getting back the all-but-stolen money that financial executives siphoned out of their corporations and us.)
[For a table showing how many are employed by states and localities–16.4 million–by category (the largest being education, followed by hospitals, then police and so on, see Sunday’s Business Section of the Times, October 26.]
Buffett
Buffett
On Friday, October 17, in the New York Times, opposite a column by Paul Krugman describing just how terrible a condition we are in, economically, there was a guest op-ed column by Warren E. Buffett, entitled: "Buy American. I Am."
He urged people to do what he is doing, buy American stocks. He admits that no one, not even, Warren Buffett, probably the most successful investor in American history, can predict "the short run movements of the stock market." Nevertheless, he argues you should buy now, arguing the following: you should "be fearful when others are greedy, and be greedy when others are fearful."
Translation: buy cheap and sell when prices are bubbled. Don’t wait until you feel secure about buying–after the recession is over–because by then the prices will already have risen and you will be buying too late. Explanation: stocks are a leading indicator–they go down before the "real" economy (or GDP) goes down and they go up before the "real" economy goes up. His example of the latter is that the Dow hit its low in early July of 1932, while the economy kept deteriorating until March 1933.
Finally, at one point (nearer the beginning of the article than the end), he talks how the nation’s "many sound companies"–naming none!–will suffer earnings hiccups (his word), "but most major companies will be setting new profit records 5, 10 and 20 years from now."
Now it happens, I check on how stocks are doing through Yahoo (finance.yahoo.com/indices?u). And often there are a few comments below the stats. On that Friday, there was a comment from someone named David Weidner (who I later Googled and he seemed to be a perfectly reasonable and informed economic commentator). He criticized Buffett by arguing that Buffett is getting preferred stock with high dividends–if I recall, he said 10%–and that he had warrants that might be of no value if stocks go down.
In effect, he was implying that Buffett, whom I respect enormously, was manipulating us, for his own gain. This I don’t believe. Not at all. Not from someone who has argued that people like him should pay higher taxes. Instead, I think his comment was a reflection of the fact that he thinks and states the following: "Over the long term, the stock market news will be good." When I went back to check on Weidner’s comment, it was no longer there (but fortunately I had written down the author’s name).
Buffett also says that "(E)quities will almost certainly outperform cash over the next decade, probably by a substantial degree." But will they outperform bonds? Will they outperform TIPS, Treasury Inflation-Protected Securities? Will they outperform longer term and higher interest CD’s? And there are other possibilities. It seems to me Buffett is not presenting one’s choices fairly.
But more important, given that he says "I have no idea what the market will do in the short term," it means that his 1932-33 example is badly flawed. What if we are in 1930? What if stocks drop 25% from their current level? Why doesn’t he mention that the Nikkei 225 (Japan’s "Dow Jones) is today approximately 1/5 (yes 20%!) of its late 1989 high? Or that here in America, the Dow essentially stood in place for 17 years, from 1965 to 1982. And unhappily another example comes to mind–the 1929 peak was not reached again until about 1955, over 25 years later.
Yes stocks have generally been a reliable leading indicator–they go up before the economy goes up and down before the economy goes down. But those who put their money into stocks in 1930 lost their shirts. I’m not saying we’re in for another Great Depression, though reading the distinguished conservative economist, Gregory Mankiw, in today’s Times (Sunday) is not reassuring. What I am saying is that Buffett is irresponsibly suggesting we do something very risky and that is buy stocks now.
On Friday, October 17, in the New York Times, opposite a column by Paul Krugman describing just how terrible a condition we are in, economically, there was a guest op-ed column by Warren E. Buffett, entitled: "Buy American. I Am."
He urged people to do what he is doing, buy American stocks. He admits that no one, not even, Warren Buffett, probably the most successful investor in American history, can predict "the short run movements of the stock market." Nevertheless, he argues you should buy now, arguing the following: you should "be fearful when others are greedy, and be greedy when others are fearful."
Translation: buy cheap and sell when prices are bubbled. Don’t wait until you feel secure about buying–after the recession is over–because by then the prices will already have risen and you will be buying too late. Explanation: stocks are a leading indicator–they go down before the "real" economy (or GDP) goes down and they go up before the "real" economy goes up. His example of the latter is that the Dow hit its low in early July of 1932, while the economy kept deteriorating until March 1933.
Finally, at one point (nearer the beginning of the article than the end), he talks how the nation’s "many sound companies"–naming none!–will suffer earnings hiccups (his word), "but most major companies will be setting new profit records 5, 10 and 20 years from now."
Now it happens, I check on how stocks are doing through Yahoo (finance.yahoo.com/indices?u). And often there are a few comments below the stats. On that Friday, there was a comment from someone named David Weidner (who I later Googled and he seemed to be a perfectly reasonable and informed economic commentator). He criticized Buffett by arguing that Buffett is getting preferred stock with high dividends–if I recall, he said 10%–and that he had warrants that might be of no value if stocks go down.
In effect, he was implying that Buffett, whom I respect enormously, was manipulating us, for his own gain. This I don’t believe. Not at all. Not from someone who has argued that people like him should pay higher taxes. Instead, I think his comment was a reflection of the fact that he thinks and states the following: "Over the long term, the stock market news will be good." When I went back to check on Weidner’s comment, it was no longer there (but fortunately I had written down the author’s name).
Buffett also says that "(E)quities will almost certainly outperform cash over the next decade, probably by a substantial degree." But will they outperform bonds? Will they outperform TIPS, Treasury Inflation-Protected Securities? Will they outperform longer term and higher interest CD’s? And there are other possibilities. It seems to me Buffett is not presenting one’s choices fairly.
But more important, given that he says "I have no idea what the market will do in the short term," it means that his 1932-33 example is badly flawed. What if we are in 1930? What if stocks drop 25% from their current level? Why doesn’t he mention that the Nikkei 225 (Japan’s "Dow Jones) is today approximately 1/5 (yes 20%!) of its late 1989 high? Or that here in America, the Dow essentially stood in place for 17 years, from 1965 to 1982. And unhappily another example comes to mind–the 1929 peak was not reached again until about 1955, over 25 years later.
Yes stocks have generally been a reliable leading indicator–they go up before the economy goes up and down before the economy goes down. But those who put their money into stocks in 1930 lost their shirts. I’m not saying we’re in for another Great Depression, though reading the distinguished conservative economist, Gregory Mankiw, in today’s Times (Sunday) is not reassuring. What I am saying is that Buffett is irresponsibly suggesting we do something very risky and that is buy stocks now.
Friday, October 24, 2008
Larry David
This was taken from "Breaking News and Opinion on The Huffington Post" (October 22) [www.huffingtonpost.com/] I’m actually finding this site better than a good one for headlines and pictures. It has enough interesting stories, I recommend checking it out more than I indicated in my "blogs" entry, written recently.
I’ve been told by a number of friends, and even once by strangers as I walked down Broadway that I looked like Larry David (Curb Your Enthusiasm and principle writer, I believe, of the Seinfeld show). After reading this, I now believe I think like him, except he is funnier.
*************
Larry David
I can't take much more of this. Two weeks to go, and I'm at the end of my rope. I can't work. I can eat, but mostly standing up. I'm anxious all the time and taking it out on my ex-wife, which, ironically, I'm finding enjoyable. This is like waiting for the results of a biopsy. Actually, it's worse. Biopsies only take a few days, maybe a week at the most, and if the biopsy comes back positive, there's still a potential cure. With this, there's no cure. The result is final. Like death.
Five times a day I'll still say to someone, "I don't know what I'm going to do if McCain wins." Of course, the reality is I'm probably not going to do anything. What can I do? I'm not going to kill myself. If I didn't kill myself when I became impotent for two months in 1979, I'm certainly not going to do it if McCain and Palin are elected, even if it's by nefarious means. If Obama loses, it would be easier to live with it if it's due to racism rather than if it's stolen. If it's racism, I can say, "Okay, we lost, but at least it's a democracy. Sure, it's a democracy inhabited by a majority of disgusting, reprehensible turds, but at least it's a democracy." If he loses because it's stolen, that will be much worse. Call me crazy, but I'd rather live in a democratic racist country than a non-democratic non-racist one. (It's not exactly a Hobson's choice, but it's close, and I think Hobson would compliment me on how close I've actually come to giving him no choice. He'd love that!)
The one concession I've made to maintain some form of sanity is that I've taken to censoring my news, just like the old Soviet Union. The citizenry (me) only gets to read and listen to what I deem appropriate for its health and well-being. Sure, there are times when the system breaks down. Michele Bachmann got through my radar this week, right before bedtime. That's not supposed to happen. That was a lapse in security, and I've had to make some adjustments. The debates were particularly challenging for me to monitor. First I tried running in and out of the room so I would only hear my guy. This worked until I knocked over a tray of hors d'oeuvres. "Sit down or get out!" my host demanded. "Okay," I said, and took a seat, but I was more fidgety than a ten-year-old at temple. I just couldn't watch without saying anything, and my running commentary, which mostly consisted of "Shut up, you prick!" or "You're a fucking liar!!!" or "Go to hell, you cocksucker!" was way too distracting for the attendees, and finally I was asked to leave.
Assuming November 4th ever comes, my big decision won't be where I'll be watching the returns, but if I'll be watching. I believe I have big jinx potential and may have actually cost the Dems the last two elections. I know I've jinxed sporting events. When my teams are losing and I want them to make a comeback, all I have to do is leave the room. Works every time. So if I do watch, I'll do it alone. I can't subject other people to me in my current condition. I just don't like what I've turned into -- and frankly I wasn't that crazy about me even before the turn. This election is having the same effect on me as marijuana. All of my worst qualities have been exacerbated. I'm paranoid, obsessive, nervous, and totally mental. It's one long, intense, bad trip. I need to come down. Soon.
I’ve been told by a number of friends, and even once by strangers as I walked down Broadway that I looked like Larry David (Curb Your Enthusiasm and principle writer, I believe, of the Seinfeld show). After reading this, I now believe I think like him, except he is funnier.
*************
Larry David
I can't take much more of this. Two weeks to go, and I'm at the end of my rope. I can't work. I can eat, but mostly standing up. I'm anxious all the time and taking it out on my ex-wife, which, ironically, I'm finding enjoyable. This is like waiting for the results of a biopsy. Actually, it's worse. Biopsies only take a few days, maybe a week at the most, and if the biopsy comes back positive, there's still a potential cure. With this, there's no cure. The result is final. Like death.
Five times a day I'll still say to someone, "I don't know what I'm going to do if McCain wins." Of course, the reality is I'm probably not going to do anything. What can I do? I'm not going to kill myself. If I didn't kill myself when I became impotent for two months in 1979, I'm certainly not going to do it if McCain and Palin are elected, even if it's by nefarious means. If Obama loses, it would be easier to live with it if it's due to racism rather than if it's stolen. If it's racism, I can say, "Okay, we lost, but at least it's a democracy. Sure, it's a democracy inhabited by a majority of disgusting, reprehensible turds, but at least it's a democracy." If he loses because it's stolen, that will be much worse. Call me crazy, but I'd rather live in a democratic racist country than a non-democratic non-racist one. (It's not exactly a Hobson's choice, but it's close, and I think Hobson would compliment me on how close I've actually come to giving him no choice. He'd love that!)
The one concession I've made to maintain some form of sanity is that I've taken to censoring my news, just like the old Soviet Union. The citizenry (me) only gets to read and listen to what I deem appropriate for its health and well-being. Sure, there are times when the system breaks down. Michele Bachmann got through my radar this week, right before bedtime. That's not supposed to happen. That was a lapse in security, and I've had to make some adjustments. The debates were particularly challenging for me to monitor. First I tried running in and out of the room so I would only hear my guy. This worked until I knocked over a tray of hors d'oeuvres. "Sit down or get out!" my host demanded. "Okay," I said, and took a seat, but I was more fidgety than a ten-year-old at temple. I just couldn't watch without saying anything, and my running commentary, which mostly consisted of "Shut up, you prick!" or "You're a fucking liar!!!" or "Go to hell, you cocksucker!" was way too distracting for the attendees, and finally I was asked to leave.
Assuming November 4th ever comes, my big decision won't be where I'll be watching the returns, but if I'll be watching. I believe I have big jinx potential and may have actually cost the Dems the last two elections. I know I've jinxed sporting events. When my teams are losing and I want them to make a comeback, all I have to do is leave the room. Works every time. So if I do watch, I'll do it alone. I can't subject other people to me in my current condition. I just don't like what I've turned into -- and frankly I wasn't that crazy about me even before the turn. This election is having the same effect on me as marijuana. All of my worst qualities have been exacerbated. I'm paranoid, obsessive, nervous, and totally mental. It's one long, intense, bad trip. I need to come down. Soon.
Gloom and Doom
Gloom and Doom: Economic Prospects
Be wary of former Marxists (me!): when devout, we used to see 1929 in every downturn (and lick our Marxist chops)! But this time it’s different: there are no Marxists, so to speak–it’s
the mainstream press which keeps hammering away at us that the financial meltdown is the worst since The Great Depression. And it may well be, but it’s also different this time since most of the bank failures back then did not occur in 1929 and 1930, but later, as the depression deepened, while this time the failures are more or less preceding what looks to be a long and serious decline.
Not just the Princeton lads are saying this–Krugman and Bernanke–or Berkeley’s Brad DeLong who thinks we will have 8-10% unemployment–but many others of all political stripes are projecting a deep and long recession. (And keep in mind that the official unemployment rate which is impeccably correct in what it measures does not measure what we really want it to measure–and that is those looking for jobs and not finding them (the official rate) + those who have given up looking + those working part time who want to work full time. By this measure, and it is calculated (although it leaves off something else that should be added--those working "full time" but on a somewhat shorter work week), unemployment is strikingly higher than the 6.1% official rate as well as relatively higher than the official rate.)
Of course, no one knows when the financial mess will end–toxicity seems to be unmeasurable–and maybe it has essentially ended, though I doubt it. Surely what banks and other lenders have been experiencing is as unique as it has been dismaying. But there are some who think once "normality" in this area returns, and banks and other lenders get over their jitters, and resume "normal" lending, we will then have a "normal" recovery. What is overlooked is that recoveries since World War II have never exactly been normal. In fact, they differed to the point we can even argue each was unique.
Some recoveries were aided by post-war factors (such as the cashing in of war bonds and huge outlays on cars and houses that one could not buy since 1929). Others responded to lower interest rates, but in most of these cases, the lower rates had followed a raising of rates by the Fed to stop creeping (or, in 1981, galloping) inflation. Then too increased military expenditures helped overcome some recessions along with tax cuts (in both 1961 and 1982).
In recent decades the "boom" phase of the cycle has lasted much, much longer than what existed before the eighties (leaving off the sixties which had the Vietnam War as a stimulus) but the recoveries after both of our last two recession (Bush 1's recession {1990-1} and Bush 2's recession {2001}) were initially unusually weak, although in the 2nd term of Clinton, there was a genuine boom related to new computer technology (which caused and accompanied the dot-com bubble).
So what is normal? Or put differently, can we expect a "normal" recovery when we finally get our financial ship (that’s a "p") together. I think not likely. The mainstay of recent years has been consumer spending and it is hard to imagine that it can continue at the clip it was at.
Savings on income after income taxes were subtracted–disposable income, for the economically educated–had been relatively stable at 7-8%, for decades, only to decline in the nineties until it actually went into a minus territory for a while recently–dis-saving!. This unprecedented low savings rate is doubly amazing, since personal income has been increasingly captured by the upper 1 %. And these are the people who historically saved, or at least used to, at much higher rates than us plebeians.
But from now on, most Americans, unable to borrow against their houses, perhaps finding it harder and more expensive to use credit cards, making less money due to unemployment and short time, and perhaps most important scared shitless (no "p" here), are likely to be cautious. Already, there is evidence that the savings rate is increasing. It is unlikely, therefore, that consumption is going to spark the recovery.
Business investment, the I in C + I + G + X - M (the GDP in letters in elementary texts, standing for consumption, investment, government, exports and imports), has not been held back by high interest rates. To the contrary. No doubt if, unexpectedly, something new (and important) comes along, new investment can stimulate a "normal" recovery–unless what is discovered is produced in China.
But, nothing on the horizon makes it appear that investment is going to propel us back to prosperity, especially if you add into the calculation the fact that housing is a big part of investment. (Rents are C but new housing is I.) And while at some point, the existing houses up for sale (including those foreclosed) will be bought up as their prices fall through the floor (and projections by many informed sources still believe housing prices will fall further into the basement, maybe by another 5-10 percent), construction of new housing is highly unlikely to be a source of economic strength, for some time to come. And after a recession, with low interest rates, this kind of spending has in the past been important, if not crucial.
Nor will exports be the answer, weakened as they are, because of the decline of manufacturing, but likely to be further weakened as the result of the strange but incredible strengthening of the dollar against the Euro (from a Euro costing about $1.60 a few months ago and now costing less than $1.30). [It is why I and my wife who will begin her one year sabbatical in January may go to Europe and you, dear reader–I assume only one–should consider it a last "golden" opportunity.] But the dollar has enormously weakened against the Japanese yen, and little is being written about this fact, never mind its causes. Since we can’t export much to Japan, exports will undoubtedly be weak. (Also, the mix of tourists, less in number, should end up with more Japanese and less Europeans. I hope it doesn’t mean more Japanese restaurants in my neighborhood, since there are already about 10 of them within four blocks.)
Finally, and related to exports and tourism, is the fact that it is not only the United States that is in economic trouble, but Western Europe, East Asia (including South Korea, Japan and to some degree, China) as well as oil exporting countries, given the collapse of the price of oil. One need not fear being labeled a Cassandra to believe that exports are not going to be the catalyst which gets us out of the recession.
Thus, I believe the only way out of this economic mess is fiscal policy–which is all about taxing and spending. Unfortunately, the emphasis of the election campaign–both by Obama and McCain–has been on tax cuts. But tax cuts are less likely to be effective than spending increases. People may use their tax cuts to cut down their debts or build a reserve in case they are laid off. And to the extent this is true, tax cuts do little.
Federal spending (yes, deficit spending) is probably the best (and possibly the only) short term answer, even though in adding to the deficit it has long run negatives. The four best areas for this kind of spending, in my view, are: federal aid to states, to lessen the cutbacks of teachers, police, sanitation workers, bus and subway workers and civil servants of all kinds; federal spending on infrastructure; federal spending on medical programs that bring coverage to (preferably) everyone; and, to the extent possible, spending on developing ecologically appropriate energy alternatives. I doubt, initially, Obama, if elected, will move very strongly in this direction. But here we may have a repeat of the 1930's. Roosevelt bumbled away in 1933 and 1934, with the likes of the National Recovery Act (NRA), but found his stride in 1935 with the WPA (Works Progress Administration) and Social Security. Let’s hope history repeats.*******
As for the longer run, just two brief comments: (1) At some point in the not too distant future, I expect the dollar will not only resume its decline against the Euro (and British pound and Canadian dollar et al), but that it will actually collapse. Whether this will be a crash like the stock market in 1987 (nearly 25% in one day) or more gradual, I haven’t the foggiest. But even the United States can’t keep its printing presses operating 24 hours a day without at some point suffering the consequences. I would not be surprised if ten or fifteen years from now the dollar is worth half as much as it is today (or maybe one-third as much) against a mix of currencies. This will mean many Americans will not be able to afford what they are accustomed to buying.
(2) I do believe that in one respect the future will be like the past and that is in the area of productivity. The incentives are always there for businesses to find ways to produce whatever they make more cheaply (and not just through lower wages or relocations of factories to areas where labor is cheap). To illustrate this means or could mean: rather than having one worker employed and one worker unemployed–a highly exaggerated description of what is happening, but if the numbers are overstated the direction is clear–it would be better to have both workers working half time, with productivity improvements keeping living standards liveable.
I can almost hear the "oy vey." But think about it. What happened between 1880 and 1929? The work week fell from about 70 hours or so to 40 hours and not because of unions. Workers voluntarily took part of their increased earnings out in the form of greater leisure, to spend more time with their families and to engage in enjoyable leisure activities. A gradual shortening of the work week is the desired choice of the future, not just because we can’t produce 40 hour, full employment for all; and not even because it is the best partial answer to environmental degradation; but because it also offers a richer life than one cluttered with goods one doesn’t really need. Businesses will not like this, but more important, can Americans make this giant emotional step?
Be wary of former Marxists (me!): when devout, we used to see 1929 in every downturn (and lick our Marxist chops)! But this time it’s different: there are no Marxists, so to speak–it’s
the mainstream press which keeps hammering away at us that the financial meltdown is the worst since The Great Depression. And it may well be, but it’s also different this time since most of the bank failures back then did not occur in 1929 and 1930, but later, as the depression deepened, while this time the failures are more or less preceding what looks to be a long and serious decline.
Not just the Princeton lads are saying this–Krugman and Bernanke–or Berkeley’s Brad DeLong who thinks we will have 8-10% unemployment–but many others of all political stripes are projecting a deep and long recession. (And keep in mind that the official unemployment rate which is impeccably correct in what it measures does not measure what we really want it to measure–and that is those looking for jobs and not finding them (the official rate) + those who have given up looking + those working part time who want to work full time. By this measure, and it is calculated (although it leaves off something else that should be added--those working "full time" but on a somewhat shorter work week), unemployment is strikingly higher than the 6.1% official rate as well as relatively higher than the official rate.)
Of course, no one knows when the financial mess will end–toxicity seems to be unmeasurable–and maybe it has essentially ended, though I doubt it. Surely what banks and other lenders have been experiencing is as unique as it has been dismaying. But there are some who think once "normality" in this area returns, and banks and other lenders get over their jitters, and resume "normal" lending, we will then have a "normal" recovery. What is overlooked is that recoveries since World War II have never exactly been normal. In fact, they differed to the point we can even argue each was unique.
Some recoveries were aided by post-war factors (such as the cashing in of war bonds and huge outlays on cars and houses that one could not buy since 1929). Others responded to lower interest rates, but in most of these cases, the lower rates had followed a raising of rates by the Fed to stop creeping (or, in 1981, galloping) inflation. Then too increased military expenditures helped overcome some recessions along with tax cuts (in both 1961 and 1982).
In recent decades the "boom" phase of the cycle has lasted much, much longer than what existed before the eighties (leaving off the sixties which had the Vietnam War as a stimulus) but the recoveries after both of our last two recession (Bush 1's recession {1990-1} and Bush 2's recession {2001}) were initially unusually weak, although in the 2nd term of Clinton, there was a genuine boom related to new computer technology (which caused and accompanied the dot-com bubble).
So what is normal? Or put differently, can we expect a "normal" recovery when we finally get our financial ship (that’s a "p") together. I think not likely. The mainstay of recent years has been consumer spending and it is hard to imagine that it can continue at the clip it was at.
Savings on income after income taxes were subtracted–disposable income, for the economically educated–had been relatively stable at 7-8%, for decades, only to decline in the nineties until it actually went into a minus territory for a while recently–dis-saving!. This unprecedented low savings rate is doubly amazing, since personal income has been increasingly captured by the upper 1 %. And these are the people who historically saved, or at least used to, at much higher rates than us plebeians.
But from now on, most Americans, unable to borrow against their houses, perhaps finding it harder and more expensive to use credit cards, making less money due to unemployment and short time, and perhaps most important scared shitless (no "p" here), are likely to be cautious. Already, there is evidence that the savings rate is increasing. It is unlikely, therefore, that consumption is going to spark the recovery.
Business investment, the I in C + I + G + X - M (the GDP in letters in elementary texts, standing for consumption, investment, government, exports and imports), has not been held back by high interest rates. To the contrary. No doubt if, unexpectedly, something new (and important) comes along, new investment can stimulate a "normal" recovery–unless what is discovered is produced in China.
But, nothing on the horizon makes it appear that investment is going to propel us back to prosperity, especially if you add into the calculation the fact that housing is a big part of investment. (Rents are C but new housing is I.) And while at some point, the existing houses up for sale (including those foreclosed) will be bought up as their prices fall through the floor (and projections by many informed sources still believe housing prices will fall further into the basement, maybe by another 5-10 percent), construction of new housing is highly unlikely to be a source of economic strength, for some time to come. And after a recession, with low interest rates, this kind of spending has in the past been important, if not crucial.
Nor will exports be the answer, weakened as they are, because of the decline of manufacturing, but likely to be further weakened as the result of the strange but incredible strengthening of the dollar against the Euro (from a Euro costing about $1.60 a few months ago and now costing less than $1.30). [It is why I and my wife who will begin her one year sabbatical in January may go to Europe and you, dear reader–I assume only one–should consider it a last "golden" opportunity.] But the dollar has enormously weakened against the Japanese yen, and little is being written about this fact, never mind its causes. Since we can’t export much to Japan, exports will undoubtedly be weak. (Also, the mix of tourists, less in number, should end up with more Japanese and less Europeans. I hope it doesn’t mean more Japanese restaurants in my neighborhood, since there are already about 10 of them within four blocks.)
Finally, and related to exports and tourism, is the fact that it is not only the United States that is in economic trouble, but Western Europe, East Asia (including South Korea, Japan and to some degree, China) as well as oil exporting countries, given the collapse of the price of oil. One need not fear being labeled a Cassandra to believe that exports are not going to be the catalyst which gets us out of the recession.
Thus, I believe the only way out of this economic mess is fiscal policy–which is all about taxing and spending. Unfortunately, the emphasis of the election campaign–both by Obama and McCain–has been on tax cuts. But tax cuts are less likely to be effective than spending increases. People may use their tax cuts to cut down their debts or build a reserve in case they are laid off. And to the extent this is true, tax cuts do little.
Federal spending (yes, deficit spending) is probably the best (and possibly the only) short term answer, even though in adding to the deficit it has long run negatives. The four best areas for this kind of spending, in my view, are: federal aid to states, to lessen the cutbacks of teachers, police, sanitation workers, bus and subway workers and civil servants of all kinds; federal spending on infrastructure; federal spending on medical programs that bring coverage to (preferably) everyone; and, to the extent possible, spending on developing ecologically appropriate energy alternatives. I doubt, initially, Obama, if elected, will move very strongly in this direction. But here we may have a repeat of the 1930's. Roosevelt bumbled away in 1933 and 1934, with the likes of the National Recovery Act (NRA), but found his stride in 1935 with the WPA (Works Progress Administration) and Social Security. Let’s hope history repeats.*******
As for the longer run, just two brief comments: (1) At some point in the not too distant future, I expect the dollar will not only resume its decline against the Euro (and British pound and Canadian dollar et al), but that it will actually collapse. Whether this will be a crash like the stock market in 1987 (nearly 25% in one day) or more gradual, I haven’t the foggiest. But even the United States can’t keep its printing presses operating 24 hours a day without at some point suffering the consequences. I would not be surprised if ten or fifteen years from now the dollar is worth half as much as it is today (or maybe one-third as much) against a mix of currencies. This will mean many Americans will not be able to afford what they are accustomed to buying.
(2) I do believe that in one respect the future will be like the past and that is in the area of productivity. The incentives are always there for businesses to find ways to produce whatever they make more cheaply (and not just through lower wages or relocations of factories to areas where labor is cheap). To illustrate this means or could mean: rather than having one worker employed and one worker unemployed–a highly exaggerated description of what is happening, but if the numbers are overstated the direction is clear–it would be better to have both workers working half time, with productivity improvements keeping living standards liveable.
I can almost hear the "oy vey." But think about it. What happened between 1880 and 1929? The work week fell from about 70 hours or so to 40 hours and not because of unions. Workers voluntarily took part of their increased earnings out in the form of greater leisure, to spend more time with their families and to engage in enjoyable leisure activities. A gradual shortening of the work week is the desired choice of the future, not just because we can’t produce 40 hour, full employment for all; and not even because it is the best partial answer to environmental degradation; but because it also offers a richer life than one cluttered with goods one doesn’t really need. Businesses will not like this, but more important, can Americans make this giant emotional step?
Tuesday, October 21, 2008
Fed Chairmen (and me)
Fed Chairmen (and me, burnt out by the 1970-78 chairman, Arthur F Burns). [Maybe just skip to this, unless you are interested in meandering, but I hope worthwhile comments, on Alan and others.]
************
I think time is increasingly working against Alan Greenspan (AG). I mentioned in my TIAA-CREF comment a small mistake I think he made, a criticism rarely leveled at him, when he raised rates in the spring of 2000, just when it was becoming clear that the stock market bubble was over and that the economy was headed South, as they don’t say in Argentina.
Whether he should have let the rates stay as low as he did during the late 1990’s is questionable. AG argued correctly that there were no signs of inflation, but his memorable phrase, "irrational exuberance," indicated that as early as late 1996 he was aware of the dot-com and stock market bubble and at that point the bubble had barely bubbled. Not countering it some, by small but symbolic rate increases, he indirectly gave it his approval. Moreover, he refused to raise margin requirements from 50% to 100%, one way of helping to make it harder to speculate in stocks, and gave at the time what I would consider an incomprehensible, cockamamie reason.
Many have criticized him for lowering the key rate the Fed controls (the federal funds rate), after the stock market fell and the recession unfolded in 2001, to a mere one percent, all the while denying there was a housing bubble or even a housing problem to be concerned with.
Contrast AG with Robert Shiller, a noted Yale economist, who during the 90’s was warning those willing to open their eyes that there was an unsustainable stock market bubble. Shiller came out with a book that I believe became available the very month the bubble burst (or began its descent, since bubbles like balloons collapse totally while stock markets are more like slow leaks in a tire). It was written, of course, during the height of the bubble and Shiller had the wit to entitle his book, "Irrational Exuberance."
About 2005, in its quarterly (I think it’s quarterly) publication, the newsletter of TIAA-CREF printed a debate between a free-market type who said there was no housing bubble and that everything was jim-dandy, while Shiller said we had a real problem. Shiller had it right.There were many signs of potential financial danger for those who were not blinded by free market ideology. And Edward Gramlich, who died about a year ago, who was on the Fed’s Open Market Committee, the group that sets the Fed’s rates, strongly urged AG in 2002 (and also earlier) to use the Federal Reserve to monitor and create rules, regulations and leashes that would rein in the speculation. But AG said there was no need.
A respected conservative economist, and Reagan economist, Martin Feldstein, wrote not long ago in the Wall Street Journal that the Fed, most of all, was to blame for the mess we were in and while he didn’t mention Greenspan by name, clearly Greenspan was the object of his criticism. Increasingly, it looks like Greenspan will go down in history as a failure and let’s hope he takes Ayn Rand with him.
Paul Volcker, on the other hand, was made chairman of the Federal Reserve at a very difficult moment. The second oil crisis was unfolding, and inflation was in double digits, a shorthand for saying that it was more than 10%, and his non-descriptive predecessor hadn’t a clue, and I’m not even sure of his name—I just looked it up (G. William Miller). He lasted just under a year and a half).
In 1981, Volcker began raising rates to unheard of levels. Mortgage rates peaked above 17% and the prime rate, for a short while, rose above 20%. Not unnaturally, the economy was mowed down and unemployment reached double digits. We experienced the worst recession of the post-war period (WWII). [More, in another blog about current prospects]. Some have criticized Volcker for doing what he did and perhaps a case can be made that he pushed the rates higher and for a longer period than was needed (the consequence being that unemployment remained incredibly high for a long period).
But the real culprit was Ronald Reagan. In Economics 1 or 101, or whatever the intro economic course is numbered, it has been argued, ever since the triumph of Keynes’ General Theory in the mid-30’s (and to some extent, even before, without the theory) that deficits should be encouraged when the economy falls into depressions. Increase spending or cut taxes–does this prescription sound contemporary?! But inflations, by the same Keynesian logic, should be fought fiscally by tax increases and budget cutbacks (and monetarily by high interest rates).
But there we were, in 1981, with double digit inflation, and Reagan was pushing through an enormous tax cut which (along with military increases) had the potential to have us looking at triple digit inflation. It could even have turned us into a bona fide Banana Republic. What else could the Fed do? Volcker bit the bullet, raising rates sharply, and I’m not unsympathetic.
William McChesney Martin was chairman from 1951 until Arthur F Burns took over in 1970. I suppose he didn’t do terribly, but frankly, the only thing I remember is what he is most famous for, at this point, his quotation: It is the job of the Federal Reserve "to take away the punch bowl just as the party gets going."
But it’s Arthur F Burns I really want to write about. There were two Arthur Burns teaching at Columbia’s graduate program in economics when I arrived. The other was Arthur R. Burns. Arthur F Burns was distinguished by students from Arthur R Burns by the F instead of the R. And before your dirty minds betray you, the F stood for fluctuations, since he taught a course on the business cycle. He had just returned to Columbia University after being Eisenhower’s chairman of the Council of Economic Advisers, which in some administrations carries weight as well as prestige. In his case, I’m not sure.
He was known for being an anti-Keynesian, at a time when Keynes’s ideas had almost universally triumphed. (He was later appointed to head the Federal Reserve by Richard Nixon in 1970, who had remarked at about that time, "We are all Keynesians now," or something like that.)
His main criticism was not without merit and ironically was picked up by Bill Clinton of all people. Burns argued that running a deficit (by spending increases or tax cuts) to get out of a recession would cause the Federal Government to borrow more (obviously). And the result of the Federal Government doing this would cause interest rates to go up (as loaners have to be induced to loan to the US government rather than do other things with their money). Higher interest rates would then lead businesses to reduce their borrowing. So, in effect the increased spending from government expenditures or tax cuts would be offset by decreased business spending. (I don’t think he made a very convincing case it would be a wash.)
[Clinton insert: Clinton who campaigned in 1992 on getting the economy moving again, and argued in favor of tax cuts and spending increases—standard Keynesianism—changed course after the election, primarily I believe under the influence of Robert Rubin, a Wall Streeter, who argued that lowering the deficit would lower interest rates and get businesses to invest. So Clinton raised taxes and Republicans voted in both the Senate and House 100% against the tax increase, which in the Senate was decided by the vote of Al Gore and in the House passed 218 to 216.
Most Republican leaders, then apparently "liberal" Keynesians!, at least for the moment, predicted recession and worse. Evaluation: the 1993-95 period was a continuation of the slow recovery from the 1st Bush recession of 1990-91, but then there was a big pick up and in the late 1990’s growth was great enough to bring unemployment down to 4%, maybe a slight bit below, enough to make labor scarce enough that the average Joe Six Pack, to use the language of our friend Sarah, (or Joe the plumber, to use the language of her running mate) actually made real gains in income.
I think the original plan would have brought a degree of prosperity earlier, and would not have reduced significantly business investment, but might have had a greater inflationary impact than the low level that actually existed. In turn, greater inflation might have led AG to increase interest rates. And that might have meant a smaller stock market bubble. Joe Six Pack would not have done as well in the 90’s but might have done a little better in this decade. Maybe. ]
I took Burns’ course my first year, 1957, and what I remember most is that all he ever talked about was the need to stop inflation. Over and over. He wrote at that time a small book, about 90 pages or so, entitled "Prosperity Without Inflation." Neither the book nor verbal expression of it in class was very convincing, at least to me. Nor I believe did it ever have much of an impact on the public or on other economists.
But later on, in 1960 and perhaps 1962, I had two one-on-one encounters with Arthur Fluctuations Burns, each lasting about an hour. The first was my oral with him in the field of Business Cycles.
[Insert: At a later point I had an oral with four teachers in four disciplines, one of which included micro theory and was with William Vickrey, who was later to win the Nobel prize. After winning it, Vickrey said he would use his prestige to try to get America’s unemployment rate down to the level that existed then in much of Western Europe—2 to 3 %--instead of the 5 or 6 % that existed here, even during "good" times.
But then, tragically, he dropped dead two days later in his car just beyond the George Washington bridge on the Henry Hudson Parkway, driving to Boston. Too bad. He was a decent and committed pacifist who refused to serve in the army during World War II.
In passing, I had to take my orals again, since it took me so long to finish my dissertation and in cases like mine a retake in micro-theory was necessary. I studied like Hell, dropping virtually everything–my work on The Great Society Reader, my work as acting chairman of the Socialist Scholars Conference, my teaching--to devote myself to "Micro-economics" by William Vickrey. He asked a trick question or two but somehow I got through it, with his comment being "well, it seems you haven’t forgotten everything!!"]
At my Burns oral, he asked which of the three recessions (at that time) was fiscally handled the worst. I stupidly said the 1953-54 recession, since government’s response to the recession was to cut back military spending from $65 billion to $45 billion, since the Korean War had ended. Burns said, in response to me, and in a tone that indicated that he was personally offended, "I was the architect of that policy." Even a lunkhead like me knew immediately how stupid and foolish I had been.
He followed this up with: "Did you want us to go out and start another war?"Now it happens that at that time I was under the influence of I.F. Stone, who had written a book entitled, "The Hidden History of the Korean War." And Stone [Izzy, as he was known to friends and though I hardly was ever a friend, I later met him at Fire Island where he had a house, visited him at his house, had lunch with him at an Ocean Beach "diner" and chatted with him on the beach] believed that the South had started the war. Now it may have been possible that some South Korean soldier crossed the 38th parallel, or that South Korean maniacs said provocative things—Syngman Rhee, the South Korean leader, was a tyrant, after all—but clearly the ease by which the North swept into the South and everything else we have learned in the years since makes it clear the North started the war.
I didn’t say what immediately crossed my mind, when Burns asked whether I wanted us to go out and start another war–"well you had no trouble starting that one." I guess I pulled myself together and talked more intelligently about the 48-49 recession and the more serious 57-58 recession, since Burns passed me, giving me my first leg on the road to the Ph D.
For my economic history seminar, I wrote a paper entitled "The Economic Philosophy of the Eisenhower Administration." Not exactly history, since it was written while Eisenhower was still president. But Carter Goodrich, my economic history teacher, liked it. I think he even liked it a lot. So, after all the requirements were passed, and I was teaching at Polytechnic Institute of Brooklyn (now Polytechnic Institute of New York University, since very recently it has more or less been incorporated into NYU), I turned to what I was going to do a dissertation on.
But Goodrich had retired from Columbia and had taken a job somewhere in Pennsylvania—Penn State, I believe. I wasn’t going to chase after him. So I thought I’d see if Burns would sponsor a dissertation, expanding and developing what I had written on Eisenhower, since he was the Eisenhower expert.
Sometimes in life one wonders if dumbness is inherited or caught like the measles. If there was anyone unsuitable for sponsoring a dissertation (at least for someone of my temperament, politics, abilities and add to this list another twenty nouns), it was Arthur F. Burns. I remember—at least I think I remember this—that the interview was in his office at the National Bureau of Economic Research, a fancy group that today is responsible for deciding when a recession begins and ends, usually doing this long after anyone but economists care.
I also remember that within minutes I knew that having someone like Burns being my dissertation adviser would mean it would take twenty years to finish and during that period I would also have to put up with his egotism and pomposity. Needless to say, I dropped the proposal, found another adviser, who, incidentally, was a peach and got my dissertation accepted in the spring or summer of 1967, months after the second oral with Vickrey.
Burns went on to be chairman of the Federal Reserve, appointed by Nixon in 1970, and Professor Anti-Inflation immediately caved in to political pressure and eased the fight against inflation because Nixon feared that a real fight against inflation would cause such high unemployment that he would never be reelected in 1972—not knowing, of course, that his opponent in 72 would be George McGovern, someone I think we might call a political patsy and one surrounded by lefties of the type that knew Bill Ayres. I didn’t know Ayres but I knew other Weathermen. But even at the time, in the heat of the Vietnam War protest movement, I wasn’t a Weatherman, not because I was too scared but because I thought then as now that they went too far (and were, in addition, arrogant know-it-alls).
Nixon was able to avoid having inflation be used against him politically by instituting a wage-price freeze, in the middle of August, 1971, followed by wage-price controls in varying degrees for the next three years. (Probably, not a single economist on the Nixon staff, who had to enforce these controls, believed in them.)
But if Burns had not eased the fight against inflation, and unemployment had risen, and someone more "electable" than McGovern were nominated by the Democrats, we would have missed the enjoyment of Watergate, not to mention the movie with Redford and Hoffman.
************
I think time is increasingly working against Alan Greenspan (AG). I mentioned in my TIAA-CREF comment a small mistake I think he made, a criticism rarely leveled at him, when he raised rates in the spring of 2000, just when it was becoming clear that the stock market bubble was over and that the economy was headed South, as they don’t say in Argentina.
Whether he should have let the rates stay as low as he did during the late 1990’s is questionable. AG argued correctly that there were no signs of inflation, but his memorable phrase, "irrational exuberance," indicated that as early as late 1996 he was aware of the dot-com and stock market bubble and at that point the bubble had barely bubbled. Not countering it some, by small but symbolic rate increases, he indirectly gave it his approval. Moreover, he refused to raise margin requirements from 50% to 100%, one way of helping to make it harder to speculate in stocks, and gave at the time what I would consider an incomprehensible, cockamamie reason.
Many have criticized him for lowering the key rate the Fed controls (the federal funds rate), after the stock market fell and the recession unfolded in 2001, to a mere one percent, all the while denying there was a housing bubble or even a housing problem to be concerned with.
Contrast AG with Robert Shiller, a noted Yale economist, who during the 90’s was warning those willing to open their eyes that there was an unsustainable stock market bubble. Shiller came out with a book that I believe became available the very month the bubble burst (or began its descent, since bubbles like balloons collapse totally while stock markets are more like slow leaks in a tire). It was written, of course, during the height of the bubble and Shiller had the wit to entitle his book, "Irrational Exuberance."
About 2005, in its quarterly (I think it’s quarterly) publication, the newsletter of TIAA-CREF printed a debate between a free-market type who said there was no housing bubble and that everything was jim-dandy, while Shiller said we had a real problem. Shiller had it right.There were many signs of potential financial danger for those who were not blinded by free market ideology. And Edward Gramlich, who died about a year ago, who was on the Fed’s Open Market Committee, the group that sets the Fed’s rates, strongly urged AG in 2002 (and also earlier) to use the Federal Reserve to monitor and create rules, regulations and leashes that would rein in the speculation. But AG said there was no need.
A respected conservative economist, and Reagan economist, Martin Feldstein, wrote not long ago in the Wall Street Journal that the Fed, most of all, was to blame for the mess we were in and while he didn’t mention Greenspan by name, clearly Greenspan was the object of his criticism. Increasingly, it looks like Greenspan will go down in history as a failure and let’s hope he takes Ayn Rand with him.
Paul Volcker, on the other hand, was made chairman of the Federal Reserve at a very difficult moment. The second oil crisis was unfolding, and inflation was in double digits, a shorthand for saying that it was more than 10%, and his non-descriptive predecessor hadn’t a clue, and I’m not even sure of his name—I just looked it up (G. William Miller). He lasted just under a year and a half).
In 1981, Volcker began raising rates to unheard of levels. Mortgage rates peaked above 17% and the prime rate, for a short while, rose above 20%. Not unnaturally, the economy was mowed down and unemployment reached double digits. We experienced the worst recession of the post-war period (WWII). [More, in another blog about current prospects]. Some have criticized Volcker for doing what he did and perhaps a case can be made that he pushed the rates higher and for a longer period than was needed (the consequence being that unemployment remained incredibly high for a long period).
But the real culprit was Ronald Reagan. In Economics 1 or 101, or whatever the intro economic course is numbered, it has been argued, ever since the triumph of Keynes’ General Theory in the mid-30’s (and to some extent, even before, without the theory) that deficits should be encouraged when the economy falls into depressions. Increase spending or cut taxes–does this prescription sound contemporary?! But inflations, by the same Keynesian logic, should be fought fiscally by tax increases and budget cutbacks (and monetarily by high interest rates).
But there we were, in 1981, with double digit inflation, and Reagan was pushing through an enormous tax cut which (along with military increases) had the potential to have us looking at triple digit inflation. It could even have turned us into a bona fide Banana Republic. What else could the Fed do? Volcker bit the bullet, raising rates sharply, and I’m not unsympathetic.
William McChesney Martin was chairman from 1951 until Arthur F Burns took over in 1970. I suppose he didn’t do terribly, but frankly, the only thing I remember is what he is most famous for, at this point, his quotation: It is the job of the Federal Reserve "to take away the punch bowl just as the party gets going."
But it’s Arthur F Burns I really want to write about. There were two Arthur Burns teaching at Columbia’s graduate program in economics when I arrived. The other was Arthur R. Burns. Arthur F Burns was distinguished by students from Arthur R Burns by the F instead of the R. And before your dirty minds betray you, the F stood for fluctuations, since he taught a course on the business cycle. He had just returned to Columbia University after being Eisenhower’s chairman of the Council of Economic Advisers, which in some administrations carries weight as well as prestige. In his case, I’m not sure.
He was known for being an anti-Keynesian, at a time when Keynes’s ideas had almost universally triumphed. (He was later appointed to head the Federal Reserve by Richard Nixon in 1970, who had remarked at about that time, "We are all Keynesians now," or something like that.)
His main criticism was not without merit and ironically was picked up by Bill Clinton of all people. Burns argued that running a deficit (by spending increases or tax cuts) to get out of a recession would cause the Federal Government to borrow more (obviously). And the result of the Federal Government doing this would cause interest rates to go up (as loaners have to be induced to loan to the US government rather than do other things with their money). Higher interest rates would then lead businesses to reduce their borrowing. So, in effect the increased spending from government expenditures or tax cuts would be offset by decreased business spending. (I don’t think he made a very convincing case it would be a wash.)
[Clinton insert: Clinton who campaigned in 1992 on getting the economy moving again, and argued in favor of tax cuts and spending increases—standard Keynesianism—changed course after the election, primarily I believe under the influence of Robert Rubin, a Wall Streeter, who argued that lowering the deficit would lower interest rates and get businesses to invest. So Clinton raised taxes and Republicans voted in both the Senate and House 100% against the tax increase, which in the Senate was decided by the vote of Al Gore and in the House passed 218 to 216.
Most Republican leaders, then apparently "liberal" Keynesians!, at least for the moment, predicted recession and worse. Evaluation: the 1993-95 period was a continuation of the slow recovery from the 1st Bush recession of 1990-91, but then there was a big pick up and in the late 1990’s growth was great enough to bring unemployment down to 4%, maybe a slight bit below, enough to make labor scarce enough that the average Joe Six Pack, to use the language of our friend Sarah, (or Joe the plumber, to use the language of her running mate) actually made real gains in income.
I think the original plan would have brought a degree of prosperity earlier, and would not have reduced significantly business investment, but might have had a greater inflationary impact than the low level that actually existed. In turn, greater inflation might have led AG to increase interest rates. And that might have meant a smaller stock market bubble. Joe Six Pack would not have done as well in the 90’s but might have done a little better in this decade. Maybe. ]
I took Burns’ course my first year, 1957, and what I remember most is that all he ever talked about was the need to stop inflation. Over and over. He wrote at that time a small book, about 90 pages or so, entitled "Prosperity Without Inflation." Neither the book nor verbal expression of it in class was very convincing, at least to me. Nor I believe did it ever have much of an impact on the public or on other economists.
But later on, in 1960 and perhaps 1962, I had two one-on-one encounters with Arthur Fluctuations Burns, each lasting about an hour. The first was my oral with him in the field of Business Cycles.
[Insert: At a later point I had an oral with four teachers in four disciplines, one of which included micro theory and was with William Vickrey, who was later to win the Nobel prize. After winning it, Vickrey said he would use his prestige to try to get America’s unemployment rate down to the level that existed then in much of Western Europe—2 to 3 %--instead of the 5 or 6 % that existed here, even during "good" times.
But then, tragically, he dropped dead two days later in his car just beyond the George Washington bridge on the Henry Hudson Parkway, driving to Boston. Too bad. He was a decent and committed pacifist who refused to serve in the army during World War II.
In passing, I had to take my orals again, since it took me so long to finish my dissertation and in cases like mine a retake in micro-theory was necessary. I studied like Hell, dropping virtually everything–my work on The Great Society Reader, my work as acting chairman of the Socialist Scholars Conference, my teaching--to devote myself to "Micro-economics" by William Vickrey. He asked a trick question or two but somehow I got through it, with his comment being "well, it seems you haven’t forgotten everything!!"]
At my Burns oral, he asked which of the three recessions (at that time) was fiscally handled the worst. I stupidly said the 1953-54 recession, since government’s response to the recession was to cut back military spending from $65 billion to $45 billion, since the Korean War had ended. Burns said, in response to me, and in a tone that indicated that he was personally offended, "I was the architect of that policy." Even a lunkhead like me knew immediately how stupid and foolish I had been.
He followed this up with: "Did you want us to go out and start another war?"Now it happens that at that time I was under the influence of I.F. Stone, who had written a book entitled, "The Hidden History of the Korean War." And Stone [Izzy, as he was known to friends and though I hardly was ever a friend, I later met him at Fire Island where he had a house, visited him at his house, had lunch with him at an Ocean Beach "diner" and chatted with him on the beach] believed that the South had started the war. Now it may have been possible that some South Korean soldier crossed the 38th parallel, or that South Korean maniacs said provocative things—Syngman Rhee, the South Korean leader, was a tyrant, after all—but clearly the ease by which the North swept into the South and everything else we have learned in the years since makes it clear the North started the war.
I didn’t say what immediately crossed my mind, when Burns asked whether I wanted us to go out and start another war–"well you had no trouble starting that one." I guess I pulled myself together and talked more intelligently about the 48-49 recession and the more serious 57-58 recession, since Burns passed me, giving me my first leg on the road to the Ph D.
For my economic history seminar, I wrote a paper entitled "The Economic Philosophy of the Eisenhower Administration." Not exactly history, since it was written while Eisenhower was still president. But Carter Goodrich, my economic history teacher, liked it. I think he even liked it a lot. So, after all the requirements were passed, and I was teaching at Polytechnic Institute of Brooklyn (now Polytechnic Institute of New York University, since very recently it has more or less been incorporated into NYU), I turned to what I was going to do a dissertation on.
But Goodrich had retired from Columbia and had taken a job somewhere in Pennsylvania—Penn State, I believe. I wasn’t going to chase after him. So I thought I’d see if Burns would sponsor a dissertation, expanding and developing what I had written on Eisenhower, since he was the Eisenhower expert.
Sometimes in life one wonders if dumbness is inherited or caught like the measles. If there was anyone unsuitable for sponsoring a dissertation (at least for someone of my temperament, politics, abilities and add to this list another twenty nouns), it was Arthur F. Burns. I remember—at least I think I remember this—that the interview was in his office at the National Bureau of Economic Research, a fancy group that today is responsible for deciding when a recession begins and ends, usually doing this long after anyone but economists care.
I also remember that within minutes I knew that having someone like Burns being my dissertation adviser would mean it would take twenty years to finish and during that period I would also have to put up with his egotism and pomposity. Needless to say, I dropped the proposal, found another adviser, who, incidentally, was a peach and got my dissertation accepted in the spring or summer of 1967, months after the second oral with Vickrey.
Burns went on to be chairman of the Federal Reserve, appointed by Nixon in 1970, and Professor Anti-Inflation immediately caved in to political pressure and eased the fight against inflation because Nixon feared that a real fight against inflation would cause such high unemployment that he would never be reelected in 1972—not knowing, of course, that his opponent in 72 would be George McGovern, someone I think we might call a political patsy and one surrounded by lefties of the type that knew Bill Ayres. I didn’t know Ayres but I knew other Weathermen. But even at the time, in the heat of the Vietnam War protest movement, I wasn’t a Weatherman, not because I was too scared but because I thought then as now that they went too far (and were, in addition, arrogant know-it-alls).
Nixon was able to avoid having inflation be used against him politically by instituting a wage-price freeze, in the middle of August, 1971, followed by wage-price controls in varying degrees for the next three years. (Probably, not a single economist on the Nixon staff, who had to enforce these controls, believed in them.)
But if Burns had not eased the fight against inflation, and unemployment had risen, and someone more "electable" than McGovern were nominated by the Democrats, we would have missed the enjoyment of Watergate, not to mention the movie with Redford and Hoffman.
TIAA, Rascist humor, Blogs
Short entries:
TIAA-CREF: Further comment: (and the only people possibly interested are teachers and workers for non-profits who hold the vast amounts that are in TIAA-CREF). A friend wrote that perhaps the Traditional (called TIAA Traditional in one place on the TIAA-CREF web site and TIAA Traditional Annuity elsewhere) was suspect because it holds bonds and mortgages that may not pan out. For those who are putting what the school is contributing and what they are contributing, by agreement with the school, but not a supplementary amount, money put in Traditional is locked in, in the sense that only 10% can be taken out yearly. [Supplementary money is not locked in but gets a lower rate of return.]
During July, August and September, money put in Traditional returned 6%. During October, money put in is now paying 5.5%. This may or may not reflect a weakening of the kind my friend alluded to. On the other hand, TIAA-CREF is notoriously cautious.
Incidentally, in a phone call I confirmed that the 6% on the money I put in will continue to be paid for the TIAA year which ends the last day in February 2009, at which time a new TIAA year begins. However, the interest on the interest, a rather puny sum, will be at the new rates, or 5 ½%, since October 1 (unless this changes). [Persons who put their money into Traditional in October will only be paid 5 ½ % until 2/28/09, and the interest on this will depend on any changes.]
*************
FUNNY STORY (This comes from one of the blogs, but I can’t remember which one.) Anyway, an Obama worker, who doesn’t identify himself as one, knocks on the door and asks the woman who answers who(m) she is voting for–I hope (s)he said who. Anyway, she calls back to her husband and asks, "Who are we voting for?" The husband says we’re voting for the nigger. She then turns to the Obama worker and says, "We’re voting for the nigger."
I think this was a true story and I hope so. It means that here and there, at least, that economic anxiety is winning out over extreme racism.
*************
BLOGS (Longer entry)It’s just recently (partly because I’m so computer-incompetent) that I started looking at various blogs. So I thought I’d share some thoughts about them, partly in the hope that a few of you might also look at them and enjoy them and, like me, benefit from reading them.First, I always check out what my (second) hero is saying (my first, of course, being Roger Federer)--Paul Krugman (PK). I assume most of you know that since the year 2000 he has been writing a regular op-ed column in The New York Times, currently appearing on Mondays and Fridays. And I assume that most of you may have noticed that last week he won the Nobel prize in economics.
The Times made this a first page story, which is not usually the case for Nobels in economics, with his picture on this front page, and also it had a full page "ad" congratulating him elsewhere in their first section. I should add the following: (1) the Times story quoted a right wing nut who denigrated PK. And is he ever hated by right wingers, probably as much as any economist {or any columnist of whatever discipline} has ever been hated, mostly because he writes an incredibly readable column (for an economist), one that is frequently lambasting "W" and the stupid and reactionary policies—both in domestic and foreign areas—W and his buddies are forever coming up with. (PK incidentally appeared to prefer Hillary to Barrack.)
The nut, a right wing economist, if I recall correctly, attacked PK as essentially unworthy, if not economically retarded. But this attack was followed by a comment from Paul Samuelson, America’s first Nobelist in economics, and considered by many as the greatest economist the US has ever produced. Samuelson’s statement, in quotes, was extraordinarily positive, about as favorable a comment as one could hope for (if you were PK or a PK fan). [There will be more on right wing nuts shortly.] There were also in other articles highly complimentary comments (about PK) by Nobelists, Ned Phelps and Robert Solow, among others.
Google "Paul Krugman’s blog"). He amplifies what he has said in his column or he refers to interesting and puzzling questions or he shares a joke with the reader—and it’s clear he has a good sense of humor—and other types of entries. He is never boring, although some of the links he sets up for you to click on may involve technical matter and are clearly to be read only by people well-versed in economics. But mostly, it’s like having a chance to read the equivalence of short columns by Krugman. Even if you are not interested in economics—and these days even the non-interested are interested—it’s almost always a treat.
Do I know Krugman personally? No. But: he said "thank you" when he signed his book that I had purchased at a book-signing session once and—ta da—I was walking down Broadway, near 79th St, about two years ago, when I see him walking toward me. I was so shook up I said something stupid, like "you’re Paul Krugman." He nodded and kept walking. I then yelled after he passed by (or maybe the word should be shouted), "I really enjoy your column," and he turned and acknowledged my compliment with a nod. Since he lives in Princeton, I wondered what he was doing in my neighborhood. He wasn’t carrying a Zabar’s bag.
Another economist’s blog I check on, but not regularly, is one by Brad DeLong, a distinguished economics professor at Berkeley, and someone who often is referred to by PK and vice-versa. They are clearly intellectual friends, but I have no idea whether there is a personal friendship. His blog: http://delong.typepad.com/ and can also be reached, I believe, by typing in Brad DeLong blog. It has the unwieldy title of Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong.
If I get this out soon enough, or you may have to look at Brad’s index, or better yet try Googling: Henry Farrell "Exploding Heads Deathmatch: There Can Be Only One," there is a delightful rundown of five nutcakes who hate PK and what they said. Henry has turned it into a contest as to which is nuttiest and there are reader’s comments choosing among the five.
DeLong has recently written that he expects the recession to create between 8-10% unemployment, which is the official rate and which understates the problem (which I may go into, in the near future, because it omits those who find it hopeless and are no longer looking—misnamed "discouraged workers"--and omits part time workers who would like to work full time (and also omits workers who have had their hours cut).
The best polling source I have found is 538 (//www.fivethirtyeight.com/ but I am sure you can Google "538" and find it easily. It has the most complete and sophisticated analysis of all the polls around, taking into account numbers polled and where appropriate and calculable, political and other biases.
The site is run by Nate Silver, a super-duper baseball statistician. That is, not someone who can tell you late in September with five games remaining how many hits out of how many at bats a player hitting 390 has to make to beat Ted Williams’ record—a simple mathematical analysis—but whether Jeter or AROD (Alex Rodriguez), should they ever be so positioned, which is highly unlikely, especially if one of them is spending his nights with Madonna, is more likely than the other to accomplish this feat. This goes beyond simple mathematics.
Silver was recently on the Colbert show and was asked, in baseball terms, where the election is. He answered: It’s the bottom of the ninth and McCain is two runs behind and Sarah Palin has just been picked off at first. It was an entertaining 5 minutes. As I write, Silver thinks the odds are 92.5% that Obama will win (and win 344 to 194 in electoral votes) and on a state by state analysis, with the categories being toss-up, leaning D or R, likely D or R, and safely D or R, he believes that there are now no toss-ups. He has as leaning Obama—Nevada, North Carolina, Missouri, Ohio and Florida—and as likely Obama the following: New Hampshire, Virginia!, Colorado and New Mexico.
He also goes over the Senate races and if I recall what he has recently argued, I believe he thinks it’s 50-50 that Democrats will end up with 58 Senators and about 1 chance in 4 they can reach 50. Al Franken, who I have contributed to, is now slightly ahead of the GOP incumbent—his name is Coleman--a race which until recently he was behind. In general, it’s a fun site, especially if you are praying (is that the right word for an atheist like me?) for Obama.
I also look at Open Left (www.openleft.com/). It’s more sectarian than the next site I’ll mention, but it often makes interesting comments on the election, which more or less is what is in it. What is far more interesting, although occasionally off-beat or has a beginning story that I end up skimming or skipping—but there are lots and lots of stories—is the Daily Kos: State of the Nation (//www.dailykos.com/). The director of the site is Markos (the source of the kos) Maulitsas. You can check the short entry (Daily Cos) in Wikipedia.
There may be 20 new stories daily and many of them are really interesting: giving you irritating stories about the dirty tricks Palen and McCain and their Swiftboating pals are using; engaging stories about the good guys; up-to-date information about Congressional and Senate campaigns as well as the Presidency. It’s responsible and intellectually respectable—more so than the Arianna Huffington site (//www.huffingtonpost.com/ ) although there are nice headlines and nice pictures on the Huffington site.
I’m trying to remember which site (or maybe it was sent me by a friend) I saw a picture of Sarah Palin reading a familiar-looking book, entitled Vice-Presidency for Beginners, but it was very funny. And finally, on one of these sites, I saw a Democratic ad (that hasn’t been used much, apparently, and which my words don’t do justice) in which a woman, about 25 years old, says that she was raped and made pregnant and then says indignantly "and Sarah Palen wants the government to deny me the right to have an abortion." It’s short—maybe 30 seconds at most—and deeply moving.
My fingers are crossed (and toes too). May the so-called "reverse Bradley effect" outweigh any vestiges of the Bradley effect and may the fears of economic distress outweigh in undecides (or even those who up to now have pushed their darker views down and say and think they are voting for Obama) the deep racism that still exists in many, and will undoubtedly cause in some—let’s hope only a negligible some--a last minute pull or push of a McCain lever.
TIAA-CREF: Further comment: (and the only people possibly interested are teachers and workers for non-profits who hold the vast amounts that are in TIAA-CREF). A friend wrote that perhaps the Traditional (called TIAA Traditional in one place on the TIAA-CREF web site and TIAA Traditional Annuity elsewhere) was suspect because it holds bonds and mortgages that may not pan out. For those who are putting what the school is contributing and what they are contributing, by agreement with the school, but not a supplementary amount, money put in Traditional is locked in, in the sense that only 10% can be taken out yearly. [Supplementary money is not locked in but gets a lower rate of return.]
During July, August and September, money put in Traditional returned 6%. During October, money put in is now paying 5.5%. This may or may not reflect a weakening of the kind my friend alluded to. On the other hand, TIAA-CREF is notoriously cautious.
Incidentally, in a phone call I confirmed that the 6% on the money I put in will continue to be paid for the TIAA year which ends the last day in February 2009, at which time a new TIAA year begins. However, the interest on the interest, a rather puny sum, will be at the new rates, or 5 ½%, since October 1 (unless this changes). [Persons who put their money into Traditional in October will only be paid 5 ½ % until 2/28/09, and the interest on this will depend on any changes.]
*************
FUNNY STORY (This comes from one of the blogs, but I can’t remember which one.) Anyway, an Obama worker, who doesn’t identify himself as one, knocks on the door and asks the woman who answers who(m) she is voting for–I hope (s)he said who. Anyway, she calls back to her husband and asks, "Who are we voting for?" The husband says we’re voting for the nigger. She then turns to the Obama worker and says, "We’re voting for the nigger."
I think this was a true story and I hope so. It means that here and there, at least, that economic anxiety is winning out over extreme racism.
*************
BLOGS (Longer entry)It’s just recently (partly because I’m so computer-incompetent) that I started looking at various blogs. So I thought I’d share some thoughts about them, partly in the hope that a few of you might also look at them and enjoy them and, like me, benefit from reading them.First, I always check out what my (second) hero is saying (my first, of course, being Roger Federer)--Paul Krugman (PK). I assume most of you know that since the year 2000 he has been writing a regular op-ed column in The New York Times, currently appearing on Mondays and Fridays. And I assume that most of you may have noticed that last week he won the Nobel prize in economics.
The Times made this a first page story, which is not usually the case for Nobels in economics, with his picture on this front page, and also it had a full page "ad" congratulating him elsewhere in their first section. I should add the following: (1) the Times story quoted a right wing nut who denigrated PK. And is he ever hated by right wingers, probably as much as any economist {or any columnist of whatever discipline} has ever been hated, mostly because he writes an incredibly readable column (for an economist), one that is frequently lambasting "W" and the stupid and reactionary policies—both in domestic and foreign areas—W and his buddies are forever coming up with. (PK incidentally appeared to prefer Hillary to Barrack.)
The nut, a right wing economist, if I recall correctly, attacked PK as essentially unworthy, if not economically retarded. But this attack was followed by a comment from Paul Samuelson, America’s first Nobelist in economics, and considered by many as the greatest economist the US has ever produced. Samuelson’s statement, in quotes, was extraordinarily positive, about as favorable a comment as one could hope for (if you were PK or a PK fan). [There will be more on right wing nuts shortly.] There were also in other articles highly complimentary comments (about PK) by Nobelists, Ned Phelps and Robert Solow, among others.
Google "Paul Krugman’s blog"). He amplifies what he has said in his column or he refers to interesting and puzzling questions or he shares a joke with the reader—and it’s clear he has a good sense of humor—and other types of entries. He is never boring, although some of the links he sets up for you to click on may involve technical matter and are clearly to be read only by people well-versed in economics. But mostly, it’s like having a chance to read the equivalence of short columns by Krugman. Even if you are not interested in economics—and these days even the non-interested are interested—it’s almost always a treat.
Do I know Krugman personally? No. But: he said "thank you" when he signed his book that I had purchased at a book-signing session once and—ta da—I was walking down Broadway, near 79th St, about two years ago, when I see him walking toward me. I was so shook up I said something stupid, like "you’re Paul Krugman." He nodded and kept walking. I then yelled after he passed by (or maybe the word should be shouted), "I really enjoy your column," and he turned and acknowledged my compliment with a nod. Since he lives in Princeton, I wondered what he was doing in my neighborhood. He wasn’t carrying a Zabar’s bag.
Another economist’s blog I check on, but not regularly, is one by Brad DeLong, a distinguished economics professor at Berkeley, and someone who often is referred to by PK and vice-versa. They are clearly intellectual friends, but I have no idea whether there is a personal friendship. His blog: http://delong.typepad.com/ and can also be reached, I believe, by typing in Brad DeLong blog. It has the unwieldy title of Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong.
If I get this out soon enough, or you may have to look at Brad’s index, or better yet try Googling: Henry Farrell "Exploding Heads Deathmatch: There Can Be Only One," there is a delightful rundown of five nutcakes who hate PK and what they said. Henry has turned it into a contest as to which is nuttiest and there are reader’s comments choosing among the five.
DeLong has recently written that he expects the recession to create between 8-10% unemployment, which is the official rate and which understates the problem (which I may go into, in the near future, because it omits those who find it hopeless and are no longer looking—misnamed "discouraged workers"--and omits part time workers who would like to work full time (and also omits workers who have had their hours cut).
The best polling source I have found is 538 (//www.fivethirtyeight.com/ but I am sure you can Google "538" and find it easily. It has the most complete and sophisticated analysis of all the polls around, taking into account numbers polled and where appropriate and calculable, political and other biases.
The site is run by Nate Silver, a super-duper baseball statistician. That is, not someone who can tell you late in September with five games remaining how many hits out of how many at bats a player hitting 390 has to make to beat Ted Williams’ record—a simple mathematical analysis—but whether Jeter or AROD (Alex Rodriguez), should they ever be so positioned, which is highly unlikely, especially if one of them is spending his nights with Madonna, is more likely than the other to accomplish this feat. This goes beyond simple mathematics.
Silver was recently on the Colbert show and was asked, in baseball terms, where the election is. He answered: It’s the bottom of the ninth and McCain is two runs behind and Sarah Palin has just been picked off at first. It was an entertaining 5 minutes. As I write, Silver thinks the odds are 92.5% that Obama will win (and win 344 to 194 in electoral votes) and on a state by state analysis, with the categories being toss-up, leaning D or R, likely D or R, and safely D or R, he believes that there are now no toss-ups. He has as leaning Obama—Nevada, North Carolina, Missouri, Ohio and Florida—and as likely Obama the following: New Hampshire, Virginia!, Colorado and New Mexico.
He also goes over the Senate races and if I recall what he has recently argued, I believe he thinks it’s 50-50 that Democrats will end up with 58 Senators and about 1 chance in 4 they can reach 50. Al Franken, who I have contributed to, is now slightly ahead of the GOP incumbent—his name is Coleman--a race which until recently he was behind. In general, it’s a fun site, especially if you are praying (is that the right word for an atheist like me?) for Obama.
I also look at Open Left (www.openleft.com/). It’s more sectarian than the next site I’ll mention, but it often makes interesting comments on the election, which more or less is what is in it. What is far more interesting, although occasionally off-beat or has a beginning story that I end up skimming or skipping—but there are lots and lots of stories—is the Daily Kos: State of the Nation (//www.dailykos.com/). The director of the site is Markos (the source of the kos) Maulitsas. You can check the short entry (Daily Cos) in Wikipedia.
There may be 20 new stories daily and many of them are really interesting: giving you irritating stories about the dirty tricks Palen and McCain and their Swiftboating pals are using; engaging stories about the good guys; up-to-date information about Congressional and Senate campaigns as well as the Presidency. It’s responsible and intellectually respectable—more so than the Arianna Huffington site (//www.huffingtonpost.com/ ) although there are nice headlines and nice pictures on the Huffington site.
I’m trying to remember which site (or maybe it was sent me by a friend) I saw a picture of Sarah Palin reading a familiar-looking book, entitled Vice-Presidency for Beginners, but it was very funny. And finally, on one of these sites, I saw a Democratic ad (that hasn’t been used much, apparently, and which my words don’t do justice) in which a woman, about 25 years old, says that she was raped and made pregnant and then says indignantly "and Sarah Palen wants the government to deny me the right to have an abortion." It’s short—maybe 30 seconds at most—and deeply moving.
My fingers are crossed (and toes too). May the so-called "reverse Bradley effect" outweigh any vestiges of the Bradley effect and may the fears of economic distress outweigh in undecides (or even those who up to now have pushed their darker views down and say and think they are voting for Obama) the deep racism that still exists in many, and will undoubtedly cause in some—let’s hope only a negligible some--a last minute pull or push of a McCain lever.
Wednesday, October 1, 2008
ID
ID–too long to put in the identification locale:
********
First, I am not the music critic who shares my name. Google "David Mermelstein" and mostly his entries appear. Once, I received a check made out to David Mermelstein from the LA Times, which I also have written for. But this check was much higher than my checks and, in any event, I hadn’t written anything recently that deserved receiving a check.
I considered depositing it, since (after all) it was made out to "David Mermelstein." but didn’t do this, knowing the check would clear, but realizing that sooner or later the LA Times would trace it back to me. (Maybe there were also moral considerations—who knows?) Anyway, I called the real David Mermelstein (this is beginning to sound like a Philip Roth novel) and we chatted. He seemed nice enough, as Obama might say. I stressed to him, when I indicated that I would be sending the check back to the Times that he do his best to make sure his account paid Federal taxes on this $800 and not mine. (It worked out.)
I was born in Baltimore and grew up in the Forest Park area of Baltimore and for years lived one block from Liberty Heights. I went to Forest Park High School. I mention some of this since Barry Levinson’s movie, "Liberty Heights" is about my neighborhood. Barry, too, went to Forest Park High School, as (alas) did Spiro Agnew, some years earlier, but Barry’s movie takes place after the schools of Baltimore were integrated. In the movie, the main character has a black girl friend who went to school with him (Forest Park), but there were no blacks attending Forest Park when I was there—I graduated in June, 1951. [I still go to Baltimore--but not the sections presented in The Wire--to visit my sister, her husband and children (and their families) and occasionally go there also to attend Chanukah parties where cousins from my mother’s side and their families get together.)
I then attended Amherst College, a fluke, since I had never heard of this elite school, although my father did, and I think I was the first Forest Park graduate to go there. Half of those who attended, approximately, were from public schools and the rest from private schools and many from the public schools were from upper middle class public schools in well-to-do cities like Shaker Heights. I was, by contrast, middle, middle class, too poor to belong to a country club to hone my tennis skills. My father’s business, The Sammer Pants Company--his first name was Sam(uel)--never did well and when it ended, in the early ’60’s, he sold the equipment for a grand total of about $5,000.Amherst had a tremendous impact on me, one I can’t go into here, not only intellectually, but socially. I belonged to Theta Delta Chi, a national fraternity, and before anyone sticks up their nose, let it be known that the Amherst fraternity system was unusual, in that anyone who wanted to be in a fraternity got into one. I am, more than 50 years since graduation, in close touch with about 10 "brothers" from Theta Delt (not only some from my pledge class, but also some from earlier and later years). At Amherst reunions, there are dozens (maybe as many as 100) I say hello to by name. Attending Amherst, for most, was an experience never to be forgotten and one always appreciated.
After two years of working in my father’s "going nowhere" business, I entered Columbia University’s graduate program in economics and eventually got my Ph. D. (Not long after, I published a summary in the American Economic Review, but to be honest, when I tried to read this not long ago, I couldn’t understand a word of what I once wrote!) Soon thereafter, I got a job at what was then called Brooklyn Polytech (or more formally, Polytechnic Institute of Brooklyn. It has gone through many name changes but its most recent change, related to its incorporation into NYU, is Polytechnic Institute of New York University.
More on Poly, shortly, but I have omitted something absolutely crucial in my life, which occurred after graduation from Amherst and before entry into Columbia—my conversion (or partial conversion) to Marxism. That is, I never believed Stalin was anything other than a vile and despicable dictator and that the Soviet Union was anything other than a totalitarian dictatorship. But I was, alas, soft on Mao and I was soft on Fidel. This attachment to Marxism lasted until about the mid-1980’s. I never threw bombs but I did meet some who did. But the good part of my conversion is that I was an early critic of the Vietnam War, and for the most part, for good reasons. I realized then, while criticizing the American war in Vietnam that those Vietnamese America opposed were hardly saints. I felt then, as now, however, we had no right to tell them who should be running their country. And that doing so led to millions of Vietnamese soldiers and civilians being killed (or wounded or made homeless), not to mention the nearly 60,000 Americans who also died there. (There was more to my Marxism, some good and some bad, but that will have to be revealed at other times.)
Back to Poly: in short, I spent a lifetime trying to teach culturally disadvantaged (though often quite smart) students about the world we lived in. Sometimes, I think I made an impression and other times, I didn’t. I will always remember the student who when I was critical of Lyndon Johnson during the Vietnam War said "If you can’t trust your President, who can you trust?"
Poly went from being Irish, Italian and Jewish in the ‘60’s to being much less so since the ‘80’s, when the student mix increasingly became Asian, mainly Chinese, but also included a significant number of Russians, among others.
A highlight of my Poly experience, apart from my two year sting as Speaker of the Faculty, occurred in the fall of 2002, when I (and Marianne) joined for 6 weeks an academic tour, in progress, of East Asia, including, for us, Taiwan, Hong Kong, Vietnam, Cambodia and Thailand. There were, when we were there, twenty students. We are still friendly with about half of them and a few of them we are extremely close to even now, six years later.
Back to personal life: I married in 1961, married again in 1967 (acquiring in this marriage a daughter, Julie (who I adopt shortly after marrying, when she was three or perhaps four), who I then bring up after her mother develops serious mental problems. Julie has been and is a joy to me and she currently lives in Los Angeles. I marry again in 1975. Finally, I marry a final time (I hope!) in 1996, to Marianne. It took a while, but I finally got it right.
I have authored many articles that appeared in the LA Times (especially in the early ’80’s, an exception being one published in March, 2001); I authored the lead article of The New York Times Magazine, which appeared just before the new decade in late 1979—that is, I wrote a long introduction, which was followed by 20 short comments from mostly famous economists about the economic problems we faced, and then I added an even longer evaluation of what they were saying. Interestingly, none of them, or myself, for that matter, mentioned among our difficulties, the problem of increased international competition, especially from Japan, which began in earnest, in the form of auto imports within a year or two, not to mention the soon-to-appear rust belt that this caused.
I also wrote articles for other papers such as Newsday, as well as a few professional journals. Perhaps more important, I edited many, many books, including: The Great Society Reader and its sequel, The Failure of American Liberalism (both co-edited with Marvin E. Gettleman); 3 editions of Economics: Mainstream Readings and Radical Critiques {and there was an Italian edition entitled Economisti a confronto}; The Economic Crisis Reader; The Fiscal Crisis of American Cities (co-edited with Roger E. Alcaly); two editions of El Salvador: Central America in the New Cold War (the first edition co-edited with Marvin E. Gettleman, Patrick Lacefield, Louis Menashe and Ronald Radosh and the second edition with the same persons except without Ronald Radosh); and, finally, The Anti-Apartheid Reader.
Beyond this, wait for my autobiography, but don’t hold your breath.
********
First, I am not the music critic who shares my name. Google "David Mermelstein" and mostly his entries appear. Once, I received a check made out to David Mermelstein from the LA Times, which I also have written for. But this check was much higher than my checks and, in any event, I hadn’t written anything recently that deserved receiving a check.
I considered depositing it, since (after all) it was made out to "David Mermelstein." but didn’t do this, knowing the check would clear, but realizing that sooner or later the LA Times would trace it back to me. (Maybe there were also moral considerations—who knows?) Anyway, I called the real David Mermelstein (this is beginning to sound like a Philip Roth novel) and we chatted. He seemed nice enough, as Obama might say. I stressed to him, when I indicated that I would be sending the check back to the Times that he do his best to make sure his account paid Federal taxes on this $800 and not mine. (It worked out.)
I was born in Baltimore and grew up in the Forest Park area of Baltimore and for years lived one block from Liberty Heights. I went to Forest Park High School. I mention some of this since Barry Levinson’s movie, "Liberty Heights" is about my neighborhood. Barry, too, went to Forest Park High School, as (alas) did Spiro Agnew, some years earlier, but Barry’s movie takes place after the schools of Baltimore were integrated. In the movie, the main character has a black girl friend who went to school with him (Forest Park), but there were no blacks attending Forest Park when I was there—I graduated in June, 1951. [I still go to Baltimore--but not the sections presented in The Wire--to visit my sister, her husband and children (and their families) and occasionally go there also to attend Chanukah parties where cousins from my mother’s side and their families get together.)
I then attended Amherst College, a fluke, since I had never heard of this elite school, although my father did, and I think I was the first Forest Park graduate to go there. Half of those who attended, approximately, were from public schools and the rest from private schools and many from the public schools were from upper middle class public schools in well-to-do cities like Shaker Heights. I was, by contrast, middle, middle class, too poor to belong to a country club to hone my tennis skills. My father’s business, The Sammer Pants Company--his first name was Sam(uel)--never did well and when it ended, in the early ’60’s, he sold the equipment for a grand total of about $5,000.Amherst had a tremendous impact on me, one I can’t go into here, not only intellectually, but socially. I belonged to Theta Delta Chi, a national fraternity, and before anyone sticks up their nose, let it be known that the Amherst fraternity system was unusual, in that anyone who wanted to be in a fraternity got into one. I am, more than 50 years since graduation, in close touch with about 10 "brothers" from Theta Delt (not only some from my pledge class, but also some from earlier and later years). At Amherst reunions, there are dozens (maybe as many as 100) I say hello to by name. Attending Amherst, for most, was an experience never to be forgotten and one always appreciated.
After two years of working in my father’s "going nowhere" business, I entered Columbia University’s graduate program in economics and eventually got my Ph. D. (Not long after, I published a summary in the American Economic Review, but to be honest, when I tried to read this not long ago, I couldn’t understand a word of what I once wrote!) Soon thereafter, I got a job at what was then called Brooklyn Polytech (or more formally, Polytechnic Institute of Brooklyn. It has gone through many name changes but its most recent change, related to its incorporation into NYU, is Polytechnic Institute of New York University.
More on Poly, shortly, but I have omitted something absolutely crucial in my life, which occurred after graduation from Amherst and before entry into Columbia—my conversion (or partial conversion) to Marxism. That is, I never believed Stalin was anything other than a vile and despicable dictator and that the Soviet Union was anything other than a totalitarian dictatorship. But I was, alas, soft on Mao and I was soft on Fidel. This attachment to Marxism lasted until about the mid-1980’s. I never threw bombs but I did meet some who did. But the good part of my conversion is that I was an early critic of the Vietnam War, and for the most part, for good reasons. I realized then, while criticizing the American war in Vietnam that those Vietnamese America opposed were hardly saints. I felt then, as now, however, we had no right to tell them who should be running their country. And that doing so led to millions of Vietnamese soldiers and civilians being killed (or wounded or made homeless), not to mention the nearly 60,000 Americans who also died there. (There was more to my Marxism, some good and some bad, but that will have to be revealed at other times.)
Back to Poly: in short, I spent a lifetime trying to teach culturally disadvantaged (though often quite smart) students about the world we lived in. Sometimes, I think I made an impression and other times, I didn’t. I will always remember the student who when I was critical of Lyndon Johnson during the Vietnam War said "If you can’t trust your President, who can you trust?"
Poly went from being Irish, Italian and Jewish in the ‘60’s to being much less so since the ‘80’s, when the student mix increasingly became Asian, mainly Chinese, but also included a significant number of Russians, among others.
A highlight of my Poly experience, apart from my two year sting as Speaker of the Faculty, occurred in the fall of 2002, when I (and Marianne) joined for 6 weeks an academic tour, in progress, of East Asia, including, for us, Taiwan, Hong Kong, Vietnam, Cambodia and Thailand. There were, when we were there, twenty students. We are still friendly with about half of them and a few of them we are extremely close to even now, six years later.
Back to personal life: I married in 1961, married again in 1967 (acquiring in this marriage a daughter, Julie (who I adopt shortly after marrying, when she was three or perhaps four), who I then bring up after her mother develops serious mental problems. Julie has been and is a joy to me and she currently lives in Los Angeles. I marry again in 1975. Finally, I marry a final time (I hope!) in 1996, to Marianne. It took a while, but I finally got it right.
I have authored many articles that appeared in the LA Times (especially in the early ’80’s, an exception being one published in March, 2001); I authored the lead article of The New York Times Magazine, which appeared just before the new decade in late 1979—that is, I wrote a long introduction, which was followed by 20 short comments from mostly famous economists about the economic problems we faced, and then I added an even longer evaluation of what they were saying. Interestingly, none of them, or myself, for that matter, mentioned among our difficulties, the problem of increased international competition, especially from Japan, which began in earnest, in the form of auto imports within a year or two, not to mention the soon-to-appear rust belt that this caused.
I also wrote articles for other papers such as Newsday, as well as a few professional journals. Perhaps more important, I edited many, many books, including: The Great Society Reader and its sequel, The Failure of American Liberalism (both co-edited with Marvin E. Gettleman); 3 editions of Economics: Mainstream Readings and Radical Critiques {and there was an Italian edition entitled Economisti a confronto}; The Economic Crisis Reader; The Fiscal Crisis of American Cities (co-edited with Roger E. Alcaly); two editions of El Salvador: Central America in the New Cold War (the first edition co-edited with Marvin E. Gettleman, Patrick Lacefield, Louis Menashe and Ronald Radosh and the second edition with the same persons except without Ronald Radosh); and, finally, The Anti-Apartheid Reader.
Beyond this, wait for my autobiography, but don’t hold your breath.
TIAA-CREF: Near Term, Safety First
This entry is primarily for those who have holdings in TIAA-CREF. But perhaps other investors may find it helpful. Let me be explicit: I am not a professional financial adviser–not even an amateur--merely an economist who has had a long interest in trying to figure out where to allocate one’s TIAA-CREF money.
******************
TIAA-CREF–Near Term: Safety First
First, personal background. After years of following the advice given in the 60's of putting half of one’s money in TIAA Traditional (essentially bonds) and half in the CREF stock fund, I began in the eighties moving out what I had in TIAA Traditional and putting it into the CREF stock funds. [The maximum, then and now, that you can withdraw from Traditional is 10% a year, unless what is in there are supplemental funds–i.e., funds above the designated contributions that you and your school automatically send to TIAA-CREF.
By the mid-1990's I was out of Traditional and had about 95% in stocks, worried of course that the emerging bubble would burst–Greenspan’s "irrational exuberance" statement was made in December, 1996. Once, in a panic, I even withdrew everything from the stock funds I had my holdings in, but within a week or two I put it all back in. I certainly knew there was a bubble, as did almost everyone, except those benighted bubblers so out of touch they thought the Dow’s appropriate level was 36,000, almost triple the existing bubbled price.
The unanswerable question was, of course: how do you know when to get out of a bubbled stock market? Of course, there is no way of knowing, but in actuality I got out in April, 2000, one month after the peak. What helped me is that I saw signs that the robustness of the economy during the last years of the nineties had ended and that signs of sluggishness were appearing. To me, this meant that the days of the bubble wee limited. Get out.
[OPTIONAL PARAGRAPH. Incidentally, many have praised Greenspan’s unwillingness to raise interest rates (the federal funds rate that it controls) during the booming late nineties, since he correctly saw no real signs of inflation (although others blame him for not raising rates to counter the stock market bubble). Still others praise him for lowering rates in January 2001 (by a special telephone vote) and thus acting quickly to counter the incipient recession (which was later determined to have started in March 2001. [He was then criticized for lowering rates too much–to a level of 1%–and this helped spawn the housing bubble.] But very little criticism has been leveled at what was a really terrible and ill-timed increase, the one the Fed made in May of 2000. The economy was already slowing and the Fed helped slow it more by raising rates at this time.]
If I can offer one concrete morsel of investment advice, it is this. During late March and early April, the Dow declined about 7%. And then it regained about half of what it lost. That is when I sold my stocks. Had I waited until I got back all of what I had lost, I would have never been able to get back the peak price and would have lost about a quarter of my retirement fund. Once it’s time to sell, do so, if at all possible, on an upturn, but never hang in there hoping that you will get back the peak price that once existed.
I then did something everyone advises you not to do. I put all of my money into the TIAA Real Estate Fund (hereafter, REF), which specializes in commercial real estate (office buildings, malls, storage facilities, (etc.) and, with minor exceptions, buys these buildings (and a few gated residential facilities) with cash. Unlike REITS, there is no stock market effect. In effect, as people put their money into this fund, it accumulates enough money to buy another building. And that is what it did in the early and mid-eighties during which time the buildings it had previously bought and the ones it newly acquired increased enormously in value. But doing what I did–explaining the first sentence of this paragraph–meant that I put all of my eggs in one basket, a colossal "no-no" in economics (and personal investing), virtually universally condemned and theoretically "proved" by Nobelist James Tobin to be wrong-headed.
But I had noticed that the REF moved glacially and had moved glacially ever since it was formed in the late 1990's. By glacially, I mean it all but never (maybe never–I looked up its entire history, day by day, but forget a bit exactly what I learned) increased or decreased by as much as one half of 1%. Very rarely did it move one way or the other by even 1/10 of one percent. And, as I read more of how it operated, I concluded that it simply won’t collapse, in the way that stocks can and often do. In other words, when the time comes, you can get out without taking a financial bath.
I consulted with an economist friend of mine, one very smart and very distinguished, and half-convinced him that in cases like this, when there is an almost total lack of volatility, the eggs in one basket thesis is less convincing.
In any event, the TIAA REF did the best of all the TIAA-CREF alternatives in the years from 2001 until now. However, as the year unfolded (2008), the rate of growth of this fund was very slow, although at one point the YTD (year-to-date) percentage increase was over 1%. But then it began to slide. When the YTD got to about ½ of 1%, I decided to get out of the fund and get out totally. (I’m not a wishy-washy type of guy!) I believe that the full impact of the recession that is unfolding at a snail’s pace will increasingly hit the commercial real estate market. It is, somewhat, a lagging indicator. Only after leases come due, and this takes place over time, will many commercial tenants vacate or renegotiate lower rents. Anyway, since I got out, the REF has continued to fall and yesterday (9/30/08)–the latest figures--show REF YTD to be greater than minus1%, including, in the last few weeks, some of the largest declines it has ever experienced. I expect a few years of relatively moderate negative losses lie ahead–relative to what can be lost in stocks--(and weaker gains than in the past when the economy finally gets moving again).
So what did I do with the money? First, I put it into the CREF money market fund. Then I began to consider the possibilities. At some point, stocks will hit bottom and perhaps that is happening now–I doubt it--but who knows? Given the weakness of consumer spending, the increase expected in the percentage unemployed, the economic weakness of most of Western Europe and Japan, and finally and perhaps most important, the continuing unfolding of a unique financial crisis, and its negative effect on borrowing, it seems to me that the recession ahead will be long and possibly deep. And this implies a stock market more likely to decline than be on the mend. But even if the bottom has been reached, I discount heavily something I read, but now can’t find, that argued that after big declines, and this appeared the day the Dow fell about 500 points, the increases over the years to come, based on past experience, showed very high rates of stock market growth a year later.
The italicization is used since I think the flaw of economists, all their complex mathematical models notwithstanding, is that in the end they ultimately project the experiences of the past into the future. But if what we are faced with today is significantly different from what preceded us, projections of this kind may be of little value. I believe that even after we get by the current economic chaos, with bailouts (or "rescues" as some feel they should say) approaching one trillion dollars, our economic prospects are not good. The trade deficit is not going to be reduced very easily; nor will the budget deficit be easily reduced. The infrastructure needs repair, math and science education is, by international standards, weak, and a sane medical program will be enormously expensive, even if we eliminate much of the politically-caused waste, relating to the way Medicare works and medical insurance companies exploit us and even if we reduce the excessive costs that inappropriate use of emergency medical facilities causes. The implications for the value of the dollar is–what appropriate, scary word can I employ? How about dire–a "moderate" word for a situation that is one step from being calamitous. In short, I see a long dismal economic future ahead, with no solutions to any of the deep problems which increasingly plague the American economy. The past is in no way a guide to the future.
Thus, rather than expecting a sharp rebound from the stock market lows, whenever they are reached, I see weak recoveries. Keep in mind that the Nikkei is less than one third of its 1990 peak! Nearly 20 years!! If nasty things can happen can happen in Japan, why not here?. Therefore, I don’t want to put my money in any of the CREF stock funds. They are simply too risky. Nor is the real estate fund an answer for the near future, as previously mentioned. The CREF bond fund can at some point be a good place to park one’s money, but not now. Higher interest rates (which will come as the dollar resumes sinking against other currencies or given the fears of lenders, even if it doesn’t sink) will tend to lower the value of this fund, although the bond fund may be a good place to put your money if you can time it–that is, buy into it when interest rates are near their peak.
On the other hand, over a long period, the inflation-linked bond fund is not a bad option. Those issued by the Federal Government pay a small percentage plus the inflation rate. However, what you get when you buy into the CREF linked fund, if I understand this correctly (and I’m not 100% sure of this) is a fund that is affected by speculation. That is, many persons, seeing oil prices rising bought the linked fund, but when oil prices began to sink and the short run prospects for inflation grew dimmer, given the weakness not only of the US economy, but of both Europe and Japan, the linked fund has weakened. At some point, it is a possibility, but perhaps not now.
What that leaves is the TIAA Traditional. This is a bond fund primarily, one in which a certain return is promised for the year and then is adjusted up or down each succeeding year. Right now, for funds you lock in, it is paying about 6%. This, to me, isn’t bad. And so I put 50% of my holdings into TIAA Traditional. The rest I am holding in the CREF money market fund. And I weigh the cost of keeping it in the money market fund, which earns somewhat less than 2% a year, with the flexibility it gives me to put the money into the linked fund (or something else) at some time in the future, but this is currently costing me about 4% a year, if I continue to hold the funds in this low-yielding fund, rather than in the Traditional TIAA.
One of the problems of the Traditional is that you are locked in. That doesn’t bother me so much since I think the potential of stocks and even my beloved Real Estate Fund is limited for years to come. But one might want the option of having available the linked fund (or other alternatives), especially if you are younger. More important, suppose the dollar actually collapses. Let’s say, following the hypothetical model of the future provided us by James Fallows in an Atlantic Monthly magazine of about three years ago, in which one day not far from now, the dollar loses about 30% of its value in a single day, against say the Euro or the Yen.
Could this happen? I believe so. Of course it is not in the interest of anyone holding dollars to have this happen, but those who do hold dollars may believe that others will sell them and therefore try to beat the others to the punch by selling first and the next thing you know the dollar has collapsed. Given not only the fact that we are printing money to buy foreign goods and printing money to pay for Iraq and everything else, we are about to enter, it seems, an era where we will be printing money to pay off the bad debts of financial corporations and maybe others deemed, until now, ultra secure, like General Electric! Who knows where it will all end?
If this happens, the TIAA traditional will not be the place to be in, as inflation rates will exceed the returns the fund offers. But then, what will be the answer? At that point, I will yield to the idiotic goldbugs who have been predicting disaster for decades after decades (and lost vast sums keeping their money in gold).
So, in the end, I am, for now, either keeping one half of my funds in Traditional and one half in the money market fund or I am switching all of my funds to the Traditional and hoping whatever hits the fan does so after I and my wife are long gone. As for my daughter, I simply can’t calculate what I need to do to protect her, other than bequeathing her the Woodstock house we recently bought and own free and clear.
******************
TIAA-CREF–Near Term: Safety First
First, personal background. After years of following the advice given in the 60's of putting half of one’s money in TIAA Traditional (essentially bonds) and half in the CREF stock fund, I began in the eighties moving out what I had in TIAA Traditional and putting it into the CREF stock funds. [The maximum, then and now, that you can withdraw from Traditional is 10% a year, unless what is in there are supplemental funds–i.e., funds above the designated contributions that you and your school automatically send to TIAA-CREF.
By the mid-1990's I was out of Traditional and had about 95% in stocks, worried of course that the emerging bubble would burst–Greenspan’s "irrational exuberance" statement was made in December, 1996. Once, in a panic, I even withdrew everything from the stock funds I had my holdings in, but within a week or two I put it all back in. I certainly knew there was a bubble, as did almost everyone, except those benighted bubblers so out of touch they thought the Dow’s appropriate level was 36,000, almost triple the existing bubbled price.
The unanswerable question was, of course: how do you know when to get out of a bubbled stock market? Of course, there is no way of knowing, but in actuality I got out in April, 2000, one month after the peak. What helped me is that I saw signs that the robustness of the economy during the last years of the nineties had ended and that signs of sluggishness were appearing. To me, this meant that the days of the bubble wee limited. Get out.
[OPTIONAL PARAGRAPH. Incidentally, many have praised Greenspan’s unwillingness to raise interest rates (the federal funds rate that it controls) during the booming late nineties, since he correctly saw no real signs of inflation (although others blame him for not raising rates to counter the stock market bubble). Still others praise him for lowering rates in January 2001 (by a special telephone vote) and thus acting quickly to counter the incipient recession (which was later determined to have started in March 2001. [He was then criticized for lowering rates too much–to a level of 1%–and this helped spawn the housing bubble.] But very little criticism has been leveled at what was a really terrible and ill-timed increase, the one the Fed made in May of 2000. The economy was already slowing and the Fed helped slow it more by raising rates at this time.]
If I can offer one concrete morsel of investment advice, it is this. During late March and early April, the Dow declined about 7%. And then it regained about half of what it lost. That is when I sold my stocks. Had I waited until I got back all of what I had lost, I would have never been able to get back the peak price and would have lost about a quarter of my retirement fund. Once it’s time to sell, do so, if at all possible, on an upturn, but never hang in there hoping that you will get back the peak price that once existed.
I then did something everyone advises you not to do. I put all of my money into the TIAA Real Estate Fund (hereafter, REF), which specializes in commercial real estate (office buildings, malls, storage facilities, (etc.) and, with minor exceptions, buys these buildings (and a few gated residential facilities) with cash. Unlike REITS, there is no stock market effect. In effect, as people put their money into this fund, it accumulates enough money to buy another building. And that is what it did in the early and mid-eighties during which time the buildings it had previously bought and the ones it newly acquired increased enormously in value. But doing what I did–explaining the first sentence of this paragraph–meant that I put all of my eggs in one basket, a colossal "no-no" in economics (and personal investing), virtually universally condemned and theoretically "proved" by Nobelist James Tobin to be wrong-headed.
But I had noticed that the REF moved glacially and had moved glacially ever since it was formed in the late 1990's. By glacially, I mean it all but never (maybe never–I looked up its entire history, day by day, but forget a bit exactly what I learned) increased or decreased by as much as one half of 1%. Very rarely did it move one way or the other by even 1/10 of one percent. And, as I read more of how it operated, I concluded that it simply won’t collapse, in the way that stocks can and often do. In other words, when the time comes, you can get out without taking a financial bath.
I consulted with an economist friend of mine, one very smart and very distinguished, and half-convinced him that in cases like this, when there is an almost total lack of volatility, the eggs in one basket thesis is less convincing.
In any event, the TIAA REF did the best of all the TIAA-CREF alternatives in the years from 2001 until now. However, as the year unfolded (2008), the rate of growth of this fund was very slow, although at one point the YTD (year-to-date) percentage increase was over 1%. But then it began to slide. When the YTD got to about ½ of 1%, I decided to get out of the fund and get out totally. (I’m not a wishy-washy type of guy!) I believe that the full impact of the recession that is unfolding at a snail’s pace will increasingly hit the commercial real estate market. It is, somewhat, a lagging indicator. Only after leases come due, and this takes place over time, will many commercial tenants vacate or renegotiate lower rents. Anyway, since I got out, the REF has continued to fall and yesterday (9/30/08)–the latest figures--show REF YTD to be greater than minus1%, including, in the last few weeks, some of the largest declines it has ever experienced. I expect a few years of relatively moderate negative losses lie ahead–relative to what can be lost in stocks--(and weaker gains than in the past when the economy finally gets moving again).
So what did I do with the money? First, I put it into the CREF money market fund. Then I began to consider the possibilities. At some point, stocks will hit bottom and perhaps that is happening now–I doubt it--but who knows? Given the weakness of consumer spending, the increase expected in the percentage unemployed, the economic weakness of most of Western Europe and Japan, and finally and perhaps most important, the continuing unfolding of a unique financial crisis, and its negative effect on borrowing, it seems to me that the recession ahead will be long and possibly deep. And this implies a stock market more likely to decline than be on the mend. But even if the bottom has been reached, I discount heavily something I read, but now can’t find, that argued that after big declines, and this appeared the day the Dow fell about 500 points, the increases over the years to come, based on past experience, showed very high rates of stock market growth a year later.
The italicization is used since I think the flaw of economists, all their complex mathematical models notwithstanding, is that in the end they ultimately project the experiences of the past into the future. But if what we are faced with today is significantly different from what preceded us, projections of this kind may be of little value. I believe that even after we get by the current economic chaos, with bailouts (or "rescues" as some feel they should say) approaching one trillion dollars, our economic prospects are not good. The trade deficit is not going to be reduced very easily; nor will the budget deficit be easily reduced. The infrastructure needs repair, math and science education is, by international standards, weak, and a sane medical program will be enormously expensive, even if we eliminate much of the politically-caused waste, relating to the way Medicare works and medical insurance companies exploit us and even if we reduce the excessive costs that inappropriate use of emergency medical facilities causes. The implications for the value of the dollar is–what appropriate, scary word can I employ? How about dire–a "moderate" word for a situation that is one step from being calamitous. In short, I see a long dismal economic future ahead, with no solutions to any of the deep problems which increasingly plague the American economy. The past is in no way a guide to the future.
Thus, rather than expecting a sharp rebound from the stock market lows, whenever they are reached, I see weak recoveries. Keep in mind that the Nikkei is less than one third of its 1990 peak! Nearly 20 years!! If nasty things can happen can happen in Japan, why not here?. Therefore, I don’t want to put my money in any of the CREF stock funds. They are simply too risky. Nor is the real estate fund an answer for the near future, as previously mentioned. The CREF bond fund can at some point be a good place to park one’s money, but not now. Higher interest rates (which will come as the dollar resumes sinking against other currencies or given the fears of lenders, even if it doesn’t sink) will tend to lower the value of this fund, although the bond fund may be a good place to put your money if you can time it–that is, buy into it when interest rates are near their peak.
On the other hand, over a long period, the inflation-linked bond fund is not a bad option. Those issued by the Federal Government pay a small percentage plus the inflation rate. However, what you get when you buy into the CREF linked fund, if I understand this correctly (and I’m not 100% sure of this) is a fund that is affected by speculation. That is, many persons, seeing oil prices rising bought the linked fund, but when oil prices began to sink and the short run prospects for inflation grew dimmer, given the weakness not only of the US economy, but of both Europe and Japan, the linked fund has weakened. At some point, it is a possibility, but perhaps not now.
What that leaves is the TIAA Traditional. This is a bond fund primarily, one in which a certain return is promised for the year and then is adjusted up or down each succeeding year. Right now, for funds you lock in, it is paying about 6%. This, to me, isn’t bad. And so I put 50% of my holdings into TIAA Traditional. The rest I am holding in the CREF money market fund. And I weigh the cost of keeping it in the money market fund, which earns somewhat less than 2% a year, with the flexibility it gives me to put the money into the linked fund (or something else) at some time in the future, but this is currently costing me about 4% a year, if I continue to hold the funds in this low-yielding fund, rather than in the Traditional TIAA.
One of the problems of the Traditional is that you are locked in. That doesn’t bother me so much since I think the potential of stocks and even my beloved Real Estate Fund is limited for years to come. But one might want the option of having available the linked fund (or other alternatives), especially if you are younger. More important, suppose the dollar actually collapses. Let’s say, following the hypothetical model of the future provided us by James Fallows in an Atlantic Monthly magazine of about three years ago, in which one day not far from now, the dollar loses about 30% of its value in a single day, against say the Euro or the Yen.
Could this happen? I believe so. Of course it is not in the interest of anyone holding dollars to have this happen, but those who do hold dollars may believe that others will sell them and therefore try to beat the others to the punch by selling first and the next thing you know the dollar has collapsed. Given not only the fact that we are printing money to buy foreign goods and printing money to pay for Iraq and everything else, we are about to enter, it seems, an era where we will be printing money to pay off the bad debts of financial corporations and maybe others deemed, until now, ultra secure, like General Electric! Who knows where it will all end?
If this happens, the TIAA traditional will not be the place to be in, as inflation rates will exceed the returns the fund offers. But then, what will be the answer? At that point, I will yield to the idiotic goldbugs who have been predicting disaster for decades after decades (and lost vast sums keeping their money in gold).
So, in the end, I am, for now, either keeping one half of my funds in Traditional and one half in the money market fund or I am switching all of my funds to the Traditional and hoping whatever hits the fan does so after I and my wife are long gone. As for my daughter, I simply can’t calculate what I need to do to protect her, other than bequeathing her the Woodstock house we recently bought and own free and clear.
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