Back In The Good Old Days

Yes, this is another of those “back in the good old days, when men were men” kind of stories from the old guy in the back. We have to report these to you just because it helps give some perspective on what is going on today and how that differs from how things used to be. Read more

John Maynard Keynes lived from the later 19th century until the 1940s. He saw a world that developed right before his eyes. He was a major economic voice during the period immediately after World War I and developed his General Theory of Employment, Interest and Money as he watched the economies of Europe fall into depression in the 1920s. Keynes’ theory was all about demand management (our economist friends will get us for that one). As Keynes saw the world, you could pretty much count on producers producing stuff in the hopes of getting rich. The issues surrounding the post-World War I world were all about demand rather than production. Simplistically, Keynes theorized that when private demand for stuff failed, public demand for stuff should step up and fill that gap. If we were producing too much steel, the government should buy steel so the steel mills will keep operating. If we were producing too much food, the government should buy the excess food to maintain prices. You probably see where this is going. Keynes described the world where we all now live with the government as a major economic actor. Read more

European package – if you can’t fix it, smother it with money. The IMF, the ECB, the member states of the European Union are all throwing money at the problem of the miscreant states of southern Europe. The package of loan guarantees, liquidity tools, austerity packages and such that was assembled is supposed to buy the PIIGS enough time to tighten their belts and learn to live within their means. Well, not really within their means, but at least close to their means. Perennial deficits of up to 3% of GDP are perfectly okay with the ECB and EU. We can’t recall a single European government that has run a surplus in their fiscal budget lately, maybe the Norwegians during the height of their energy boom. (Keynes is probably rolling in his grave.)

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Count Your Blessings

Let’s talk about risk, which is much in the news these days. What is risk? For many of us, risk is standard deviation, beta, tracking error. For most people, risk is the chance of losing money. There is a debate these days about how much risk we should be allowed to take and what risks we should not be allowed to take. That is at the heart of the financial re-regulation bill before Congress (the opposite of progress). Who can take what risks has been a bedeviling question for regulators since we first started modern finance 50 years ago. Read more

Tax day comes and tax day goes with nary a whimper from the citizenry. This is the way it works in the modern economy. Were it not for the anesthetic of regular withholding the situation might be a lot different. Think how bad things would be if each of us had to put aside sufficient funds to meet our tax liability each year. If you had to set aside 25% of your ready cash for the day, once a year when you had to write that big fat check to the government, then each pay day or each month when you went through the exercise you’d be reminded just how little you get for your money. The resentment would undoubtedly be much higher among the somewhat more than half of Americans who actually pay taxes toward the other half who generally receive more in government largesse than they pay in taxes. The resentment toward the government itself for its profligacy, waste and abuse would likely be higher, too. We’d have more limited government is our guess, but we could be wrong. Maybe a lot of people would gladly put aside 25% of their incomes Read more