Summary of business news and analysis

Hayek's reflections on central planning and non-distorted pricing systems are - of course - highly actual in a world where political central planning has contributed to a huge mess (a.o. thinking about Europe) and where more central planning is applied in the belief the problems can be solved this way.

Samuel Bowles, Alan Kirman, Rajiv Sethi, Markets, Information, and Laissez Faire: Hayek Reconsidered, Columbia University, August 16, 2012

"In his celebrated 1945 essay "The Use of Knowledge in Society," Friedrich Hayek confronted both the advocates of central planning and the economic theory on which their arguments were based. The theory, he observed, was decient because it neglected the fact that information essential tothe ecient functioning of the economic system was decentralized, and needed to be aggregated insome fashion. In comparing markets to planning, therefore, it was important to determine \whether we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional information as they need in order to enable them to fit their plans in with those of others."
To Hayek, the answer was clear:" read the paper on the Columbia homepage

Keywords: Hayek, Central Planning, Non Distorted Prices

2009

Keywords: Economic Development, Technological Improvement

Keywords: US Economy, US Unemployment Rate

probably a kind of surprising fact for many: it seems that US government jobs were heavily reduced during the past 3 years and that the private sector added approx. 4.5 million jobs since beginning 2010. Carpe Diem Blogspot has the facts:

Keywords: US labor market, US Unemployment, US Government Sector Jobs, US Private Sector Jobs

Interestingly enough, interest paid by government is not that dramatic but wealth transfer to individuals is "impressively high":

Keywords: Government Spending, Wealth Transfer

Related:

Keywords: Government Spending, Debt/GDP, Debt Crisis

All the QE talk by parties who would be profiteers could become a selffulfilling prophecy in both US and Europe

housingwire : The self-fulfilling prophecy of the potential QE3, Sept. 4, 2012

Von den Geistern, die Draghi rief, Sept. 6, 2012

Roger Altman, a former deputy Treasury secretary and a co-founder of the investment firm Evercore partners, thinks the U.S. economy could be on the verge of an unexpected boom. Here’s why:

Washington Post: Five reasons the economy may be about to boom, Sept. 4, 2012

1. The housing sector is improving
2. The breathtaking increase in oil and gas production
3. The U.S. banking system has recovered faster than anyone could have imagined
4. The U.S. has made a huge leap in industrial competitiveness
5. The U.S. may surprise itself and the world by rectifying its deficit and debt problems

read more in the Washington Post

Keywords: US Economy, US Productivity, US Energy

Bank of England's Andrew Haldane presented a new paper at the Jackson Hole conference. He calls for simplicity in regulation:

Andrew Haldane, News Release - The dog and the frisbee – paper by Andrew Haldane, August 31, 2012

Andrew Haldane considers five policy lessons that financial regulation can draw from these findings. First, he suggests that the Basel framework could take: “...a more sceptical view of the role and robustness of internal risk models in the regulatory framework...simplified, standardised approaches to measuring credit
and market risk, on a broad asset class basis, could be used.” read more on the Bank of England homepage

Keywords: Banking Risks, Regulation, Basle Framework

Keywords: Uncertainty, Black Swans

William R. White, Ultra Easy Monetary Policy and the Law of Unintended Consequences, Dallas Fed, August 2012

"In this paper, an attempt is made to evaluate the desirability of ultra easy monetary policy by weighing up the balance of the desirable short run effects and the undesirable longer run effects – the unintended consequences. The conclusion is that there are limits to what central banks can do. One reason for believing this is that monetary stimulus, operating through traditional (“flow”) channels, might now be less effective in stimulating aggregate demand than previously. Further, cumulative (“stock”) effects provide negative feedback mechanisms that over time also weaken both supply and demand. It is also the case that ultra easy monetary policies can eventually threaten the health of financial institutions and the functioning of financial markets, threaten the “independence” of central banks, and can encourage imprudent behavior on the part of governments. None of these unintended consequences is desirable. Since monetary policy is not “a free lunch”, governments must therefore use much more vigorously the policy levers they still control to support strong, sustainable and balanced growth at the global level."

Keywords: Monetary Policy, Easy Money, Value of Money

May 2012

Keywords: Private Equity, Job Growth, Mitt Romney

Regulators of non systemic financial sectors should look at this:

Allen, Franklin, Trends in Financial Innovation and Their Welfare Impact: An Overview (September 2012). European Financial Management, Vol. 18, Issue 4, pp. 493-514, 2012. Available at SSRN: http://ssrn.com/abstract=2134715 or http://dx.doi.org/10.1111/j.1468-036X.2012.00658.x

Abstract:

"There is evidence that financial innovations are sometimes undertaken to create complexity and exploit the purchaser. Thus financial innovation does have a dark side. As far as the financial crisis is concerned, securitisation and subprime mortgages may have exacerbated the problem. However, financial crises have occurred in a very wide range of circumstances, where these and other innovations were not important. There is evidence that financial liberalisation has been more of a problem. There are many financial innovations that have had a significant positive effect including venture capital and leveraged buyouts and innovations to fund environmental and health improvements."

Keywords: Financial Innovation, Private Equity

The Reformed Broker: The Hottest Trade on Wall Street: European Stocks, August 22, 2012

There's a new hot trade on The Street I continue to hear about more and more that involves one of the most hated areas of the global markets: Europe. Hedge funds and go-anywhere asset managers are increasingly circling the concept that the time is now to dig through the rubble for quality euro stocks.

Before I go any further, please understand that I am not advocating that anyone go out and try to put this trade on, I'm merely relaying the fact that many institutional players are talking about it behind the scenes.

The idea is to buy European multi-national companies, which are trading at very low valuations in some cases (see the Bank of America Merrill Lynch chart at left depicting EU equity yields relative to German bunds) The thinking behind it is that Euro multi-nats have been unfairly punished by investor fears over the debt and banking crisis. read more on the reformed broker

Keywords: Stocks, Investing, European Companies

found on Slate:

Slate: Brazil's Central Bank Staff Goes On Strike, August 8, 2012

Keywords: Monetary Policy, Inflation

CBS Money Watch: John Bogle's 10 rules of investing, August 20, 2012

1. Remember reversion to the mean.
2. Time is your friend, impulse is your enemy.
3. Buy right and hold tight.
4. Have realistic expectations. You are unlikely to get rich quickly.
5. Forget the needle, buy the haystack.
6. Minimize the "croupier's" take. Beating the stock market and the casino are both zero-sum games, before costs. You get what you don't pay for.
7. There's no escaping risk.
8. Beware of fighting the last war. What worked in the recent past is not likely to work going forward.
9. Hedgehog beats the fox. Foxes represent the financial institutions that charge far too much for their artful, complicated advice.
10. Stay the course.

read more details on CBS

Keywords: Investor Wisdom, Investor Strategy

Hausman, Naomi, University Innovation, Local Economic Growth, and Entrepreneurship (June 1, 2012). US Census Bureau Center for Economic Studies Paper No. CES-WP- 12-10. Available at SSRN: http://ssrn.com/abstract=2097842

Abstract:

"Universities, often situated at the center of innovative clusters, are believed to be important drivers of local economic growth. This paper identifies the extent to which U.S. universities stimulate nearby economic activity using the interaction of a national shock to the spread of innovation from universities - the Bayh-Dole Act of 1980 - with pre-determined variation both within a university in academic strengths and across universities in federal research funding. Using longitudinal establishment-level data from the Census, I find that longrun employment and payroll per worker around universities rise particularly rapidly after Bayh-Dole in industries more closely related to local university innovative strengths. The impact of university innovation increases with geographic proximity to the university. Counties surrounding universities that received more pre-Bayh-Dole federal funding - particularly from the Department of Defense and the National Institutes of Health - experienced faster employment growth after the law. Entering establishments - in particular multi-unit firm expansions - over the period from 1977 to 1997 were especially important in generating long-run employment growth, while incumbents experienced modest declines, consistent with creative destruction. Suggestive of their complementarities with universities, large establishments contributed more substantially to the total 20-year growth effect than did small establishments." Source: SSRN

Keywords: Innovation, Creative Destruction

Find here an opinion on FT Alphaville:

FT Alphaville: More good news. Now what? August 15, 2012

...."Payrolls, the trade deficit, the Fed senior loan officer survey, retail sales, homebuilder confidence, and industrial production all came out better for July than had been anticipated. And all the while it increasingly appears that housing has finally bottomed.

Of course there are exceptions, and the unemployment rate remains stuck at 8.3 per cent. But the recent trend has been enough for some analysts and economists to begin suggesting that QE3 may not happen in September."... read more on FT Alphaville

Keywords: US Economy, Monetary Policy, QE3

Related:

Business Insider: Was June Just A Really Terrible Month? by Joe Weisenthal

Keywords: Business Cycles, Austrian Economics

Forbes: The Most Entrepreneurial Colleges, August 2012

Stanford
MIT
Harvard
Caltech
UC Berkeley

read more here

Keywords: Entrepreneurial Colleges, Entrepreneurship, Start Up Activity