Economics

Mercatus Center: Adam Thierer, The perils of classifying social media platforms as public utilities, March 2012

"Are social networking sites like Facebook, LinkedIn, and Twitter “information monopolies” that should be regulated as public utilities? While calls for social networking regulation are on the rise, there are good reasons why policymaker should avoid the rush and rethink classifying them as “public utilities.” Public utility regulation has traditionally been the arch-enemy of innovation, and this could have lasting effects on such a dynamic industry. Treating today’s leading social media providers as essential facilities threatens to convert predictions of “natural monopoly” into a self-fulfilling prophecy."

access the working paper here

Keywords: Social Media Sites, Regulation of Social Media, Public Utilities

Looking at various research dealing with recovery after severe financial crisis (with balance sheets in need of de-leveraging) one would expect that we will go through a period of - in the best case - low growth for still quite some time.

Ezra Klein makes a more positive case in The Washington Post:

The Washington Post: The case against economic pessimism, Ezra Klein, March 30, 2012

Keywords: US Economy, Recovery after severe Financial Crises

WSJ: The Dangers of an Interventionist Fed; A century of experience shows that rules lead to prosperity and discretion leads to trouble, by John B. Taylor, March 28, 2012

America has now had nearly a century of decision-making experience under the Federal Reserve Act, first passed in 1913. Thanks to careful empirical research by Milton Friedman, Anna Schwartz and Allan Meltzer, we have plenty of evidence that rules-based monetary policies work and unpredictable discretionary policies don't. Now is the time to act on that evidence. read more in the WSJ

Keywords: Monetary Policy, US Fed, Interventionism

Milton Friedman looks at the rarity of free societies and the dynamics that work against them.

Keywords: Freedom, Tyranny, Democracy, Market Economy

March 16, 2012

Keywords: European Crisis, Debt Crisis, Greek Crisis

Prof. Bernanke tries to convince Americans of the monetary policy actions through lectures:

Source: The Federal Reserve an the Financial Crisis, Bernanke Lectures

Keywords: Monetary Policy, US Economy

When doing valuations and calculating the WACC, experts might have to look at another definition of the "risk-free rate". Risk is always involved when action is taken, also on the government level - as we have impressively observed during the financial crisis. Jason Voss proposes to rename the concept of the “risk-free rate of return” to the: Lowest-available-risk expected rate of return.

It is worth to read following article:

CFA Institute: Rethinking the Risk-Free Rate, Exploding a Fundamental Assumption, by Jason Voss, CFA, March 2012

Keywords: Valuation, Sovereign Bonds, Risk-Free Rate

Interesting report on de-leveraging after financial crises:

Mc Kinsey: Debt and deleveraging: Uneven progress on the path to growth, 2012

Keywords: Financial Crises, De-Leveraging

Related:

Recovery after financial crises, research by Reinhart and Rogoff and Goldman Sachs:

MarketObservation: Recovery after financial crises, Sept. 30, 2011

Keywords: Innovation, Creative Destruction, Economic Development

Marginal Revolution: The Spanish ten-year yield, March 22, 2012

Keywords: Europe, European Crisis, Spain

Nice explanation of fiscal and monetary policy. For non economist. For example owners of real businesses who more and more have to try to anticipate future government action when defining their strategies:

Keywords: Fiscal Policy, Monetary Policy, Interest Rates

Freeman: The Parable of the Broken Traffic Lights, by Steven Horowitz, March 15, 2012

Steven Horowitz compares a city where all traffic lights are on green with a situation where a heavy expansionary monetary policy gives the wrong signals to the market:

When traffic signals don’t tell the truth, in this case that the cross-traffic has stopped, even the most rational, cautious drivers will get into accidents at intersections. He is stunned that the TV commentators can’t see this. In despair he goes back to sleep, hoping it was all a dream.

read the parable in the Freeman

Keywords: Signals to the Market, Market Prices, Interest Rates, Economic Incentives, Monetary Policy

Project Syndicate: The Global Innovation Revolution, by Laura Tyson, Berkeley, March 2012

As countries around the world struggle to lay the foundations for stronger sustainable growth in the future, they would do well to focus on policies that encourage innovation. Empirical studies across time and countries confirm that innovation is the primary source of technological change and productivity growth. And investments in research and development, as well as in the scientific and engineering workforce on which they depend, are critical drivers of innovation and national competitiveness.

A new study by the National Science Board, the governing body of the National Science Foundation in the United States, examines trends in such investments for both individual countries and regions. These trends indicate that the global landscape for innovation changed significantly during the last decade. read more on Project Syndicate

Keywords: Innovation, Global Competitiveness, R&D Spending, Education

Keywords: Institutions, Capitalism

The Atlantic: Trade My Brain, Please! Why We Don't Need to 'Make Something' to Export It, by Derek Thompson, March 2012

Keywords: US Economy, US Manufacturing, US Service Sector

Keywords: Market Economy, Self-Interest

Why do people buy assets which are overpriced? Barlevy shows that the culprit is assymetric information rather than irrationality. Barlevy, looking at leveraged assets, shows that people overpay for financial assets because they don't fully bear all of the risk as they buy the asset with borrowed money, so if the price crashes they can just default on their loans:

Gadi Barlevy, A Leverage-based Model of Speculative Bubbles (Revised), Chicago Fed, Nov. 2011

"This paper examines whether theoretical models of bubbles based on the notion that the price of an asset can deviate from its fundamental value are useful for understanding phenomena that are often described as bubbles, and which are distinguished by other features such as large and rapid booms and busts in asset prices together with high turnover in asset ownership. In particular, I focus on riskshifting models similar to those developed in Allen and Gorton (1993) and Allen and Gale (2000). I show that such models could explain these phenomena, and discuss under what conditions booms and speculative trading would emerge. In addition, I show that these models imply that speculative bubbles can be associated with low rather than high premia on loans, in accordance with observations on credit conditions during episodes in which asset prices boomed and crashed."

Keywords: Asset Bubbles, Inflated Assets, Premium on Loans

Good "Austrian Thoughts" on inflation:

Coordination Problem: "Only One Thing Worse Than an Open Inflation Is a Repressed Inflation" -- F. A. Hayek (1975)

Keywords: Inflation, Monetary Policy

CNBC: Manufacturers Pay a Bounty for Skilled Workers, March 8, 2012

Brian Papke is frustrated.

As president of Mazak Corporation in Florence, Ky., he is struggling to hire welders. In fact, Mazak has openings for 20 welders needed to help build precision metal cutting machines that will be sold to large manufacturers around the world.

But, after months of being unable to find applicants with the welding skills needed, Mazak is doing something rarely seen with blue collar jobs, it's offering a signing bonus. read more on CNBC

Keywords: Manufacturing, Qualified Workers

Fiscal Times: CEOs Pump Up the Pressure for Corporate Tax Cuts , March 7, 2012

Some of the nation’s highest powered CEOs pumped up the pressure on the White House and Congress on Tuesday to deliver a corporate tax rate cut and a balanced federal budget, saying their ability to create jobs depends on this.

Nearly 100 CEOs who belong to the Business Roundtable, an influential business lobbying group, descended on Washington this week to meet with White House officials and lawmakers to nudge them on policies that would enhance their ability to hire and invest. read more in Fiscal Times

Keywords: Budget Deficit, Corporate Taxes, Investment Climate