Tea Party Attacking GOP Incumbents

http://www.nytimes.com/2011/01/30/us/politics/30teaparty.html?pagewanted=2&_r=1&ref=todayspaper

Tea Party is going to run candidates in GOP Senate primaries against conservative incumbents Lugar in Indiana and Hatch in Utah. They are looking for a candidate to run against Snowe in Maine. The Tea Party seems to be against what they believe to be the establishment more than they are against ideas that the GOP incumbents espouse. Rather than starting a third party, they hope to take over the GOP. This may drive the GOP too far to right to win general elections.

The Case for Business to Use Enlightened Self Interest

http://www.huffingtonpost.com/michael-e-porter/the-big-idea-creating-sha_b_815696.html

This article originally appeared in The Harvard Business Review. Michael Porter has been regarded as one of our leading experts on business strategy. He argues that a narrow view of capitalism, that puts the focus on short term profits, has contributed to some of the problems within capitalism. He believes that business must expand its vision to one of adding value to society. This will result in superior business performance as well as benefit to society.

This is not a new issue. It is anathema to conservative economists who believe that business is only responsible to its shareholders. A good case can be made against this position and Michael Porter does his best to show that creating shared value is in the best interest of society and business.

Krugman on Ryan's Response to Obama's State of Union Address

http://www.nytimes.com/2011/01/28/opinion/28krugman.html?_r=1&hp

Krugman points out that Ryan's understanding of the economic problems in Europe is wrong and that using Europe as an example of what could happen to the US, demonstrates his poor understanding of Europe. Ireland's economic problems were not caused by large budget deficits. The Irish government was forced to bail out its banks when the Irish housing bubble burst. The bail out created the budget deficits, not out of control government spending. In fact, the GOP had viewed Ireland as a model for the US to follow. It linked its economic success, before the banking crisis, to deregulation and business friendly tax policy. England is also a bad example because its budget deficits did not lead to its economic problems. The bursting of the housing bubble and bank bailouts led to its recession and budget deficits. England's austerity program, under the new government, has not stimulated growth so far.

Ryan's plan for reviving the US economy is to cut government spending and taxes. His assumption is that our economic problems are due to a lack of confidence in the business community that could be restored by government austerity. For the GOP, economic problems are always caused by government interfering in the market market mechanism, which left to its own devices, always produces optimum results. His use of Ireland and England to make his point only hurts his argument since it is based upon a faulty understanding of what led to their economic problems.

Housing Bubble and Bust Was Widespread

Allen Greenspan argued that the Fed was not responsible for housing bubble. He used charts like this that show that housing bubbles were widespread. This graph shows that he was correct in arguing that the US had lots of company. One thing that every country had in common was low interest rates. Otherwise, the banks did different things to create the bubbles. In the US, the securitization of mortgages and the use of credit default swaps (CDS) along with weak regulation and poor governance were involved in the crisis. This was also true in the UK. In Ireland, however, the major problem was a very close relationship between the major banks and real estate developers along with weak government regulation. Mortgages were not sucuritized and CDS's were not part of the problem in Ireland. In each of these countries, however, low interest rates, overly aggressive banking and weak government regulation were problems. Government could have done things to prevent the bubbles and the governance of the banks could have been better in each of these countries. The crisis was preventable.

Housing Prices Reverse Downward

This is not a good sign. A double dip fall in housing prices will not help the recovery. Unfortunately, high unemployment and a high rate of foreclosures continue to drag home prices downward.

Federal Budget Deficit

The 2010 deficit hit 10% of GDP due to the slow economy. Tax revenues fall and transfer payments rise in a slow economy. The CBO forecasts deficits at a steady state of 3% as the economy recovers along with tax revenues and lower transfer payments.

Leaving on a Jet Plane

We are headed on a trip to a place where internet service will be sparse. Posts will be scarce for the next 10 days.