Another Lesson For Investors Who Pay High Fees To Investment Advisers

This article in the WSJ (behind paywall),  shows that only 9.3% of actively managed mutual funds beat the S&P 500 index by the end of September.  That is well below the previous low in 1995 of 12.9% that failed to beat the S&P 500 index.  While some funds do beat the S&P index in any given year, most of them fail to consistently beat the index in subsequent years.  It would appear that investors who continue to pour money into actively managed funds are not as rational as we assume.  They prefer to pay high fees in anticipation of hitting the jackpot.  They are much like those who purchase lottery tickets in the hope they can defy the laws of laws of probability which work against them.

How To Promote Economic Growth In The US

The Cato Institute invited a number of economists to present their view on policies that would promote economic growth.  Douglas Holtz-Eakin, who was Mitt Romney's economic adviser in his failed presidential campaign, presented his ideas at the Cato conference.  Brad DeLong read his presentation and gave it a failing grade.  There was nothing new in the presentation; it consisted of the stale nostrums that have always been at the center of Republican economic policy.  That is, cut spending on entitlements, reduce the regulatory burden on business, reduce business taxes and privatize the failing public education system.  DeLong did not give Holtz-Eakin a failing grade for making the wrong recommendations.  He failed him for supporting his recommendations with weak and often faulty data.  Holtz-Eakin probably felt comfortable making his presentation to a supportive audience, but he ruined whatever was left of his reputation as an economist for Brad DeLong who once regarded him as a colleague who would have given a failing grade to any economist who would have displayed a similar disregard for economic literacy.  DeLong's critique of the evidence and data that Holtz-Eakin used to support his economic growth recommendations is withering and it provides a good lesson on the misuse of data by economists who have chosen to become political hacks.

What Is The Logic Behind German Economic Policy Preferences In Eurozone?

Germany is the largest and most successful economy in the eurozone.  It's policy preferences may be one of the factors that have stalled the eurozone economy.  Antonio Fatas offers his explanation for Germany's policy preferences in this article.  Fatas argues that German leaders have a unique opinion about the factors that led up to the economic crisis, and that they prefer structural changes that may be good in the long run, but which are counter-productive in the short run.  German leaders, according to Fatas, also have an attitude about inflation that differs from that of most central banks which have a 2% inflation target.  Germans seem to prefer a zero inflation target.

Fatas sounds a lot like Paul Krugman in his critique of German economic policy preferences.  My guess is that electoral politics in Germany shape the German preferences.  The public has been generally supportive of German economic policy preferences.

Sweden's Center Left Government Can't Pass Its Budget Due To Opposition From Anti-Immigration Party

Sweden's economy and the government's fiscal position is in good shape.  Surprisingly, politics in Sweden are in disarray.  The populist anti-immigration party in Sweden announced that it will not support the budget proposed by the center-left coalition government.  It claims that it will not vote for any budget that encourages immigration.  The coalition government is unable to gather enough votes to pass its budget and it will not operate the government with center-right budget in place.  Public concerns about immigration policy are disrupting electoral politics in much of Europe.  Anti-immigration sentiment in the US, which is a nation built upon immigration, has also become a major political issue.  The US does not have a parliamentary system so the anti-immigration sentiment in the US has been absorbed by the Republican Party. 

How To Make Millions On The Internet

One of the easiest ways to create product demand is to lower the price to zero.  One of the most popular ways to get rich on the Internet is to offer a free trial for a product.  In order to get the free trial the consumer must use a credit card to pay for shipping and handling.  Most consumers will not read the terms and conditions for the free trial.  If they do not cancel the free trial in 14 days their credit card will be hit with a recurrent charge for monthly refills of the product.  The crooks who use this deceptive practice also make it difficult to cancel the order. 

The link that I provided is to just one of many free trial scams that are being used to trick consumers into unwanted purchases.  Most of the scams target potential victims by appealing to very common problems that can be solved by taking a non-prescription pill that is is sold by featuring other consumers who used the pills to lose weight, build a strong body, enjoy great sex, shrink an enlarged prostrate etc.  Most consumers are too smart to pay over $70 per month for the worthless pills.  They get hooked by accepting the free trial, and by not clicking a link to the terms and conditions. 

What really aggravates me about this scam is that it is not illegal to use this deceptive practice to initiate a purchase by default.  Moreover, the ad that I linked to was placed on Yahoo.  You get to the ad by following a link in an article which appears to be a news article about products being used by well known athletes.  Apparently, Yahoo does not worry about accepting money from crooks who pay for the ads on their site.

The Washington Post Rewrites Economic History

Robert Samuelson has a weekly column in The Washington Post that gives him a platform to broadcast his views on economic topics.  His approach is similar to that of David Brooks who writes opinion pieces in the New York Times.  They both rely upon conservative think tanks, and conservative authors, to fuel their imagination about the political economy.  They are both skillful writers with the ability to condense complex economic ideas into short articles that reach millions of readers.  Samuelson follows that tradition in this article.  The libertarian Cato Institute hosted a conference that featured James Grant who wrote a book on the US recession in 1921.  Grant argued that the recovery from the 1921 recession was more rapid and stronger than the recovery from the Great Recession because the government did not intervene in the market.  Prices and wages were allowed to fall.  Lower prices encouraged consumers to spend and lower wages provided businesses with an incentive to hire more workers.  Samuelson, following Grant, concludes that we would have had a faster recovery from the Great Recession if we had allowed the price system to work its magic.  Samuelson takes Grant a step further.  He asserts that the recovery from the 1921 recession destroys the intellectual capital of the economics profession which advocates counter cyclical fiscal policy in response to recessions.

Samuelson's article will misinform millions of readers about the political economy.  The rebuttals to his article will reach a handful of readers.  It is no wonder that the public is generally confused about the political economy and the role of government in the economy.  The new owner of the WP is a libertarian who will be pleased with Samuelson's contribution to the public understanding of the political economy.

Europe Is Paying A Price For The Cost Of Bad Ideas

Paul Krugman rejects the idea that the eurozone is having economic problems because of the irresponsible behavior of some of its member nations.  With the exception of Greece, Krugman does not see a competitiveness problem or fiscal irresponsibility as the root problem in the eurozone.  He argues instead that Germany is exporting deflation to its neighbors, and that it is imposing its bad economic ideas on the rest of the eurozone.  Unfortunately, policy makers in the eurozone have bought into the economic ideas being sold by Germany.  In Krugman's mind, German economic ideology resembles the economic ideology that emanates from the University of Chicago in the US.