Last year, we lamented the passing of M3 reporting. This broadest of money supply measures had shown a discomforting increase in liquidity, far greater than what M2 was revealing.
At the time of the M3 announcement, we suspected the Fed was attempting to cover their tracks, disguising an ongoing increase in money supply and an unstated “easing” in Fed bias. Since that time, we have learned: the Treasury Department was also adding liquidity — a duty they have assumed, in part, in addition to the same performed by the Fed. Indeed, based on the credit growth data Doug Noland published last month (October Credit Review), it appears that the Fed has – despite increasing interest rates – actually eased over the last two years.
Category: Business
Becker & Posner on Milton Friedman
Milton Friedman died this past week. He was the most influential economist of the 20th century when one combines his contributions to both economic science and to public policy. I knew him for many decades starting first when I was a graduate student at Chicago, and then as a colleague, mentor, and very close friend.
I will not dwell here on what a remarkable colleague he was. However, I do want to describe my first exposure to him as a teacher since he enormously changed my approach to economics, and to life itself. After my first class with him a half-century ago, I recognized that I was fortunate to have an extraordinary economist as a teacher. During that class he asked a question, and I shot up my hand and was called on to provide an answer. I still remember what he said, “That is no answer, for you are only restating the question in other words.” I sat down humiliated, but I knew he was right. I decided on my way home after a very stimulating class that despite all the economics I had studied at Princeton, and the two economics articles I was in the process of publishing, I had to relearn economics from the ground up. I sat at Friedman’s feet for the next six years– three as an Assistant Professor at Chicago– learning economics from a fresh perspective. It was the most exciting intellectual period of my life. Further reflections on Friedman as a teacher can be found in my essay on him in the collection edited by Edward Shils, Remembering the University of Chicago: Teachers, Scientists, and Scholars, 1991, University of Chicago Press.
Yahoo’s Peanut Butter Manifesto
It will be interesting to see how Terry Semel reacts to Brad Garlinghouse’s “peanut butter manifesto,” which was essentially open letter accusing Terry of incompetence. Garlinghouse took pains to note that Yahoo’s problems come “straight from the top.” He also obviously either leaked the memo himself or knew that it would be leaked (little difference). Regardless of what happens, Yahoo shareholders should thank him.
Wisconsin 27th in “Entrepreneur Friendliness”
Small Business & Entrepreneurship Council [PDF]:
The Small Business Survival Index ranks the 50 states and District of Columbia according to some of the major government-imposed or government-related costs affecting investment, entrepreneurship, and business.
This eleventh annual Small Business Survival Index ties together 29 major government-imposed or government-related costs impacting small businesses and entrepreneurs across a broad spectrum of industries and types of businesses:
- Personal Income Tax. State personal income tax rates affect individual economic decision-making in important ways. A high personal income tax rate raises the costs of working, saving, investing, and risk taking. Personal income tax rates vary among states, therefore impacting crucial economic decisions and activities. In fact, the personal income tax impacts business far more than generally assumed because roughly 90 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.), and therefore pay personal income taxes rather than
corporate income taxes. Measurement in the Small Business Survival Index: state’s top personal income tax rate.1- Capital Gains Tax. One of the biggest obstacles that start-ups or expanding businesses face is access to capital. State capital gains taxes, therefore, affect the economy by directly impacting the rate of return on investment and entrepreneurship. Indeed, capital gains taxes are direct levies
on risk taking, or the sources of growth in the economy. High capital gains taxes restrict access to capital, and help to restrain or redirect risk taking. Measurement in the Small Business Survival Index: state’s top capital gains tax rate on individuals.2
Third Quarter Real Estate Market Data
Dave Stark [PDF]:
We are currently witnessing a phenomenon that I have not
seen in my nearly 30 years in real estate brokerage. For the first
time in anyone’s memory, we are seeing a noticeable slowdown in sales despite continuing record low interest rates. I’ve experienced many soft markets before; most (1980 – 1982 particularly) were far more severe than this. But all of those were precipitated by rapidly rising interest rates. This one seems to be occurring even though rates have actually fallen (that’s right, fallen) over the past 60 to 90 days by nearly two thirds of a percentage point, remaining near all time lows. At this writing, 30 year rates are around 6.375%. What’s going on?I’ve heard many explanations offered, and many have some validity. For starters, the Federal Reserve has raised short term interest rates steadily over the last two years. This has probably led many consumers to assume that mortgage rates were rising too. They did rise a little, but not much… they’re still within a percentage point or so of their lows. It’s also true, as you see below and on the following pages, that inventories have continued to rise, leading many to assume that the market is “slow,” since they see more for sale signs than they’re used to. Perhaps most importantly, the media has been relentlessly predicting a “bursting real estate bubble” for two years now, and they’ve seized on any evidence of a slowdown to fuel the gloomy predictions. While fears of a bursting bubble are utterly unfounded, especially here (see page 2), we’re hearing that many buyers are afraid to buy, thinking that real estate has become a bad investment on which they’ll lose money. A self fulfilling prophecy if ever there was one. Add in the fact that the fall is normally the slowest time of year anyway, and the market appears just plain tired after a sizzling 5 year run.
A Chat with JetBlue’s David Neelman
With Washington often, umm, unable to focus–“It took 10 years to get an energy bill passed that has had little effect,” Mr. Neeleman interjects–he sought counsel on the capital’s ways. As a result, he got professional help on the bill’s language and learned about the legislative process. “The advice I got was to go get RAND and other thinkers to write about it–those are the guys that they listen to,” Mr. Neeleman says. He has spoken with RAND about doing an economic impact study, but has not commissioned one. And, as he put it, “I got a couple professors”–names of people he might enlist in the cause. Who?–I ask. “From the American Enterprise Institute and Brookings Institution,” is his reply.
Mr. Neeleman has also visited the White House seeking support. “They’re looking at it,” he says, but were noncommittal. He believes “it should sail through Congress,” and would be happy to “testify for my country and for our industry.” This earnestness, along with his resolve, is obvious throughout the interview. As I’m leaving, Mr. Neeleman stops me to point out–no, to declaim–a framed quote on the wall outside his office. It’s from Teddy Roosevelt, and reads, in part: It is not the critic who counts, not the man who points out how the strong man stumbled or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena . . . who–at the worst–if he fails, at least fails while daring greatly.
The Next Capitalism
When he died in 1848, John Jacob Astor was America’s richest man, leaving a fortune of $20 million that had been earned mainly from real estate and fur trading. Despite his riches, Astor’s business was mainly a one-man show. He employed only a handful of workers, most of them clerks. This was typical of his time, when the farmer, the craftsman, the small partnership and the independent merchant ruled the economy. Only 50 years later, almost everything had changed. Giant industrial enterprises — making steel, producing oil, refining sugar and much more — had come to dominate.
The rise of big business is one of the seminal events in American history, and if you want to think about it intelligently, you consult historian Alfred D. Chandler Jr., its pre-eminent chronicler. At 88, Chandler has retired from the Harvard Business School but is still churning out books and articles. It is an apt moment to revisit his ideas because the present upheavals in business are second only to those of a century ago.
Until Chandler, the emergence of big business was all about titans. The Rockefellers, Carnegies and Fords were either “robber barons” whose greed and ruthlessness allowed them to smother competitors and establish monopolistic empires. Or they were “captains of industry” whose genius and ambition laid the industrial foundations for modern prosperity. But when Chandler meticulously examined business records, he uncovered a more subtle story. New technologies (the railroad, telegraph and steam power) favored the creation of massive businesses that needed — and, in turn, gave rise to — superstructures of professional managers: engineers, accountants and supervisors.
More on Yahoo’s Cooperation with the Chinese Government
hi Tao was sentenced to 10 years in prison after “illegally providing state secrets to foreign entities”.
His crime was to have e-mailed details of the Chinese government’s plans to handle news coverage of the 15th anniversary of the Tiananmen Square massacre in 2004. Yahoo! provided crucial information in the case, linking the message and e-mail account with Shi ‘s computer. Reporters Without Borders accused Yahoo! of acting as a “police informant”.
John Bogle’s Recent San Francisco Talk
Bogle believes investors should simply buy the lowest-cost index funds available and hold them forever. His rule of thumb is to take your age minus 10 and hold that percentage of your assets in a total bond market index fund and the rest in a total stock market index fund. For example, a 30-year old would put 20 percent in bonds and 80 percent in stocks.
This strategy nearly eliminates “the two greatest enemies of equity investing — expenses and emotions,” Bogle said.
Bogle’s attitudes have barely changed since he started the first index fund in August 1976.
That fund, now called Vanguard Index 500, has about $112 billion in retail assets and is the second-largest fund after American Funds’ Growth Fund of America, according to Morningstar.
Bogle wrote the excellent “Battle for the Soul of Capitalism“.
The Next Capitalism
When he died in 1848, John Jacob Astor was America’s richest man, leaving a fortune of $20 million that had been earned mainly from real estate and fur trading. Despite his riches, Astor’s business was mainly a one-man show. He employed only a handful of workers, most of them clerks. This was typical of his time, when the farmer, the craftsman, the small partnership and the independent merchant ruled the economy. Only 50 years later, almost everything had changed. Giant industrial enterprises — making steel, producing oil, refining sugar and much more — had come to dominate.
The rise of big business is one of the seminal events in American history, and if you want to think about it intelligently, you consult historian Alfred D. Chandler Jr., its pre-eminent chronicler. At 88, Chandler has retired from the Harvard Business School but is still churning out books and articles. It is an apt moment to revisit his ideas because the present upheavals in business are second only to those of a century ago.
Until Chandler, the emergence of big business was all about titans. The Rockefellers, Carnegies and Fords were either “robber barons” whose greed and ruthlessness allowed them to smother competitors and establish monopolistic empires. Or they were “captains of industry” whose genius and ambition laid the industrial foundations for modern prosperity. But when Chandler meticulously examined business records, he uncovered a more subtle story. New technologies (the railroad, telegraph and steam power) favored the creation of massive businesses that needed — and, in turn, gave rise to — superstructures of professional managers: engineers, accountants and supervisors.