• The quality of monetary and fiscal policy during a financial crisis does not depend on whether the President is on vacation.

    Economic Thoughts About Presidential Relaxation

    Sep 2 • Businesses, Economic Debates, Economic Thinkers, Financial Markets, Government, Money and Monetary Policy, Thinking Economically • 34 Views

    When the financial panic of 1907 struck, Theodore Roosevelt was off hunting bears. On October 5th, the President had joined his fellow Rough Rider, the Tabasco magnate, John Avery Mcllhenny, other businessmen and politicians in the Louisiana wilderness for a traditional bear hunt. During the second week of the hunt, he sent a note to his son saying,  “At last today I killed my big she bear—202 pounds. It was my thirteenth day; now everything is pure pleasure…”

    Where are we going with this? To whether the President has to be at his desk when the country needs emergency monetary and fiscal initiatives.

    The Panic Starts

    Meanwhile, (what became known as) the Panic of 1907 had begun. At first, the stock of United Copper Company plunged from $62 to $15 on October 14, then financial markets went  “haywire” and bank failures multiplied. Although NY Times headlines were shouting the gravity of the situation, the President was said to have known nothing while he was in Louisiana. Trying to control the financial damage, Treasury Secretary George B. Cortelyou went to New York on October 22 to meet with J.P. Morgan. A day later, the President returned to Washington D.C. from his bear hunt.

    Before the Federal Reserve was established in 1913, J.P. Morgan was the source of monetary policy. Suffering from a bad cold, Morgan sucked lozenges, had doctors spraying his throat and sneezed during the October 1907 meetings in his library with the banking elite. Fully grasping what had to be done, he generated the liquidity and publicized the confidence that the financial system needed to weather the storm.

    As the NY Times indicated in this October 27 poem…

    A millionaire is wicked, quite;
    His doom should quick be knelled;
    He should not be allowed to grow,
    If grown he should be felled,
    But when a city’s bonds fall flat,
    And no one cares for them,
    Who is the man who saves the day?
    It’s ].P.M.
    When banks and trusts go crashing down
    From credit’s sullied name,
    While Speechifying Greatness adds
    More fuel to the flame,
    When Titan Strength is needed sore
    Black ruin’s tide to stem,
    Who is the man who does the job?
    It’s J.P.M.

    Our Bottom Line and the Role of the President

    During the Great Recession, President Bush stepped back as his Treasury Secretary Henry Paulson and Federal Reserve Chair Benjamin Bernanke led negotiations with Congress. By contrast, President Franklin Roosevelt appeared fully engaged in the financial intricacies of the Great Depression. Then, though, we have President George Washington’s Treasury Secretary Alexander Hamilton galloping off to Pennsylvania to suppress a Whiskey Rebellion whose participants were not going to pay an excise tax.

    Our bottom line: So yes, we have had presidents who were at the center of the action for monetary and fiscal policy during a financial crisis and those who were not. As you can see, we seem to have no consistency on whether it matters.

    Here are some vacation days facts (some have been disputed):

    • Obama: 125 (so far)
    • George W. Bush: 407
    • Jimmy Carter: 79
    • Harry Truman: 175 days (during 11 visits) in Key West, Florida
    • John Adams left the Washington D.C. in 1798 for his Quincey, MA farm to be with Abigail for 7 months when she was ill.
    • In 1805, Thomas Jefferson spent 4 months–July-October–at Monticello.
    • James Madison left Washington for 4 months- June-September 1816.

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  • A NASA satellite image of the world's night lights conveys economic information about developed and developing countries.

    Bedtime Stories… About the Economy.

    Aug 31 • Developing Economies, Economic Growth, Government, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 57 Views

    Our Sunday Charts

    This week we have NASA Earth Observatory’s “Night Lights 2012″ as our chart. Isn’t it wonderful?

    NASA explains that, “This new image of the Earth at night is a composite assembled from data acquired by the Suomi National Polar-orbiting Partnership (Suomi NPP) satellite over nine days in April 2012 and thirteen days in October 2012. It took 312 orbits and 2.5 terabytes of data to get a clear shot of every parcel of Earth’s land surface and islands.”

    Looking at “Night Lights 2012,” you can see that African and South American developing countries and rural areas are primarily dark. By contrast, the U.S. and Europe are brightly lit as are many of the world’s top cities like New York, Chicago, Los Angeles, Buenos Aires, Shanghai, New Delhi, Tel Aviv, Paris, London, Copenhagen, Tokyo and Hong Kong. Also, perhaps the light is bright in the vicinity of the North Dakota Bakken oil shale formation because of natural gas flaring?

    These 2010 stats could confirm the absence of electrification in the darker areas of the satellite image.

    Developing countries and the absence of  electrification

    From: World Bank

    Our bottom line: In one of his farm journals from 1813, Thomas Jefferson points out that one-half more wool was spun during July than in January because extra daylight hours extended the length of the workday. Whether in 1813, or now where electrification is sparse, the productivity of land, labor and capital is still very much controlled by the sun.

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  • This week's everyday economics included opportunity cost, GDP, and externalities.

    Weekly Roundup: From Airline Seats to Earthquakes

    Aug 30 • Developing Economies, Economic Debates, Economic Growth, Economic Humor, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 47 Views

    Our Econlife Roundup for the Week:

    Charts and graphs tell stories8.24.14 Are you a Starbucks or a McDonald’s person?..more


    Condemned by many people including President Obama, corporate inversions might not be the problem. Instead we should reconsider the corporate tax.8.25.14 A new way to look at corporate inversions…more


    Everyday Economics: While short term GDP spending increases, the impact on the economy from a disaster is probably not beneficial.8.26.14 The importance of the broken window fallacy…more


    Everyday Economics: With opportunity cost, planners can decide how much natural disaster preparation is worth the tradeoff.8.27.14 The reasons not to prepare for a natural disaster…more


    Everyday Economics: Chinese economic growth that is fueled by its urban population is a major cause f the center of economic gravity moving eastward.8.28.14 Tracing the path of global economic power….more


    Everyday Economics: The Coase Theorem has a market-based solution for the airline seat reclining problem that is a negative externality.8.29.14 Why airline reclining is about more than relaxing…more


    Economic Ideas Roundup:

    Negative externality

    Gross national product

    Opportunity cost

    Monopolistic competition

    Corporate Taxation


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  • Everyday Economics: The Coase Theorem has a market-based solution for the airline seat reclining problem that is a negative externality.

    Solving the Airplane Seat Problem

    Aug 29 • Behavioral Economics, Economic Debates, Economic Thinkers, Government, Regulation, Tech, Thinking Economically • 85 Views

    Assume that your neighbor turns up the volume just when you want to sleep. Although her property rights include her apartment, the sound spills beyond… to your property.

    Similarly, with that airline ticket you just purchased, you get some temporary property rights. You get a seat and also the right to recline. As you know, this is where—like with a neighbor’s loud music—the problems start. Leaning back, you have entered someone else’s “property.”

    On a recent United flight between Newark and Denver, when a man used a $21.95 Knee Defender to prevent the woman occupying the seat in front of him from reclining, she threw a cup of water at him. Diverting, the pilot landed in Chicago, ejected those two troublesome passengers, and continued to Denver. They arrived 1 hour and 38 minutes late.

    Negative Externalities

    Almost everyone on this flight suffered from a negative externality. Just as loud music results in a negative externality for apartment dwellers, a reclining flier creates a negative externality for the person in the seat behind him. Meanwhile, everyone on that United flight had a negative externality because of the delay.

    You can sort of see how the Knee Defender prevents a seat from reclining:

    The knee defender creates a negative externality for a seat recliner.

    From: Gadget Duck

    The Bottom Line and a Coase Solution

    What to do? Thinking of the recliner, an economist would have suggested some Coase-style negotiation.

    Nobel laureate Ronald Coase told us that externality problems can be privately solved when transaction costs are low and the cost/benefit numbers make it feasible. With our airplane dispute, let’s say the woman feels it is worth $50 to recline and the man seated behind her thinks the cost of the discomfort is $75. If she gave him $60 or any amount between $50 and $75, everyone could be happy.

    Other solutions leave us with less choice. United could have charged for the right to recline or installed the stationary seats that Spirit and Allegiant have on their planes.

    Our bottom line: The Knee Defender dispute was really about property rights and a negative externality.

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  • Everyday Economics: Chinese economic growth that is fueled by its urban population is a major cause f the center of economic gravity moving eastward.

    The Path of the Shifting Center of Global Economic Power

    Aug 28 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Government, International Trade and Finance, Labor, Macroeconomic Measurement • 103 Views

    Let’s start with a dot in the Atlantic Ocean, maybe 900 miles from Morocco, that we can follow as it glides eastward toward Izmir, Turkey.

    An Overview of Shifting Global Economic Power

    According to London School of Economics Professor Danny Quah, you are looking at the world’s centers of economic gravity. A center of economic gravity is different from a “cluster” of economic activity. As Dr. Quah explained, please imagine a world with only 2 cities having economic activity. The cluster of economic activity could be found in each city. However, the center of economic gravity would be an inactive spot between the two. While there are many clusters, there is only one center.

    By 2049, the center of economic gravity will have reached 92 degrees east and 30 degrees north where it would be surrounded by Urumqi, China; Kolkata, India; Dacca and Chittagong, Bangladesh.

    The Chinese Economy will draw the global center of gravity to the East.

    From: “The Global Economy’s Shifting Centre of Gravity” by Danny Quah (LCE)


    Also looking at Asia “rising,” Hans Rosling, in one of his wonderful TED talks, speedily takes us from 1858 to 2048 in a statistical horse race.

    Conveying a slightly different picture, the consulting firm McKinsey created a boomerang to show a changing economic center of gravity.

    originally close to China, and then located to the wets, now, fueled by the Chinese economy, the center of the global economy is again moving Eastward.


    How Cities Will Fuel Global Economic Growth

    McKinsey also gathered data from the world’s 600 top cities and concluded that 440 in emerging markets will fuel the world economy by investing in new buildings, water infrastructure and ports.

    Propelled by investment from developing world cities, the center of global economy moves eastward.

    And, if we look even more closely at those 440 cities, we see an increasingly affluent urban consumer.

    Shifting location of consumer spending moves center of global economy


    Our bottom line: Moving beyond our graphs, we need to imagine the people who are creating a shift in global income. Perhaps exacerbating inequality, a group of urban consumers in China and other emerging markets will become more affluent. These are very real people whose rising incomes are pulling the center of the global economy closer to their homes and jobs.

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