Animal Spirits is the title of a 2009 book written by George Akerlof and Robert Schiller and explores how animal spirits contribute to the performance of the macroeconomy. The term "Animal Spirits" is borrowed from the writings of John Maynard Keynes, who was a British economist and whose ideas have been a central influence on modern macroeconomics, both in theory and practice.
"Animal Spirits" is the term John Maynard Keynes used in his 1936 book The General Theory of Employment, Interest and Money to describe emotion or affect which influences human behavior and can be measured in terms of consumer confidence.
If you want some not so light reading we have a copy of Animal Spirits in our Jackson Library collection. (HB74.P8 A494 2009)
While the media has focused on Geithner and Bernanke’s role in the economic crisis Sheila Bair was rolling up her sleeves on the weekends and going to work with her team. The FDIC went into banks and credit unions with teams of accountants to assess the financial health of banks and to give recommendations and advice to strengthen them. Bair has also been firm in standing up the Geithner and being heard before the Senate Banking Committee. The New Yorker in an article published in July gives a good overview of Bair and why she was one of the recipients of the Profiles in Courage award this year. Even with all the work that Bair has done banks continue to fail, however hopefully the tide has turned and there will be fewer.
Economist Dennis Gartman predicted the recession that began in December 2007 a full year before it was officially called by the Government, and he is ahead of the game again. In an article in the August 6th issue of Fortune he claims the recession is over. "We saw it happen two weeks ago -- it's over," he pronounced in a recent interview.
Gartman has been watching the economy for thirty-five years, and he looks at just a few indicators that have yet to fail him. The first is a downward spike in the weekly jobless claims over a period of a few months. The second is a ratio from the Conference Board -- the percentage of coincident economic indicators to lagging indicators. Based on these, he feels he can safely predict the recovery is underway. Do we really have clear skies ahead ?
While the rest of the world is limping along during this global recession Norway is doing quite well for itself. The contrary Norwegians have succeeded in growing their economy just around 3% last year and their government is running a budget surplus of about 11% according to an article in the NYT entitled Thriving Norway Provides an Economics Lesson. How did they do it you ask? According to experts Norway saved while everyone spent, it also helps that the government takes in large revenues from offshore oil and gas drilling in the North Sea. According to Spiegel Online Norway applied any fiscal surplus during good times to shore up public services such as pension funds and implemented ethical guidelines to guide sovereign fund investments.
With a new administration in Washington, government regulation is back. In the United States., industries and sectors representing more than a third of the nation's economy -- including financial services, automobiles, health care, and telecom -- are being reshaped. Many are asking how regulations will impact those businesses. Former Labor Secretary Robert Reich offers his perspective in the July / August issue of the Harvard Business Review on how the government will manage and regulate business in the foreseeable future.
California as the eight-largest economy in the world is a major powerhouse for the U.S. economy as stated by an article put out by the Associated Press. Twenty cents of every revenue dollar California sends to Washington remains there. Most striking is the fact that California is responsible for keeping the retail economy running, more cars are purchased here than in any other state. The question has become will California with its fiscal instability become a major stumbling block to U.S. economic recovery? In the article entitle California Poised to Issue IOUs to Vendors, Local Governments the Sacramento Bee talks about when and what the consequences might be of doing so
Beginning yesterday Clear, the system whereby you could pay a yearly fee to be enrolled in a program which allowed you to bypass the long security lines at the airport in the U.S., had a message on its website stating the service was no longer available. Frequent business travelers really liked the system which was in place at about twenty airports around the country. The big question now is what will happen to all the confidential information collected on passengers? The Clear program which was owned by the Verified Identity Pass Company and founded in 2003 was unable to make a deal with its creditors and had to shut down
Mike Spence (retired dean of the GSB) talked to Maria Bartiromo about the economy and bank stress test results on May 7. Both go on to discuss what the results mean now and for the future and what steps might lead to an improved economy. There is also a follow up discussion about predictions Spence made in February on the show as highlighted in the Spence on the Economy blog.
This week the news has been gripped by the attack and subsequent hostage taking on a U.S. ship off the coast of Somalia. In reaction to this many shipping companies are starting to move ships around the Cape of Good Hope instead of through the Suez Canal. However the trend to detour has also been fueled by the economy as observed in the NPR report Tying Together Coats, Ships And Pita Bread. The Independent in an article entitled World's Ships Held to Ransom by Pirates' Growing Greed estimates that the trip around the African continent adds an additional 12-15 days to a ship’s voyage and costs an extra $20,000-$30,000 per day.
You might be interested in the opinion of chief economist Dr. Richard Buczynski, and senior industry analysts from IBISWorld on the current economic situation. In the briefing paper, Economic Crisis: When will it End?, the economists present the macroeconomic analysis and give their forecast for the duration and risks of today’s recession, and discover some opportunities which emerge in the present circumstances. Stanford users can access the IBISWorld database and find a link to the report right on the Home page. If you use the database, please also note that each of the 700+ industry reports is supplemented with the new section: Recession 2009: Update.
The Treasury Department’s new public/private partnership plan to buy back toxic assets from banks was unveiled this week. The idea is that the U.S. government work with the private sector to buy up toxic assets and depending on the outcome either reap the rewards or minimize risk to private investors, all in an attempt to get markets moving again. In this plan TALF or Term Asset-Backed Securities Loan Facility will be expanded to help bring private investors back into the market. NPR has done a good job of synthesizing the Treasury plan in an article entitled Treasury & Toxic Assets.
I came across an article at Seeking Alpha and the first sentence is, "When it comes to the U.S. financial crisis, it’s tough to know just what to think or who to believe these days." The author goes on to compare the different opinions and scenarios to "Goldilocks and the 3 bears" and the movie "The Good Bad and the Ugly".
I suppose you could view the current financial crisis as a dream (or nightmare) or a fairy tale and one day you will wake up and it will all be over.
 This past weekend Mike Spence (retired dean of the GSB) spoke with CNBC’s Maria Bartiromo about the state of the economy and his view on the impact of the stimulus plan. He clearly states that the banking and financial services sectors need further stabilization and that the government should be more specific about its future plans in order to improve the situation. They also discuss “bad assets” and the need for these to be publicly traded in order to get a better overview of their worth. Also discussed are the mortgage and automotive industries. You can view this candid interview in its entirety.
Interested to know where all the financial bailout monies are going? Tim Geithner announced a week ago the launch of a website, www.financialstability.gov, which is supposed to display transparency and accountability by providing documentation of how the $700billion TARP money has been spent so far. As you can see the site is still limited to a few press releases and announcements. There is certainly more information available about the Emergency Economic Stabilization Act.
The media have been trying to track what has been happening during the bailout not just with $700 billion TARP funds, also in terms of what support and money the Federal Reserve is pumping into the market behind the scenes. The New York Times is keeping a running tally of where the TARP money is going and it can be viewed at Tracking the $700 Billion Bailout. Bloomberg has been requesting more information (through FOIA requests) on moves by Federal Reserve happening behind the scenes to shore up banks. Many funds are being bought up by the Federal Reserve through an entity called Maiden Lane III (named for the Feds New York branch) to purchase troubled bank assets. Business Week does a good job of an overview in the article Bernanke’s Backdoor Bailouts.
In a recent New York Times blog, Economix, highlights of the American Economic Association's very first humor session were reported.
Hey with the economy so bad you might as well laugh instead of cry!
It’s that time of year again the Christmas Price Index is out, which estimates how much the cost would be to buy all the items in the song Twelve Days of Christmas. This year the 12 Days have been the most expensive ever since the index began in 1984. The cost went up 8.1% ($1,500) over the last year. The biggest culprits? High cost of energy and swans which were up 33.3% due to their scarcity. Read more and watch an overview at PNC.
The Information Technology and Innovation Foundation, a non-partisan research and educational institute – a think tank – whose mission is to formulate and promote public policies to advance technological innovation and productivity internationally, in Washington, and in the states, released a State New Economy Index to measure the economic structure of states, showing which states are leading and which are lagging in the country's transformation to a global, entrepreneurial and innovation-based economy.
Overall, the index report uses twenty-nine indicators (listed on pages 11-14), divided into the following five categories that best capture what is new about the New Economy: 1) Knowledge jobs, 2) Globalization, 3) Economic dynamism, 4) Transformation to a digital economy, 5) Technological innovation capacity.
View report
In the welcoming address by premier Wen Jiabao to the World Economic Forum Summer Davos in Tianjin last month included the following questions posed to him in the Q&A session:
Question 1: You have a very integrated, comprehensive policy and you have here in front [of you] 1000 business leaders. What is your advice to the business leaders? What would you like to see from the business leaders assemble to you? What could they do better?
Question 2: Some of the shared challenges the world faces today from financial crisis to environmental degradation, what are the most significant global issues that you feel are not sufficiently addressed or adequately addressed among the international decision makers?
Question 3: You have confronted, as you mentioned in your speech, a number of challenges. The natural disasters including the snow storm, the earthquake, we all admire your decisive, fast leadership action you have taken. You have very positive events like the Olympic Games, the launching of the 7th space mission; you have to confront now, the last 10 days, the financial crisis. What is the profound and unanticipated lesson which you took out of this crisis management?
Replies at YouTube starting at 33:00, Question 2 starts at 38:50, and Question 3 starts at 42:00.
 Paul Krugman, the Princeton University faculty and NY Times columnist, won the Nobel prize in economics today for his analysis of how economies of scale can affect trade patterns and the location of economic activity. To learn more, read today's NY Times article, his column, his blog, or check out his books at the Jackson Library!
Courtesy of AFP
The United States tops the overall ranking in The Global Competitiveness Report 2008-2009. The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the report.
Rank Country Score
1 US 5.74
2 Switzerland 5.61
3 Denmark 5.58
4 Sweden 5.53
5 Singapore 5.53
6 Finland 5.5
7 Germany 5.46
8 Netherlands 5.41
9 Japan 5.38
10 Canada 5.37
learn more ...
The October posting on Forbes website, talks about the present situation in VC environment. Though VC companies don’t operate on borrowed capital, the raging financial crisis leaves no financial institution intact. In practical terms, VC firms are facing very hard time finding LPs, and start-up companies are less likely to raise additional financing. Warren Weiss of VC firm Foundation Capital predicts that there will be an increased number of fire-sales and much less mergers. For more details, read the article online.
Puzzled by the recent flurry of developments on Wall Street? Feel like it's too much, too fast to digest? A GSB instructor just recommended a New York Times Freakonomics blog entry by economists Diamond and Kushyap to his MBA students. An interesting explanation of these potentially globe-shaking events ... as well as what it all means for you and me.
There are four main components that make up the retail price of a gallon of gasoline. EIA reports the percentages as of June, 2008:
1. Crude Oil: 74%
2. Taxes: 10%
3. Refining: 9%
4. Distribution & Marketing: 7%
OPEC reports crude oil REFERENCE PRICES that include Daily Basket Price and Weekly, Monthly, and Yearly Average Prices.
The new OPEC Reference Basket (ORB), introduced on 16 June 2005, is currently made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Minas (Indonesia), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and BCF 17 (Venezuela).
How much is the cost of living in these modern times? With much talk these days on how far your dollar is not going, you might want to see sources on how to calculate and understand what the numbers mean. Check out these websites:
Japan has launched a program called “Innovation 25” with the goal to innovate Japan with an extensive long term plan extending to 2025 and beyond. In the September 17 issue of Red Herring dedicated to Japan, an article entitled Country Makeover take a look at the many initiatives the country is taking to make this work from dramatically increasing the number of foreign students at Japanese Universities to increasing investment in science and technology. The goal is to create a second wave of opening up Japan to the world.
Tomorrow evening (Thursday December 6) 4:15-5:30pm Kiyoshi Kurokawa, Science Advisor to the Cabinet of Japan will be at Stanford, as part of the Center for East Asian Studies, to speak on the topic Innovate Japan! among the topics discussed will be “Innovation 25”.
Thanksgiving Feast prices to go up 11% according to the American Farm Bureau Federation. So what’s going on? Energy prices are going up and demand around the world is up for turkeys as well. Over 500 million turkeys are not enough to satiate US demand around the holidays. Read more about the methodology behind the 11% increase on The Voice of Agriculture.
Americans are in debt. We are in debt up to our eyeballs. The Federal Reserve has released the latest Consumer Credit report and the numbers are not good.
GSB Professor Robert Flanagan has written a new book addressing global trade, migration and international capital flows, Globalization and Labor Conditions: Working Conditions and Worker Rights in a Global Economy. Flanagan, who holds the Konosuke Matsushita Chair of International Labor Economics and Policy Analysis at Stanford, presents evidence on how conditions have changed during late-20th century globalization, and how economic growth, international trade, migration and multinationals have influenced labor. Flanagan also reviews the historical effects of migration and its effect on wages, in light of today's concerns about border control. He argues that evidence suggests that nations open to international trade have superior labor conditions. Moreover, foreign direct investment mainly flows to countries with superior labor conditions, and working conditions in multinational companies are superior to employment conditions in host-country firms. This evidence does not support the view that increasing economic integration initiates a 'race to the bottom' that ends in sweatshop labor conditions.
Stanford Economics Professor John Pencavel writes, "Bob Flanagan ... provides an informed analysis and assessment that ought to be of real interest to all those who still have an open mind on this topic. This is by far the best book I know that aims to inform and enhance public discussion on the varied issues linked to globalization." Watch the video, and check out the book in Jackson Library.
Fortune magazine (December 25) presents its Investor's Guide 2007, with 10 recommended star stocks, including ConocoPhillips, General Dynamics, RadioShack and Southwest Airlines. The magazine issue sidebars other potential investment instruments, such as trusty bond index funds and promising precious metals. Seven top mutual funds are reviewed, as well as the real estate market potential for the coming year. Lots of other goodies are included in the issue, such as a roundtable discussion by top investment strategists, highlights of star market analyst Dana Telsey, a talk with the venerable Leo Melamed of the Chicago Mercantile Exchange, a search for the next great Euro stocks, and advice to investors on China's hottest IPOs. Enough exciting tips to keep any keen investor warm with anticipation through the winter. Read it in Jackson Library, or check out the abbreviated online version.
Want to know what the big enchiladas were predicting just before (and after) the Crash of '29 ? Check out the 1927-1933 Chart of Pompous Prognosticators. You may be surprised. You may be amused. But you'll definitely be more skeptical, after you have a chuckle at pronouncements of yesteryear by President Herbert Hoover, Bernard Baruch, Treasury Secretary Andrew Mellon, Yale economist Irving Fisher and others. Enjoy this 20-20 hindsight from a safe viewing distance.
Edmund Phelps, Economist from Columbia U., speaks to Bloomberg's Suzy Assaad on the state of the U.S. economy. The U.S. economy he views as "amazingly strong" and low unemployment as "remarkable." Professor Phelps won the 2006 Nobel Prize in Economics with his research on the interplay of inflation expectations and employment. His theory is that the containment of expectations in regards to inflation will contain the inflation rate itself. Using Treasury Inflation-Protected Securities or TIPS as well as other methods inflation expectations can be gagged.
Phelps is also asked about emerging markets such as China and India and states that both countries have a long way to go. He mentions China's "phenomenal growth rate" and more "dynamic" environment in the entrepreneurial sector as great economic drivers. Although India is doing well, high-tech in Bangalore constitute only a small portion of India's economy.
Phelps also speaks about investing his prize money in... something "safe" not Real Estate :-)
Watch the video at Bloomberg.com.
BusinessWeek of October 16 has the cover story 'The Organic Myth'. Apparently the growing demand for organic this-and-that is outdistancing supply. As mainstream consumers turn to organic foods, there just isn't enough in the way of organic cows, the organic grain that they eat, and organic fruits and veggies to keep up. To complicate matters, giants like Wal-Mart and General Mills are jumping in. The cottage industry of yesteryear is becoming the conglomerate of tomorrow. And as firms scramble to find bona fide organic ingredients, the ethos that once defined the organic lifestyle is giving way to something that looks increasingly like agribusiness-as-usual: thousands of organic cows kept on mass feedlots, expanding incursions into forest for ever more farmland, importation of ingredients from foreign countries where cheap labor is exploited. Perhaps the Organic Movement has fallen prey to one of History's paradoxes: An excess of success.
Robert B. Reich, former Secretary of Labor, is interviewed in the September issue of Training + Development magazine. The cover story, 'Preparing the Workforce', springboards off Reich's famous categorization of the 'symbolic analyst' -- the person who manipulates information to solve problems -- to discuss his current views. Reich voices his concern that a large segment of the US labor pool remains woefully unprepared for the challenges of the new century : "At least one-third of the current workforce continues to be unprepared. ... They are working at local service jobs for near the minimum wage. Most of these are dead-end jobs." The interview goes on to touch several topics, including outsourcing. Reich opines "Companies are wise to be in emerging markets ... They are wise to source there; they are wise to find human resources there." But he cautions, "On the other hand, it is a fallacy for American companies to believe that they can offshore their most important technical, engineering, research, development, strategic, and sales operations." In conclusion: "The fact is a dedicated innovative, and talented workforce is the only source of sustained competitive advantage. Wall Street, hopefully, will wake up to this reality."
In U.S. News & World Report, publisher Mort Zuckerman draws comparisons between inequalities of the fabled 'Gilded Age' of 19th century America, famously satirized by Mark Twain, and today.
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