Business, Government and the International Economy
Of all the mistakes I made while a student here, my single greatest regret, the one thing I dream of changing if I had the chance to do it all over again, would be to have the world simply stop for three minutes after every case discussion in class. That’s right, stop—go deathly silent, and the only thing I was allowed to do during those few precious minutes was jot down whatever was “on my mind” at the time. It could be a conceptual note based on the professor’s case summary, or just as likely it might have been a personal note to call my mother because something someone said during class caused me to think of her, how important she is to me, and how long it had been since I had spoken to her. Oh, what I’d give today for a notebook full of those “personal reflections.”
Leave your reflections as comments!
Steve Myrick
Luke Owings
chuckdieselfuel
Jessica Lackey
An undeveloped country can develop rapidly by bringing in capital, technology and expertise from abroad. The next step is a bit more complicated – it’s no longer clear where to invest and you can’t readily import productivity.
Singapore – Singapore and the US are both incredible long-term growth stories. Singapore did it all through foreigners. The US was home-grown. One reason for this difference is the sheer amount of natural resources in the US and the lack of them in Singapore.
GDP – There’s a tendency to mix up the objectives of different statistics and create metrics that are good in theory but don’t work in practice. Recognize what metrics are designed for and use them as such along with all their strengths and weaknesses. GDP is a measure of output, not of human welfare or even macroeconomic health. Moving away from the objectivity that it currently has could make it useless and make it lose any comparability that it currently has.
While C, I, G, and NX are imperfect categories created by humans, most countries use them as the rules to calculating an output estimate. You have to know the rules well before you try to improve upon them.
FDIC – During political ideology discussions/arguments, people almost always use extreme points in their arguments to try to make their points.
Great Depression – The New Deal was as much a political overhaul as an economic one. The active, interventionist policies were designed to try everything and see what stuck.
Federal Reserve – Bernanke was unable to get enough money into the system by buying bonds or through the traditional discount window, so he put a whole lot of credit up against assets (included Fannie and Freddie). This exposes the Fed’s balance sheet to interest rate risk AND credit risk (this one is a new one for them to deal with). Look at the change in the balance sheet over the last 2 years. It is scary.
Barack Obama and the Bush tax cuts – You have to divorce the political philosophy of government policy and the the actual short-term goals when talking about its effectiveness. Bush’s tax cuts were (arguably) successful in decreasing the size of the government, but they might not have been so good at their stated goal (i.e. provided a short term stimulus to the economy).
Japan: The Miracle Years – Japan’s post-war rise is a result of excellent centralized decision-making and geopolitical factors. The former (investment in certain industries, strong institutions and prioritized education) can be replicated by today’s developing countries but the latter (strategic position among large combatants, the security umbrella, and an ability to impose tariffs without retaliation) can’t.
Japan : The Miracle Years – Unlike Singapore’s growth, Japan’s was NOT built on Foreign Direct Investment.
Japan: Monetary Policy – (many reflections on the US Fed’s reaction to our current crisis)
(A) The Fed had to make up new laws to buy Asset-Backed Securities from companies that are not banks.
(B) The Fed gives loans using depressed assets as collateral, they’re not actually buying them on the front end.
(C) During the recent crisis, the Fed set themselves up as lenders of last resort not just to US banks but to Central Banks around the world.
Japan: Crisis and Reform –
Japan’s Takenaka plan: Inspect (banks), inject (funding) , eject (bad loans).
U.S. policy now: Pretend (bad loans don’t exist), extend (loan terms), bend (laws to get money into the economy).
Japan: Crisis and Reform (B) – One of the major issues that kicked off the crisis was that we didn’t necessarily have clear consequences for banks when things went wrong. Bankruptcy law covered part of it, but it lacked somewhat on the banks that also had brokers as part of them.
Japan: Crisis and Reform (B) – The US needs a trusted mechanism for the safe dissolution of very large, very complicated financial firms, should those firms become insolvent.
Iceland – Have courage when you make decisions and a big committee when you make the bad ones.
Who Broke the Bank of England? – All economic decisions have political underpinnings that are every bit as important as economic fundamentals.