Yglesias v. Cowen

During a defense of Social Security, Matthew Yglesias offers this:

Under the circumstances, I don’t think anyone would be saying “saving for your retirement is a pyramid scheme—it depends on the assumption of future economic growth!” Future growth is a prudent assumption. But I also don’t think people would just be saying “well, we need to make some tough choices.” I think they’d be saying that we shouldn’t meekly accept the premise of slower economic growth. They’d be calling for more immigration, especially of high-skill people.

Discussing the implications of his theory that we are in The Great Stagnation, Tyler Cowen offers this:

5. If threshold savings is not an issue for you (e.g., needing to save a certain amount to put a kid through college), you should consider higher levels of consumption as a response to The Great Stagnation. Real rates of return on savings will not be fantastic, and risk-taking will be rewarded less. Spending is one sure way to get your money's worth.

Profiting from Regulation

Here's Tyler Cowen at Marginal Revolution discussing why simply breaking up the banks may not prevent a future crisis and how they may not actually be the centers of power they are made out to be in the popular imagination:

it's our government deciding to assemble a cooperative ruling coalition - which includes banks -- at the heart of its fiscal core. It's our government deciding who belongs to this coalition and who does not, mostly for reasons of political expediency and also a perception - correct or not -- of what is best for the welfare of American voters....

Ask yourself the simple question: who has both the guns and the money, including the ability to print new money at zero cost? It's Washington, not the private banks.

It's easy, and probably wrong, to simply dismiss such a notion as too conspiratorial. As luck would have it, on the same day I read Cowen's post, my google reader also included blogger Matthew Yglesias discussing the modest profit margin of Wal Mart.

Yglesias compared the profits of Wal Mart to other industries, produced a chart of the comparison and came to this conclusion:

Wal-Mart’s total profits are enormous because the company is so large. But mass-market retail is not a high-margin line of business ...

At any rate, looking at this chart I think it’s hard to avoid the conclusion that Wal-Mart is the last thing we should be worried about. The worrying trend is the domination of the corporate landscape by super-profitable firms in the heavily regulated energy, banking, and telecom sectors.

Maybe Cowen's on to something here.

The China Syndrome

Much has been made of the United States' indebtedness to China. This discussion usually revolves around the questions of just how much is too much debt given our economic circumstances and what happens if China decides to stop lending us so much money.

This second question assumes that China's lending decisions are matters of their willingness rather than their ability. This shows up as speculation that China may hold fewer dollars and more euros, for example.

In the New York Times, Tyler Cowen, economics professor and blogger, has an alternate narrative about just how the relationship between the U.S. and China could change, and not for the better:

China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be Chinese economic overcapacity.

And the consequences of overcapacity?

In economic terms, the prices of Chinese exports will probably fall, as overextended businesses compete to justify their capital investments and recoup their losses. American businesses will find it harder to compete with Chinese companies, and there will be deflationary pressures in both countries. And even if the Chinese are selling more at lower prices, they may be taking in less money over all, so they may have less to lend to the United States government.

This is doubly troubling since it may represent another deflationary pressure on the global economy, which could result in additional economic chaos; on the fiscal front it represents the possibility of an abrupt reduction in the flow of the funds we are counting on to continue federal expenditures. A reduction that is imposed by economic conditions in China and that may not be easily reversed even if the Chinese leadership desired to do so.

Cowen ends imploring us not to be lulled into a false sense of security by the current low borrowing costs. He also warns that for all the worrying we have done lately about a rising China and a fading America, a weakening of the Chinese economy may be more dangerous.

I bet EF Hutton never gave advice like this

Tyler Cowen gets this question:

Suppose you were given a large amount of money (say $10 million) and you wanted to make sure that you would remain (relatively) wealthy in as many future states of the world as possible. Where would you invest it? Remote arable land? Organizing a cult of followers?

To which he replies:

If you have $10 million, the safest thing to do is to diversify across currencies, buy government securities of various kinds, hold $1.5 million in gold, and otherwise not invest at all. Oh yes, invest in some cheap hobbies. In a real crunch remote land is worthless -- transport costs -- and your cult followers are as likely to betray you as not.

Creed's advice for aspiring cult leaders:

Reid and the Rule of Law

Tyler Cowen of Marginal Revolution:

Harry Reid is telling the Senate Judiciary Committee that the real reason health insurance is so expensive is that they're evil monopolists...

There is talk of repealing the antitrust exemption enjoyed by the insurance industry. Whether the exemption is a good idea or not, I do not know. The relevant event is that the insurance industry seems to have turned against Obama's health care reform. Everyone who cares about American democracy and rule of law should be complaining about Harry Reid, Patrick Leahy and their allies in this move. So far I don't hear the outcry.

Set aside for a minute whether or not this is a good idea. Is it a good idea politically? Is Reid ready to hurt his personal chances in order to advance the Democrat agenda?