The Principal-Agent Problem

This article exemplifies the principal-agent problem discussed in class earlier this week. The article describes to the reader how to best go about receiving disability insurance, while also shedding light on the ways disability insurance companies make it difficult for consumers to receive full payouts, such as by making it more difficult for consumers to qualify for benefits and also by limiting payouts for certain types of diseases.

Japan Gives Downbeat Forecast, Warns of Deflation

This article from www.cnbc.com explains some of the economic woes facing Japan. After reading this, we can draw some parallels between the USA and Japan. Japan is currently facing a mild deflation of prices and large job losses across the island country. The Japanese government is depending on the Bank of Japan to help fight against the deflation and form a better monetary policy. The deflation hurts company profits because the consumer will wait to see if prices will drop more. Industrial output is increasing but core machinery orders are decreasing. This is a fragile economy with limited resources but can almost be seen as a very small reflection of the United States.

Expanding Use of Wind Power Feasible, but May Be Costly

This article basically states that by 2024, wind power would replace coal and natural gas for about 20 to 30% of the electricity supplied on the eastern part of the United States. This shift in energy, however, will obviously be very costly, but they will have a dramatic effect on cutting carbon emissions.

The new study, conducted by EnerNex Corp., of Knoxville, Tenn., is the first major effort to compare those assertions. It found that in the “reference” case, with new windmills being built to satisfy state-by-state requirements for renewable energy, yearly electricity costs in the Eastern Interconnection would be about $125 billion (in today’s dollars) in 2024. Building enough windmills in the Midwest, with matching transmission lines, would raise that to about $140 billion, and building offshore would bring costs of about $150 billion.

I thought this article was interesting since we dicussed about scarce resources and ideas today, which this article is a good combination of the use of both of them.

Landesbank Losses May Bring Change to German

http://www.nytimes.com/2010/01/12/business/global/12landesbank.html

The mishandling of funds by Bayerische Landesbank, a state-owned German bank based in Munich may bring change to the German banking system. Being a state-owned bank, BayernLB has resulted in cries from rivaling commercial banks, economicsts and European Union antitrust regulators to reevaluate the German banking system. BayernLB has been forced to scale back their operations, essentially resulting in more space for private-sector banks such as Deutsche Bank and other commercial banks to step in and have more impactful positions in the German economy. Although Germany is currently the largest economy in Europe, their big banks have the lowest profit margins among Western European countries.

The mistakes by BayernLB have forced for a larger separation between government involvement in the banking sector and will eventually result in the restructuring of the banking system in Germany.

China's growth rate

This article talks about how China may be growing at too fast of a rate to sustain. It is consistent with Romer's podcast because it supports the notion that China is growing so quickly due to it's ability to copy technology that already exists. While the Chinese government is concerned with strengthening domestic demand, the article goes on to discuss why withdrawing their current stimulus measures may not be such a bad thing.

Glassmaking Thrives Offshore, but Is Declining in U.S.

The decline of glassmaking in America started gradually in the 1990s and accelerated during the Great Recession. What’s more, the big companies, like Corning and Guardian Industries, say that even as the economy improves, they are unlikely to bring domestic employment and production back to prerecession levels. Imports, for one thing, inhibit sales. And bigger profits lie abroad, so they are channeling investment and expansion to their overseas factories.

“Those who are looking through the rearview mirror, waiting for the glass industry in this country to come back, should know it isn’t going to come back, not the way it was,” Russell J. Ebeid, Guardian’s chairman, said in an interview.

In War Against the Internet, China Is Just a Skirmish

I thought this article is a good addition to the previous post- "Google's Threat Echoed Everywhere, Except China". This article touches on how other countries such as South Korea and France, are attempting some form of internet censorship. The UK is looking with interest on how France's law on allowing Internet connections to be cut off if a user is pirating copyrighted material. There appears to be an increasing belief among media companies and governments that "curbing some freedoms is necessary to foster the development of legitimate business on the Internet".

It will thus be interesting to see how this will pan out in different systems, each having its own unique set of cultural norms.

The Beginnings of the Real Recovery?

A report published Friday by the Federal Reserve Bank of New York indicated that manufacturing had expanded beyond expectations in the region during the month of January, pointing to gains in production as a cause of the lifting economy.

The New York Fed's general economic index rose to 15.9 from 4.5 in December, and readings above zero signal expansion in manufacturing in New York State and parts of New Jersey and Connecticut. Lean inventories combined with gains in consumer and business spending have led the turnaround in combination with strong growth in export demand, which has showed seven straight months of improvement as of November, on the back of a relatively weak U.S. dollar.

Inflation Remains Tame, With a Warning Sign

Holiday discounting helped keep inflation at bay in December, but fresh data on the state of U.S. industry suggest price pressures could yet become an obstacle to recovery.

The Labor Department reported Friday that its index of consumer prices rose a tame 0.1% in December from the previous month, held down by decelerating fuel prices and declines in the prices of items such as toys, televisions and new cars. In a reflection of the depth of the recession and a sharp drop in oil prices, the index average for all of 2009 was 0.4% lower than in 2008.

Subsidies Help Missouri Cotton Farmers

Missouri’s Bootheel cotton country has been given millions in federal farm subsidies to help against the recession. Four of the top 50 cotton-growing counties are included in Missouri’s Bootheel. These counties that are heavily dependent on agriculture have a per capita income that’s at least 30 percent lower than the U.S. average. Thanks to the $70 million in subsidies given in 2008, cotton could be grown and harvested this year. However, critics of the subsidies say they don’t produce enough jobs and that much of the money farmers spend goes to fertilizer and pesticide makers outside the Bootheel area.

How Wall Street boldly saved big exec bonuses

This article is about Wall Street's large firms first being saved by the government and the taxpayer's money and still paying out huge bonuses after the fact. The stipulation was that as long as the banks pay the TARP funds back they are free. With BofA leading the charge and others following, huge bonuses were and still are being paid out even without support of President Obama who called it obscene. However, the real question to contemplate is why these firms are paying it out instead of investing or saving it. Firstly, they are making huge profits now - not even through lending- which is their bread and butter, but through investments and trading. So, if most of their profits are coming from investments, the investment managers should be compensated right? Well the banks think so because they do not want to lose these people or "assets" as some CEO's may think of them. The article describes the whole situation after the 4 major bank CEO's went to Congress to explain their case and get reprimanded for the bonuses: JP Morgan, Goldman Sachs, Bank of America and Morgan Stanley were the banks.

Good News

This article discusses how firms have started to spend more money on public relations as a whole. Spending rose 4% in 2008 and 3% in 2009. Much of this has come in the wake of the global recession. Companies have faced negative press in the wake of government bail-outs and huge company bonuses. This negative press could easily bring down a company. In a capitalist economy, only companies that can stay popular and sell products will survive. Those who cannot will be forced to leave the market.

Staying in a positive light is getting harder. Besides the aforementioned bad press, traditional media is dying out. There are less reporters reporting on business in traditional media. This makes it much harder to get positive stories into the press. In addition, companies need to deal with new media on the Internet that allows people to post whatever they want. Companies must now worry about blogs like this one and take action to fight negative press. This greater need for public relations and media monitoring is surely to continue even when the economy improves. Doing business in the capitalist economy is bound to change very soon.

Dubai trying to get some respect back

This is a good article on cnbc.com which talks about the U.N. possibly relocating to Dubai. After reading this one has to wonder, what are the implications of this to the U.S.? Dubai sure has a lot of empty real estate in those new towers but will New York allow this to happen? I was not aware that New Yorkers were looking down upon the U.N.. I suppose it is a privilege to have it in this country and I hope the global organization stays here.

Iraqi oil may rival Saudi Arabia

Iraq sits on at least 115 billion barrels of proven oil reserves (not including what may be in unexplored desert areas), and is the world's third-largest behind Saudi Arabia and Canada. Today, Iraq produces about 2.4 million barrels a day. By 2017 Iraq is aiming to produce 11.65 million barrels a day. There are major obstacles to overcome that stem from decades of mismanagement, sanctions, and war. This article delves deeper into the current and future challenges Iraq faces in the oil industry.

How the Glazer family have milked debt-ridden United for millions

This is for all of you who follow the other football...this article talks about how one of the world's most famous sport clubs is on the brink of collapse because of debt accumulation by the owners of the club. One of the problems that has been brought up by the Glazer ownership of Manchester United is that England allows foreign ownership of their sport clubs whereas other European clubs, despite operating in the same European Union economic regulations, only allow domestic ownership. This, coupled with the massive debts incurred by Manchester United and fellow football clubs, has led to fears that these 'superclubs' will collapse and destroy a large part of the sport in England.

For those of you who follow English football, these developments could be very disheartening and need to be watched. For those of you who are more interested in American sports, one of the things that have been argued for to control costs in Premier League and other European clubs is the concept of a salary cap. Since the ownership structure in leagues such as the NFL and NHL is more centralized than the virtually anarchic, winner-take-all system in the EPL, a salary cap is more difficult to enforce. How to reconcile the decentralized structure with the need to control costs is also an interesting thought for any system, be it a nation or a group of soccer teams.

Google’s Threat Echoed Everywhere, Except China

This article discusses how Google plans to stop all cooperation with the Chinese Internet censorship program, and is considering shutting down through out the country. The Chinese, however, heard a very censored version of this news.

I thought this was very interesting and especially related to our discussion today in class about economics systems, and how there are so many different ones. This is also an interesting topic about public choice. It would be interesting to see how censored our news is and we might not even know it.

Many Reluctant to Hire Because of New Taxes, Rules

A potential wave of new regulation and higher taxes may be scaring many businesses from hiring, prolonging any rebound in employment, say business groups and economists.

The prospect of increased federal and state regulation and taxes has been particularly disruptive to the hiring plans of small- and medium-sized businesses, which have historically generated about two-thirds of the nation's jobs.

G.M. Plans to Close Saab After Sales Talks Collapse

This article discusses how GM has been struggling to find a buyer for Saab.  The company is trying to find a good buyer that can serve the needs of Saabs loyal customers as well as increase the economies of scale.  I wonder how this will effect Saab owners service costs and parts replacement

Crash and Carry

This article discusses new research regarding the possibility to make steady profits from "carry trade." Carry trade describes a certain foreign exchange trading scheme where borrowing cheaply in a “funding” currency can exploit high interest rates in a “target” currency. This is pertinent because the U.S. dollar has recently become a prime currency for carry trade (due to the recession and America's near-zero rates).

Debtor's Dilemma

With the value of most home mortgages being greater the actual value of their homes, homeowners are deciding on an option to stick with the mortgage payments, or declare a foreclosure. Could mortgages be linked to unemployment? The continual decrease in value of homes and their mortgage holding a higher value then their home is related to homeowners inability to move. Homeowners often move due to job opportunities that have become available. With their inability to move, this affects their ability to choice. Would declaring a foreclosure have more benefits then the long-term costs?

Banking in Venezuela: Fall of the Boligarchs

Hugo Chavez is looking for people to blame as Venezuela declines into a further economic recession. He has jailed several big bankers in an attempt to solve the dilema, however just that was is unknown. If Chavez continues on this path of attacking private banks, he will scare off investment in the future and worsen the economic situation. In addition, his repressive techniques make for an unstable and often violent environment, which studies have shown do not promote growth.

Introducing a Twitter for Credit Card Purchases

Not really sure how this is going to make money and I think it's a little strange that people want to share their credit card purchases.  I wonder how the company insures privacy

Stocks, Oil Advance as Dollar Weakens Before Fed Sets Policy

On December 16th, US and European stocks rose on speculation that the Federal Reserve will announce its plans to sustain a record low interest rates for an extended period. The S&P 500 index went up by 0.6 percent, the European Dow Jones Stoxx 600 index gained for a fifth straight day, Russia’s Micex index jumped 4.2 percent, oil surged above $73 in New York, and copper and gold rose as well. It is very likely that the Fed will keep interest rates low for the next few quarters. It will be known soon whether this will be the Fed’s strategy or not.

Fighting Poverty in Emerging Markets

The article talks about combating poverty in China, India, and Brazil. The author states that in 1981, 84% of China’s population was below the poverty line; while in 2005 the share was just 16%. India did least well, cutting the share below the poverty line from 60% to 42% between 1981 and 2005. This implies an annual reduction of 1.5% a year. Although the three countries did very well in fighting poverty, now they face certain problems. According to the author, India and China now see growing inequality. In India, this is especially affected by the legacy of the caste system. I think that for China now it is natural to see more inequality as it is transitioning to a market economy, which implies a certain level of inequality that may be even called a market failure. However, since the transition is gradual, the negative effects are greatly reduced.

Poll Reveals Trauma of Joblessness in U.S.

This article puts faces to the unemployment numbers that continuously come up on this blog.  The article examines the psychological effects of unemployment on families.

Rusal, an Aluminum Maker, Strikes Restructuring Deal With Creditors

This article by Andrew Kramer talks about the restructuring of the debt of the Russia's aluminium giant - Rusal, which is the remains of the Chernoy's aluminium monopoly. Rusal is the largest aluminum producer in the world, which is struggling under $16.7 billion in debt. Now it has agreed with about 70 banks to restructure its loans and begin repayments when earnings improve. "The deal, apparently on lenient terms for Rusal and its owner, the Russian oligarch Oleg V. Deripaska, also clears the way for Rusal to take the next step back from the brink of bankruptcy: selling 10 percent of the company in an initial public offering this month." The unavoidable question is, whether this initial public offering is going to really improve the situation since from the Russian experience it is unclear, who is going to own these 10 percent?

The article also displays the struggle of the Russian industry, which, as a legacy to the Soviet Union, is extremely inefficient and corrupted. Most of the Russian industrial giants are currently undergoing the same problems, which mostly lie in the systematic deficiencies of the Russian economy.

Obama tells US banks to lend more and not oppose reform

President Obama is telling bankers to lend loans to small and medium sized businesses. Obama also criticized the lobbyist during his meeting that they are trying to stall down his administrations financial services sector's reform and stop trying to block his moves for regulatory reform.

British Airway crews vote to strike

British Airways holiday travelers face the prospect of some holiday season chaos after cabin crew members voted to strike for almost two weeks over Christmas and New Years. This is in response to British Airways introducing cost-cutting measures including a two-year pay freeze and reducing number of crew members on long-haul flights. If this problem isn't resolved in time it will have a huge detrimental affect upon British Airways and it would disrupt many passengers who have already made flight arrangements with British Airways or have connections that must be made. Furthermore, the holiday season is usually a time when airlines are the busiest and there will be huge fiscal implications if British Airways misses out. So to all of you British Airways holiday fliers out there... sucks to be you.

Summers Predicts Job Growth by Spring

President Barack Obama’s top economic advisor, Lawrence Summers, predicted that jobs will start growing again in spring 2010. According to the most recent statistics, there are 15.4 million people who are looking for jobs now. Mr. Summers said that “everyone agrees that the recession is over.” However, everyone believes that the recession is going to be over only when the unemployment rate will return back to its normal level. In addition, President Obama will meet with bank executives this week to encourage them to start lending to consumers. President Obama pointed out that the government bailed out banks to keep them moving and lending money to people. It is time for banks to force themselves to lend money again.

Citigroup Nears Deal to Return Billions in Bailout Funds

Citigroup is the last of the Wall Street banks to exit the government's bailout program. President Obama is meeting with bank executives to speed up the process, in hopes to stimulate lending to small businesses and homeowners. Obama will also address the size and salaries of bank executives (for all banks), an ongoing issue throughout the crisis. Obama's goal is job creation. If big banks begin lending again, small business can fuel our recovery by hiring and rehiring employees. Though Citigroup is close to repayment, the company hasn't posted profits in seven quarters and it is unlikely to happen in 2010 as well.

Abu Dhabi gives Dubai $10bn to help meet pay debts

Abu Dhabi has given the Dubai government $10 bn to bail out the government owned company of Dubai World. The money was needed in Islamic bonds to pay to its investors and the money will help Dubai to meet short term financial commitments. This news will bring all finance markets on track in Dubai as they were negatively affected when the news of Dubai unable to pay back debt was revealed.

Islamic Finance in France

This article is very interesting because it talks about the adoption of Islamic finance principles in the European countries. The reasons for that lie mostly in the opportunity to make profit rather than in cultural motives. For instance, the author states that since the recession started the Islamic finance started to look like an "attractive business," with "worldwide sharia-compliant assets increased by 29% over the past year to $822 billion." However, the introduction of Islamic finance rules in France led to a hot debate in the government, which opposes the whole idea.

Summers Predicts Job Growth by Spring

This is an interesting article for the seniors found in the New York Times! Hopefully by the time we graduate, Mr. Summers' prediction will help us out.

Mr. Summers said that President Obama will be encouraging banks to expand the flow of credit to small businesses, which, in his opinion, is very easy to do. If that plan works, then many people will either be getting their jobs back or new jobs will be opening up. However, on OUR end of things, seniors, we will be fresh out of college with the skills needed to perform the jobs that are open.

Summers said that they are planning to create more jobs by having "every bill passed be a job bill." Obama is planning on spending $50 billion to repair the United States infrastructure.

Although republicans and centrist senators are skeptical about the plan, the Obama office seems upbeat and confident that it will work. Hopefully, for our sake, his plan works and more jobs will be created just in time for graduation!

Military use of consumer technology: War games

This article discusses the use of video games in the military. As of recently, video games are becoming very realistic. The military has used this to their advantage when they are recruiting people. More specifically, the military is going to use video-game consoles to build a supercomputer that works as an operating system. This can be used for research and development purposes. Soldiers are also using Apple’s iPod and iPhone applications to
view intelligence information. An iPhone app called Bullet Flight lets snipers calculate range and trajectory for their shots. I am glad that these materialistic things can bring some help to our troops. It is amazing to think of all of these new apps for the iPhone and the future of technology.

Paul Volcker: Think More Boldly

Does financial innovation contribute to economic growth?

That became a hot debate at the Future of Finance Initiative after former Federal Reserve Board Chairman Paul Volcker chastised the largely private-sector group for the timidity of its proposals, and said the ATM was the only financial innovation he can think of that has improved society.

Fixing the Global Financial System

More than a year has passed since an unprecedented crisis pushed the world financial system to the brink.

Yet plans to rebuild that system on more stable footing remain embryonic. Differences among regulators, businesses and governments have slowed reform plans. And hefty bank profits, fed by easy credit and government aid, have drained the sense of urgency.

Which Globalization Will Survive?

Although this article was written last April, it is relevant to the European Union's current environmental discussions in Copenhagen.  Joseph Nye actually came to speak at Ohio Wesleyan last year.

Paul A. Samuelson, Groundbreaking Economist, Dies at 94

This article outlines the many contributions that Paul Samuelson made to the study of economics.  Some of his contributions include being the first American Nobel Laureate in economics, improving the Massachusetts Institute of Technology graduate programs, and explaining Keynesian economics to President Kennedy.  The article is a nice obituary to a renowned economist.

China's President Hu Jintao opens Kazakh gas pipeline

China and Kazakhstan open a gas pipeline and a new relationship with each other. It is an attempt by China to make its resources more secure. It is a 4,3000 miles long natural gas pipeline which does not go through Russia. It cost around $6 bn and completed in two years. This pipeline will help the Asian countries by being less dependant on Russia buying up their supplies.

Secret sauce

This article discusses the source of China's impressive growth and attributes it not just to intensive capital investment, but also tremendous productivity gains. Many believe that China's growth has been due to investment, but research shows that the growth has also been due to more efficient uses of labor and capital.

Productivity was measured using "total factor productivity", which takes into account both labor and capital productivity. From 1990 to 2008, China's productivity grew ~4% annually, while OECD countries (US, Japan, etc) grew about 1%. The main reason for such improvement is China's rapid adoption of technology. Not only is China starting from a very low technological base, but it also strongly encourages foreign investment that brings new technology into the country.

China provides good contrast to the USSR, where despite heavy investment, the economy still collapsed because it did not result in productivity gains.