Economist Scott Sumner explains why a free-market bias isn’t easily dismissed in analyzing cause and effect in economic history since 1980. He offers some data in support of his hypothesis “that neoliberal reforms lead to faster growth in real income, relative to the unreformed alternative.”
You can’t really “prove” anything in economics, of course. Meantime, you can hardly swing a cat without hitting a pundit who thinks that moving toward “neoliberal reforms” over the past generation was a mistake. The Great Recession is one reason for the recent surge of doubt, even though recessions have been arriving on a semi-regular basis since the beginning of economic time. Changing the economic paradigm doesn’t change this fact. Over the centuries, virtually everything has been tried. And still the contractions keep coming. On the other hand, adjusting incentives that promote capitalism seems to boost output during periods of expansion, at least when measured over long stretches of time.
The burden of proof is one those who argue that less capitalism and more government regulation is a net plus over the long term. Where’s the evidence? There isn’t any, as Sumner’s analysis suggests.
SUNDAY EXCERPTS: 5.23.2010
Dissecting the clues for the world economy: Japanese bond yields, declining prices for equities and commodities, a divergence of opinion about local finances, the influence of American finance regulation (for good or ill), and rethinking “too big to fail” vs. “too small to diversify” in banking regulation…
FREE BOOKS
Online MBA, a website dedicated to business education and related resources, is giving away a limited number of books on its recommended list. Among the titles offered: Dynamic Asset Allocation
A NEW SEASON OF RISK AVERSION…AGAIN
Earlier this week we pondered the potential for higher deflation in the months ahead. One of the suggestive clues was the falling inflation forecast as implied by the shrinking spread between the yields on the nominal and inflation-indexed 10-year Treasuries. At the time, the market was priced for inflation at 2.13% for the decade ahead (as of May 18). A mere 48 hours later, the market-based forecast dropped sharply: Treasuries yesterday anticipated inflation at 1.89%–the first reading under 2% since last October.
NEW JOBLESS CLAIMS RISE
Today’s update on last week’s new jobless claims is discouraging, and not only because filings jumped by a hefty 25,000 for the week through May 15.
IS THE RISK OF DEFLATION RISING AGAIN?
Last week, I advised that the unusual rallies in the dollar and gold this year may be a warning sign that deflationary winds are starting to blow harder. Historically, one falls as the other rises. The fact that both are climbing suggests the markets are worried about deflation…again. Today’s report on April consumer prices only strengthens the case for thinking that the “D” risk is climbing once more. It may be a false warning, but it’s getting harder to ignore.
FINANCIAL REGULATION AND HISTORICAL RHYMES
Every financial crisis brings cries of more regulation. True in centuries past, true today. But more regulation isn’t always better regulation. And sometimes the knee-jerk reaction to do something, anything (if only to look politically astute) is a step backward.
HOUSING STARTS RISE, BUT NEW BUILDING PERMITS FALL
The housing market has stabilized. In fact, it’s safe to say that it’s rebounding. After being hammered for three consecutive years through early 2009, the trend is again friendly in housing construction. But the number of new building permits issued fell sharply last month. Is the nascent recovery in housing starts destined to follow?
MID-MONTH PORTFOLIO REVIEW
May’s shaping up to be a rough month for most of the major asset classes. The primary catalyst: debt worries. As investors become increasingly anxious over the ramifications of mounting deficit spending in Europe and throughout the developed world, risk aversion is the new new thing…again.
SATURDAY LINK LIST: 5.15.2010
Red-ink roundup: Here, there and everywhere…