for national prosperity. I found this post pretty interesting since a number of my clients are dentists and for the last couple of years they’ve been complaining about slow business. While the recession and the (lack of) recovery certainly has something to do with it, I think they’re in part victims of their own success. Water fluoridation, early care, and self-maintenance are paying off in terms of lower demands for the services of dentists. During the boom times they made it up via aggressive sales of cosmetic services but those have fallen off along with other, related product classes.

Basically, they’re underestimating the long-term effects of demographics coupled with effective public health measures. The pre-fluoridation generation is dying off and the Baby Boomers have healthier teeth.

Possible relationship with the up-tick in the incidence of thyroid cancer is a subject for another time.

The other day I was looking at a graph of oil prices denominated in ounces of gold over the last four or five years. I recognize that consumer prices aren’t a particularly good way of measuring inflation but it suddenly occurred to me that when commodity prices rise, more or less in lock step, that’s a pretty fair measure of inflation. It certainly doesn’t look like the numbers coming out of the Fed.

Euroskeptic Ambrose Evans-Pritchard’s most recent column in the Telegraph is causing heads to explode all over the more Austrian-oriented sections of the econblogosphere. Here’s the meat of the column:

The eurozone economy is in imminent danger of crashing into deflation, bringing down the whole interlocking edifice of sovereign debt and distressed lenders. And bear in mind that Europe’s bank nexus — including the UK, Swiss, Scandies — is €31 trillion. Big stuff.

This crisis can be stopped very easily by monetary policy, working through the old-fashion Fisher-Hawtrey-Friedman method of open-market operations to expand the quantity of money, ideally to keep nominal GDP growth on an even keel.

That’s quite right. It will end the crisis. Unfortunately, it won’t do much about the problem which is the euro itself.

Mike Shedlock responds:

Pritchard clearly has it in for Germany. Why I do not know.

What’s disappointing about his article is that he predicted well in advance that the Euro experiment would end in failure. Rather than bask in the glory of being correct early and often, he has now lost his mind attempting to save the unsaveable.

If that’s not losing one’s mind, what is?

and then quotes at length from a post by Steen Jakobsen, chief economist at Saxo Bank.

Let me make my own views clear:

• I don’t think the euro should exist.
• The euro is functioning as designed (boosting German exports at the expense of Greek, Spanish, Portuguese, etc. development).
• Most of the kerfuffle of the last several years over the euro has been a desperate stab at saving French and German banks from their excessive exposure to Greek, Spanish, etc. debt.
• The only way to make the euro “work” is for Germany to, in effect, export a substantial chunk of its GDP to Greece, Spain, etc.
• That’s politically impossible in Germany and will remain so as long as the Germans maintain their “thrifty, hard-working Germans vs. lazy, spendthrift southerners” prejudice.
• The primary objective of U. S. policy in this matter should be reducing the exposure of U. S. banks to European debt.

That’s why I was intrigued by Brad DeLong’s radical proposal for Fed action to reduce U. S. exposure to the euro. Rather than doing that the Fed seems to have maximized its own exposure to the euro.

So, here’s my question. What are the implications for the U. S., Japanese, and Canadian economies if the euro simply ceases to exist? By that I mean no value, unredeemable. I’m thinking, in particular, of the impact of the Fed’s swaps. There’s a range of possibilities all the way from “not much” to The Road Warrior.

one bond auction at a time. The central banks of the United States, Japan, the United Kingdom, Canada, Switzerland, and the European Central Bank have announced a coordinated effort to prop up the euro:

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

The word for today, apparently, is “coordinated”. I’m seeing it pop up everywhere.

There has been a flurry of commentary on the central banks’ moves. I note with some satisfaction that former Fed governor Randall S. Kroszner at Freakonomics has seen the analogy between the situation that the members of the EMU face and that of the various states under the Articles of Confederation in 1780:

In all of this, it is crucial that the ECB be able to maintain its independence and credibility. The ECB can provide liquidity support to the banking and financial system, both through short-term and longer-term lending, much as the Federal Reserve did during the crisis. Encouraging European banks to obtain dollar funding through the Fed-ECB swap line arrangement would also reduce liquidity pressures that could spill over to U.S. institutions. Simply having the ECB buy the debt of troubled member states, however, will not solve the fundamental fiscal and governance problems that are necessary to sustain the Euro. Otherwise, we run the risk of “Not worth a Euro” replacing “Not worth a Continental.”

Megan McArdle see the moves as just another Band-Aid:

This is a band-aid. It’s a good band-aid. But making it easier for local banks to borrow in dollars does not, in the end, fix any of the problems with the euro-zone. It just delays the rate at which the current sovereign crisis turns into a banking crisis.

I think it’s somewhat less than a Band-Aid. It’s just trying to prevent retreat from turning into a rout. The bankers are merely trying to get through the next bond auction. What will they do for the next? Or the next?

I began drafting this post as a sort of lament. Contrasting how we have handled economic policy following the financial crisis of 2008 with other things. So, for example, if we handled economic policy the same way we do disaster relief when a hurricane struck the Florida Gulf Coast, we’d rush aid to all fifty states.

After noodling on this a bit I realized that we handle all sorts of things including housing, foreign policy, transportation policy, and any number of others exactly as we have economic policy. Discouraging thought.

After reflecting on it a bit more, I thought I’d try coming at the subject a different way. Physicians distinguish between acute care, the short-term treatment for a severe injury or episode of illness, and chronic care or long-term care as would be provided for diabetes, hypertension, or asthma. If policy-makers were treating the consequences of the collapse of the housing bubble as acute care, attention would have been focused on the handful of states, indeed, the handful of counties in those states, that have experienced serious problems. After all, by far the most intense collapse has occurred in just a handful of states: California, Nevada, Arizona, Florida. Other states, like New York, Virginia, Texas, and my own state of Illinois have not experienced anything remotely similar. Much of what we’re experiencing here are self-inflicted wounds and the consequences of the collapse where there actually is a collapse.

So, here’s my question. Should the policy response be one of acute care or chronic care and why? Or, if the answer is “both”, of what should each consist?

See here for the details.

I don’t disagree with John Tamny that John Malone, John D. Rockefeller, Steve Jobs, Keith Richards, and the others he cites worked hard and took risks. However, I don’t think he’s telling the whole story.

So, for example, he doesn’t mention cable TV’s dependency on local monopolies and its symbiotic relationship with local governments, John D. Rockefeller’s paying someone to serve for him in the Civil War while he built his business on the bones of companies that struggled because of the war and Standard Oils’s illegal use of monopoly power, corporate espionage, and exploitation of the legal system, that Apple Computer only survived because of the copyright system and its enforcement in the courts (see Franklin Computer), and that the Rolling Stones depended on copyrights for their livings while becoming tax refugees from the system on which they were dependent. I don’t begrudge any of them what they earned from hard work and entrepeneurship. I do begrudge them the difference between that and what they earned on top of it through cowardice, sharp trading, rent-seeking, illegal conduct, and evasion.

Bringing that story forward to the present day I don’t begrudge today’s Wall Street bankers what they’ve earned from hard work. My neighborhood is a favorite for commodities traders so, goodness knows, I’m aware that traders work hard. They’re frequently burned out after a few years.

However, I do begrudge them the difference between what their hard work has earned and what they’ve realized due to subsidies. How many of the .1% would be bankrupt without those subsidies or the lax enforcement of regulations? That’s the other half of the story.

I recommend that you take a look at financier and disappointed Obama supporter Leon Cooperman’s letter to the president. Here’s the meat of it:

People of differing political persuasions can (and do) reasonably argue about whether, and how high, tax rates should be hiked for upper-income earners; whether the Bush-era tax cuts should be extended or permitted to expire, and for whom; whether various deductions and exclusions under the federal tax code that benefit principally the wealthy and multinational corporations should be curtailed or eliminated; whether unemployment benefits and the payroll tax cut should be extended; whether the burdens of paying for the nation’s bloated entitlement programs are being fairly spread around, and whether those programs themselves should be reconfigured in light of current and projected budgetary constraints; whether financial institutions deemed “too big to fail” should be serially bailed out or broken up first, like an earlier era’s trusts, because they pose a systemic risk and their size benefits no one but their owners; whether the solution to what ails us as a nation is an amalgam of more regulation, wealth redistribution, and a greater concentration of power in a central government that has proven no more (I’m being charitable here) adept than the private sector in reining in the excesses that brought us to this pass — the list goes on and on, and the dialectic is admirably American.

Even though, as a high-income taxpayer, I might be considered one of its targets, I find this reassessment of so many entrenched economic premises healthy and long overdue. Anyone who could survey today’s challenging fiscal landscape — with an un- and underemployment rate of nearly 20 percent and roughly 40 percent of the country on public assistance — and not acknowledge an imperative for change is either heartless, brainless or running for office on a very parochial agenda. And if I end up paying more taxes as a result, so be it. The alternatives are all worse.

But what I do find objectionable is the highly politicized idiom in which this debate is being conducted. Now, I am not naive. I understand that in today’s America, this is how the business of governing typically gets done — a situation that, given the gravity of our problems, is as deplorable as it is seemingly ineluctable. But as president first and foremost and leader of your party second, you should endeavor to rise above the partisan fray and raise the level of discourse to one that is both more civil and more conciliatory, that seeks collaboration over confrontation. That is what “leading by example” means to most people.

Well worth a read.

An American ghost city! If the Chinese can build ghost cities, so can we, gosh darn it.

After laying out his case that what ails our economy now is a coordination failure, Laurence Kotlikoff, Boston University economics professor and senior economist at the President’s Council of Economic Advisers under Ronald Reagan, puts the “lure” in “coordination failure”:

Let’s have the government allocate 20 of its more than 10,000 square miles of public land to build a charter city. We can call it Romerton after New York University economist Paul Romer, who is organizing a charter city for Honduras.

With our country’s population slated to explode by more than 130 million (today’s population of Japan) by the middle of this century, we’ll need new cities to avoid horrific congestion in existing ones. Building Romerton can usefully employ 2 million out-of-work construction workers who won’t otherwise find jobs. And our remaining 27 million unemployed or underemployed people can readily find work with businesses that the new town will attract or the government can establish. Over time, the government would sell its ownership claims to the land, buildings and companies that it helped develop, and could even turn a profit.

We already have a ghost city: Detroit. If we’re going to employ 2 million workers on a make-work project, why not do it where it could do some good right now rather than in the middle of the next century? Detroit is crying out for re-landscaping, finding a way to turn a collapsing shell that once was a city of nearly 2 million souls to one of fewer than three quarters of a million, less than half its former size.

I’m concerned that Dr. Kotlikoff doesn’t appreciate that we have just been through a speculative bubble in housing. The economic damage done by a bubble isn’t just that prices rise into the stratosphere and then reverting to the mean, injuring investors who bought at peak. It’s the misallocation of resources. In this case we have far too large a residential housing construction sector, commercial construction sector, and financial sector than we should. The objective of policy should be softening the re-allocation, not preventing it from occurring.

We already have hundreds of thousands, possibly millions of unsold and unoccupied units. Building Romerton won’t just employ those construction workers. If it’s effective it will further reduce the value of the existing unsold housing stock in Southern California, Nevada, Arizona, and Florida. If it’s not effective, we’ll have our very own Ordos.

I assume that Dr. Kotlikoff also wants to waive environmental impact statements on all of that construction in federal lands and the roads and so on leading to the construction. Otherwise, what he’s proposing will be a dozen years into the future.

If we’re going to relax environmental impact requirements, there are already any number of energy sector projects that are “shovel-ready”. A bird in the hand is worth two in the bush, no?