Michael Malone has been writing about the technology industry, and particularly about Silicon Valley, for a couple of decades. This recent article is not very optimistic. Although Malone identifies several emerging technologies as having great potential, he fears that the basic mechanism by which new technologies are commercialized–the formation and growth of new enterprises–is badly broken.
Economics & Finance
“Turning Japanese”
Christopher Wood puts the issue well in a WSJ op-ed piece:
With the U.S. government stepping in to keep markets from clearing, today’s U.S. economy in many ways resembles the post-bubble Japanese economy of the 1990s. Ultra-loose monetary policy and low demand for credit, combined with high unemployment and consumer deleveraging, could lead to a prolonged slump.
[…]
All of the above behavior invites legitimate comparisons with post-bubble Japan, where banks took years to be cleaned up as a result of regulatory forbearance. The same kind of forbearance is preventing America’s increasingly distressed commercial real-estate market from clearing. Similarly, as was the case with Japan, monetary-base growth has exploded in the U.S. over the past year courtesy of the Fed, while bank lending is declining. This is why there is every reason to fear that America is already in a Japanese-style liquidity trap.
[…]
This is why Wall Street should make the most of the rally in U.S. stocks while it lasts. The next bubble in asset markets will not be in the West but in emerging Asia, led by China. The irony is that the more anaemic the Western recovery proves to be, the longer it will take for Western interest rates to normalize and the bigger the resulting asset bubble in Asia. Emerging Asia, not the U.S. consumer, will be the prime beneficiary of the Fed’s easy money policy.
Japan is still in the economic doldrums. Despite recent electoral turnover, its leaders shows few signs of having the understanding or guts needed to encourage the liquidation of bad assets and freeing of mummified capital. Instead of needed tax cuts and structural reforms to improve business incentives, the government will bail out JAL. This is business as usual and predicts that the economic slowdown that first took hold in Japan in the early 1990s will continue. The USA isn’t Japan but our leaders are doing their best to copy Japan’s failed Keynesian fiscal regime. The outcome is likely to be similar.
The money manager Marc Faber had it exactly right when he was interviewed recently on CNBC: As American business de-leverages, government is levering up. If we continue down the path of increased debt, bailouts, and enormous public spending that drains the risk capital out of the productive sectors of the economy, the government bubble will eventually burst, and the resulting economic crisis will dwarf the current one.
“Why Sustainability Standards for Biofuel Production Make Little Economic Sense”
This new paper (pdf) by Harry de Gorter and David R. Just, published in the Cato Institute’s journal, Policy Analysis, looks interesting.
From the executive summary:
Sustainability standards are based on “lifecycle accounting,” in which ethanol is assumed to replace gasoline; but in fact, it may be replacing coal or other energy sources. Life-cycle accounting also fails to recognize that if incentives are given for ethanol producers to use relatively “clean” inputs (e.g., natural gas), the “dirtier” inputs (e.g., coal) that might otherwise have been used for the ethanol production will simply be used by other producers to make products that are not covered by the sustainability standard. Sustainability standards reshuffle who is using what inputs—with no net reduction in national emissions.
Recession and Recovery
One of the broad assumptions behind recessions and recoveries is that during the “boom”, excess capacity is built into the system as manufacturers & service providers expand to meet increasing needs (today, and in the future). During the recession, manufacturers & service providers pare back, leaving capacity idle.
Part of the reason that the recovery (typically) gains steam is that bringing back this idle capacity (both in physical and human capital) is cheaper than building (or training) new, and it allows the economy to “roar” back into high gear. In some high level sense WW2 leveraged all of the physical and human capital that was idled by the great depression; while huge plants were built and millions of workers mobilized much of the initial lift was caused by leveraging what we had that was unused at the time.
When I look at this “boom” and recession, however, from the point of view of the USA, it doesn’t seem that we over-invested in productive capacity. Much of the investment was in residential real estate and commercial real estate for distribution, retail and services.
Money and Power, Continued
There are few ways in which a man can be more innocently employed than in getting money
–Samuel Johnson
I was reminded of this quote by something Irving Kristol wrote:
In New York the ruling passion is the pursuit of money, whereas in Washington it is the pursuit of power. Now, the pursuit of power is a zerosum game: you acquire power only by taking it away from someone else. The pursuit of money, however, is not a zero-sum game, which is why it is a much more innocent human activity. It is possible to make a lot of money without inflicting economic injury on anyone. Making money may be more sordid than appropriating power—at least it has traditionally been thought to be so—but, as Adam Smith and others pointed out, it is also a far more civil activity.