Via Ryan Avent and Paul Krugman, Goldman Sachs has a chart showing the impact of the US fiscal stimulus of 2008-2009:
Basically from the last quarter of 2009 onwards, fiscal policy acted as a brake to the economy, not as a boost. And monetary policy was not much better.
If you want a more wonkish look at this, there’s an interesting paper on NBER I pointed to last year. And Malaysia’s fiscal “stimulus” of the same period was not much more effective.
Chris Sebrowski argues that whether or not we’re coming up against geological peak oil, we’re likely to come up against economic peak oil first (excerpts, emphasis from source):
A Brief Economic Explanation of Peak Oil
For a number of years there has been an arid debate between economists and geologists about Peak Oil. The geologists maintain that Peak Oil (maximal production) is a geological imperative imposed because reserves are finite even if their exact magnitude is not, and cannot be, known.
In contrast many economists maintain prices will resolve any sustained supply shortfalls by providing incentives to develop more expensive sources or substitutes. The more sanguine economists do concede that the adaptation may be slow, uncomfortable and economically disruptive.
The reality, I believe, is that both groups have part of the answer but that Peak Oil is, in fact, a complex but largely an economically driven phenomenon that is caused because the point is reached when: The cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. While hard to definitively prove, there is considerable circumstantial evidence that there is an oil price economies cannot afford without severe negative impacts.
The corollary is that if oil prices fall back to and sustain levels that do not inhibit growth, then economic growth will resume, with both recoveries and downturns lagging oil price changes by 1-6 months.
The current failure of most western economies to achieve anything more than minimal growth this year (2011) is most likely because oil prices are already at levels that severely inhibit growth. Indeed, research by energy consultants Douglas-Westwood concludes that oil price spikes of the magnitude seen this year correlate one-for-one with recessions...
Three months and counting (exceprt):
25-member wage council to hold first meeting today
PETALING JAYA: The 25-member National Wage Consultative Council will have their first meeting today after their appointment ceremony, bringing the much anticipated discussion about minimum wage into reality.
The minimum wage policy is expected to come into effect at the end of this year despite its initial setbacks.
Human Resources Minister Datuk Dr S. Subramaniam said the 25 members would be appointed into the council today in a simple ceremony at the ministry’s Putrajaya office.
I wonder if there will be any avenue for public feedback, or if the NWCC will use close door sessions. In any case, the long awaited process to implementing a minimum wage(s) for Malaysia has begun.
As I covered in the last update, the borrowing binge of the last quarter was largely due to the need to rollover maturing debt from 2008. Although the pace of borrowing has not slackened, redemptions hit RM23.2 billion in 2Q, mostly in April (RM millions):
This is likely to be a continuing feature over the next year or so, as that covers the period between the onset of the commodities bubble of 2008, and the borrowing to cover the shortfall in tax collection during the trough of the recession.
One of the ways of handling the Euro (and US) debt crises is slowly coming into focus – inflate it away. Since public debt is denominated largely in nominal historical terms, but public revenue is paid in current terms, inflation effectively reduces the debt burden. It’s an inequitable solution because it favours debtors over creditors, but it has traditionally been one of the main avenues for public debt relief – about half the reduction in the debt to GDP ratio after WWII was due to inflation (the other half from growth).
Since growth is obviously going to be lacking in developed countries over the near future, the inflation weapon is slowly moving into mainstream discussion:
Higher Inflation: Scourge or Savior?
The Federal Reserve and other central banks ponder benefits of higher pricesWith consumer prices up 3.8 percent in the 12 months through August, you might think the Federal Reserve’s rate-setting committee would be taking stern action to lower inflation. Far from it. On Sept. 21 the Federal Open Market Committee announced it would make monetary policy even looser through what economists have dubbed “Operation Twist”—switching $400 billion worth of its Treasury holdings from short-term securities into long-term ones in a bid to bring down long-term interest rates.
From the World Bank blog:
Family planning, healthier economies
Countries like South Korea and Thailand have seen similar demographic formulas work to their advantage in recent decades: falling fertility rates lead to burgeoning adult working populations lead to greater economic productivity.
Funny how the subject keeps popping up. First the IMF, then this lovely history lesson from Prof Frances Wooley (excerpt):
Stephen Gordon recently posted an excellent analysis of trends in income inequality in Canada and elsewhere. Stephen, like almost all of the other authors cited in his post and the subsequent discussion, measured inequality using the Gini coefficient.
The very next day, I saw a paper by Francesca Greselin arguing that the Gini is inferior to the new Zenga inequality index and should be replaced.
Talk about deja vu all over again. Various limitations of the Gini inequality index have been known for years. Tony Atkinson described some and proposed an alternative to back in 1970; other indices for measuring inequality are the Theil index, and the Hoover index. Greselin and co-authors set out new arguments, and make a convincing case for replacing the Gini. But I don't expect to see the Zenga index in wide use any time soon.
We keep on using the Gini because that's the way people have always done it. But why did people even start using the Gini in the first place?...
In today’s the Star (excerpt):
IN just over two weeks, the Budget will again be presented to the people and like always, Malaysians will be wondering what goodies the Finance Minister will have in his briefcase for them…
…Realism, however, dictates that the giving will be hamstrung by the state of finances.
Dishing out more tax cuts, waivers or rebates could mean less tax collection in the future and with the Federal deficit expected to hit 5.4% this year and at around the 5% range for Budget 2012, the realism of public finance is that more money will need to come in before money is lavished elsewhere.
Yesterday’s release of the August CPI numbers was a mixed bag – on the one hand, in the biggest weighted items of food and transport cost increases went almost flat, but on the other, many other expenditure items went up in price (log annual and monthly changes; 2000=100):
The July employment numbers point sustained relative strength in both demand and supply:
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