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Restructuring, Revisited

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How is that economic recovery going?  It may not feel like much, given that it’s progressing far more slowly and cautiously than after any other postwar recession.  One of the themes we’ve been discussing for over four years is that given that the downturn was of a different kind, the upswing will be different as well.  The term offered was “restructuring”, meaning that the economy we’re evolving towards is going to be very different from the one that spent the 2000s sputtering and failing.  That takes time and effort.

The term is starting to catch on outside of Barataria as investors find opportunity in the new industries that are going to grow and prosper in this new world.  That’s great progress.  But as we’ve noted many times, the real restructuring takes a broader social, political, and legal reformation and agreement that has been woefully slow to develop.  Enter Niall Ferguson, a Harvard History Prof and conservative bad boy to offer some new ways of looking at the growing malaise in the developed world in his forthcoming book, “The Great Degeneration: How Institutions Decay and Economies Die.”  His points are worth discussing, especially on the left, because they offer some new perspective and potentially more fruitful debates than we’ve been having so far.

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Urbi et Tweeti

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Can twitter save the world?  Probably not.  But when the tweets are “Urbi et Orbi” it’s pretty likely they will be retweeted.

Over the last six weeks Pope Francis (@Pontifex) has delivered 140 characters of worldly homily nearly every day, but none of them have been as noticed as his message for 2 May – “My thoughts turn to all who are unemployed, often as a result of a self-centred mindset bent on profit at any cost.”  A small firestorm was created on the ‘net … well, the usual internet people behaved in an internet way about it and got their 140 getback.  Whatever.  But what matters is that Pope Francis is emerging as a leader for the rights of the downtrodden at a time when such leaders are needed – and is emphasizing things that reach out to embrace a slightly bigger world of the meek.

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Buy in May, Let it Play?

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It’s May Day, and it’s more than the traditional first day of (real) Spring and the worker’s holiday.  It’s also the day that the old stock market adage “Sell in May and go away” kicks in.  Why is that?  It’s hard to say exactly why, but Wall Street traditionally takes a long summer break.  The S&P 500 since 1928 has risen on average 1.83% from May to October, but 4.98% from November through April.  The summer is also a period of high volatility and danger, so smart investors often skip the warm seasons.

Not this year.  The huge rise of 9.3% in the S&P 500 so far in 2013 might be enough to scare some people into profit-taking, getting out while the getting is good, but many advisers say you should stay in this year.  That includes Nouriel Roubini, better known as Dr. Doom, the New York University Econ prof who famously predicted the housing crash.  The faith in the stock market is impressive, but is it realistic?

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Cheers for the Underground Economy!

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“Since we decided to adopt the leaf as legal tender, we have all of course become immensely rich.  But we have run into a small inflation problem owing to high leaf availability. That means the current rate is something like three major deciduous forests buy one ship’s peanut. In order to obviate this problem and revalue the leaf, we’ve decided on an extensive campaign of defoliation and burn down all the forests. I think that’s a sensible move, don’t you?”
– The Management Consultant to Fintlewoodlewix (later called Earth) – “Hitchiker’s Guide to the Galaxy”

It’s good to have a lot of money, assuming that not everyone has a lot.  Inequality is apparently bad when it gets too big, but it also makes the whole economy possible in small doses.  But how much money is really out there, and where is it going?  It turns out that this is more complicated – and hidden – than most thought.

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A Capital Idea

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Borrowing money isn’t bad.  When it’s used to purchase something big that will last for years, like a house or a car, it often makes sense to do it now and pay the finance charge.  Borrowing to buy equipment or a build to be rented is an investment – as is borrowing money to learn a good trade.

When we look at how the Federal government borrows to keep itself going we can and should be able to ask the same questions – was this an investment?  Did we get anything good for the money?  Unfortunately, the accounting practices used by the Feds lump capital and other investment into the same pot as operational expenses, making it impossible to tease everything out.  It’s a procedure the Founding Fathers would recognize, if you wanna get all Tea Party on the practice.  But it’s still a dangerously stupid way to run things – and totally counter to the way any business or state is run.

As we talk about the need for serious reform in Washingtoon, we should add this to the list.

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