Archive for November 18th, 2008

h1

Can politicians “fix up the country”?

November 18, 2008

Lynne Kiesling

In yesterday’s meeting in Chicago between President-elect Obama and Senator McCain, Mr. Obama said that they were going to discuss how to “work together to fix up the country”. This language really rankles me. It also rankles Russ Roberts, whose comments on this remark reflect my dislike of the “fix the country” metaphor:

Yep. The country is like a house. It just needs a new coat of paint, some piering done in the basement and some dry wall replaced. This is the biggest fantasy of politics, that the country is broken or damaged and we just need to get a different contractor in charge of the project who knows more about how to do renovations. It is a dangerous metaphor and an inaccurate one. It ignores the fundamental insight of economics that there are no solutions only trade-offs. It presumes, impossibly, that we share goals as a people when in fact, virtually every government policy benefits one group at the expense of another.

I actually think Russ is being a little generous. Not only is this “fix the country” metaphor dangerous and inaccurate; it can also reflect the extent to which politicians have the hubris to believe that they can control and manage outcomes. We are living with that hubris on a daily basis right now.

h1

A shift to inconspicuous consumption

November 18, 2008

Lynne Kiesling

Even those unaffected by this economic downturn are changing their consumption behavior, a pattern seen in prior economic downturns. This New York Times article by Alex Williams gives some details on the forms that these adjustments are taking among the wealthy:

“The era of conspicuous consumption, at least for the foreseeable future, has come to a close,” said Paco Underhill, the author of “Why We Buy,” which explores the science of retail. “Consumption will still happen. It’s just not going to be as public.”

He cited a story from an Audi dealer: a buyer of an S4 high-performance sedan requested the nameplate be removed, “so only the person who really knew what they were looking at,” he said, “would know what it is.”

Today, bejeweled fashionistas are pegged as tone-deaf Marie Antoinettes. “It’s not good taste in our business to walk into a party loaded with the biggest diamonds you can find,” said Bud Konheim, the chief executive of Nicole Miller. “You don’t brag about paying $10,000 for a dress for a party. The feeling now is, so what are you telling us? You’re either a sucker or showing off when people have lost jobs.”

The article then discusses the change in consumption behavior after September 11, 2001, and also mentions J.P. Morgan’s decision to keep his yacht in the boatyard in 1932. [As an aside, if you haven't read Ron Chernow's House of Morgan, I recommend it highly, particularly given the current events in the financial industry.]

Outward austerity will now be in fashion, even for the fashionable.

h1

Global deflation?

November 18, 2008

Lynne Kiesling

Not being a macroeconomist I have little insight to contribute, but I do find October’s 2.8% decline in the producer price index quite remarkable. Not only is this the largest decline on record, it is also larger than had been forecast for October.

And, as the Bloomberg article linked above notes, the UK also experienced the largest decline in their inflation rate in 11 years.

This is certainly an economy that is hunkering down.

Follow

Get every new post delivered to your Inbox.

Join 41 other followers