Economics and Financial Markets

Minerva's series on economics and the financial markets is pubished under the name, "The One-Armed Economist."

"Give me a one-armed economist!" US President Harry S. Truman was the first in his office to appoint a council of economic advisors and he valued their recommendations. However, he grew impatient at his appointees’ tendencies to hedge their predictions by saying, “On the other hand….” In the memory of President Truman, we pledge to write these reports with the courage of our convictions.

Lies, Damned LIes and Statistics

Our title quote was popularized by the American humourist Mark Twain, who wrote, "Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: 'There are three kinds of lies: lies, damned lies, and statistics.'"

We were considering this when, in April, we watched CNBC commentators work themselves into a frenzy of optimism ahead of the release of the US unemployment figure. This was the week of the Bear Stearns bailout, tumultuous stock indices and a veritable tsunami of dire economic news, not the least of which concerned announcements of thousands of layoffs by airlines, banks and others.

Yet the CNBC anchors were somehow convinced unemployment had lessened and they outdid each other predicting how big the decline would be. Of course, in due course it was reported unemployment had grown, not declined, from 5.0% to 5.1% and the US market reacted predictably.

The lesson is that oftentimes the talking heads are simply that: just talk. But the incident also re-awoke some other fundamental concerns we have about economic figures—namely the accuracy of the picture they present. For instance, when we say unemployment is at 5.0%--or 4.0% or 6.0% for that matter—does this include just those receiving unemployment benefits? What about those whose benefits have expired and have still not found a job? What about people who have never held a job? What about people working part time who would prefer full time work if they could find it? And what about people who had been working in jobs that paid reasonably well but who are now working at WalMart or some other poorly paid position? Are there any figures that capture this income depreciation?

The Crisis in the Financial Markets 28 September 2008

The End of the American Era? It is not often one hears the same thought spoken by both Iranian President Ahmadinejad and German Finance Minister Sternbrueck. However, this past week, the former at the UN General Assembly and the latter in response to requested support of the proposed bailout plan, said the days of American hegemony are over.

We think it takes a long time to turn around an ocean liner and, if we can shamelessly mix our metaphors, the US certainly remains the big gorilla with the world’s largest economy, twice as big as China’s and three times that of Japan. We do not see this changing in the next several years.

On the other hand, we believe that the US’ sometimes sanctimonious stance on “free markets” has been irrevocably compromised and that its image, already smirched by the invasion and occupation of Iraq, has been further tarnished.

While we believe we face a prolonged economic slowdown, growth will eventually occur and with that growth we will see opportunities. In the meantime a defensive strategy works best; it is too early to “bottom pick”.

We hope that the ultimate outcome of this crisis will be a growth in multilateralism, a greater willingness on the part of the US to view other economic zones as partners as opposed to “wannabes” and an appreciation of the people of the world as citizens and not simply consumers.

For a copy of either of these reports, or to see a complete listing of prevoius issues of The One-Armed Economist, please contact us.