Musing About The Past Week


I’ve had a bit more of an opportunity to write this week than normal so I have probably over-opined on events and should, therefore, probably just let the week end without further comment. I’ll resist that impulse a bit and offer at least some tepid thoughts and links on some events.

I don’t know if it was the biggest news of the week but the January unemployment report and its seemingly contradictory evidence that jobs were as the same time lost as the unemployment rate was falling have led to the slaughter of millions of pixels. Depending upon your viewpoint and probably political persuasion as well, it was either a heartening report, further confirmation that we are spiraling downward or inexplicable and evidence that the government is cooking the books.

Thankfully, we have Calculated Risk to sort the whole thing out. In a post today, he explains how the numbers are derived, why they can be and were in this case apparently contradictory and logically points out what we should all know anyway — don’t focus so much on monthly numbers.

In a series of easy to read graphs, accompanied by excellent explanations, he demonstrates that it is not unusual for the data to be at odds on a monthly basis and that, in fact, over time the data tends to correlate. I recommend that you take a look at his explanation and discount most of the rest of the discussion on both sides of the issue at this point in time.

After all, what we probably are seeing is a labor market bouncing along the bottom. Not getting much healthier and not, thankfully, continuing to spiral down. It’s likely that the magic moment when we know for sure that the jobs market is self-correcting or going to hell in a hand basket will never occur. We’ll realize one of those two facts is in operation some time after it happens.

Greece and the PIGs in general were all over the news and the blogs. The collapse of the EMU if not the EU continued to be a topic of serious discussion. Not unexpectedly, cooler heads prevailed by weeks end and the Greeks appear to have accepted — at least their political leadership has accepted — a plan to inflict great internal pain on the country in order to reduce their deficit. Whether or not the citizens of that country are prepared to bite this big a bullet is another issue entirely.

Credit Writedowns has a very good post by Edward Hugh that dissects the recent developments. If you prefer a more apocalyptic analysis then take a look at the latest from Ambrose Evans-Pritchard.

My guess is that absent some game changing event, the political solution that appears to be Greece’s fate will become the template more or less for the other member countries that are experiencing difficulties. Tough measures will be required but politicians being politicians, the application of those measures will be measured lest they cause a real rupture. The muddle through approach will prevail based on the hope that better econ0mic times heal all wounds. I wish Europe good luck with that one.

The President’s budget and more specifically deficits continued to be a contentious issue. Paul Krugman weighed in Thursday with an Op-Ed in defense of deficits at this point in the economic cycle. Leaving aside his attempt to compare the current debate with the debate surrounding the decision to invade Iraq, the post made a lot of sense. He decried the hysteria surrounding the natural escalation of budget deficits in a time of recession and correctly notes that this is not the time to be talking about fiscal restraint.

That’s all too true but that doesn’t mean it isn’t a time in which we shouldn’t talk about the implications of the budget not just for this year but for later years that the Obama administration presented. The issue, which I’ve harped on before, isn’t deficits but the larger share ¬†of GDP which Obama’s budget would indicate the Democrats would like to claim (See Keith Hennessey’s graph). The debate needs to focus on whether this is the direction the country wants to take.

While, it will be possible and defensible to run deficits in order to finance this expansion of federal spending in the short-term, if it is to become a permanent expansion then taxes are going to have to increase in order to maintain the historical relationship of expenditures to revenues. My cynical view is that the events of the past few years are providing an opportunity for the political class to up the share of the economy they claim and absent some countervailing pressure will most likely succeed. Ultimately, Mr. Market will provide the cover for a VAT or some other permanent expansion of the tax base, probably to the long-term detriment of the country’s prosperity.

I’ll finish up by pointing you to a story in tomorrow’s NYT about AIG and Goldman. I’ve only skimmed it but it’s sure to be fodder for the blogs on Monday, so here’s your chance to get a jump on everyone.

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