Live Blogging From The SCSU Winter Institute Economic Outlook Presentations

5:04 - Several panelists, including Tom Stinson, MN State Economist, are unable to attend due to the weather. It looks like the weather tonight will be as gloomy as the economic outlook for 2009. Still, and excellent panel of Economists.

5:10 - Remarks from the SCSU President: Yada Yada

5:15 - Rich MacDonald, Macro Prof at SCSU is speaking

5:19 - Unemployment expected to hit 9% by end of 2009 - Ouch...and I should note that this outlook "could deteriorate very rapidly"

5:25 - MacDonald asks "When will this thing (recession) end? He says if you ask 10 different economists, you will get 10 different answers. Either way, 2009 will be a rough year."

5:28 - Just to point out how economic forecasts can differ greatly, in January 2008, people predicted the U.E. rate would be 5.2% as of January 2009. Yeah, they were only off by over 2 million jobs, and the current U.E. rate is 7.6%.

5:30 - At least by 2010 should be better, (or check previous post at 5:28 to see how accurate predictions on the economy are).

5:32 - The AP syllabus and the McConnell text state that there are 3 tools of monetary policy... and MacDonald says now there are 11. So we will study 3 in class this year.

5:39 - Big banks created this financial crisis, and small banks who managed their businesses well are affected very much affected by the mistakes of the biggies.

5:50 - SCSU Prof and blogger King Banaian is now at the mic. Already cracking jokes -- about what he said last year and how wrong he was. See 5:25 above for how accurate forecasts are.

5:55 - St. Cloud has the worst economy since 1989, and King adds "it will get much worse"

6:02 - Minnesota went into a recession in February, 2008.

6:09 - The credit crisis has hit St. Cloud, just like pretty much everywhere else in the world. The average family in the St. Cloud area has seen their net worth go down over 30%. No wonder consumption (the biggest component of GDP) has fallen here and eslewhere.

6:13 - "It is raining outside for us economically" says King.

6:14 - While the Stimulus package will increase Aggregate Demand, citizens are very worried about the huge deficits, and 1.75 Trillion in 2009. So people may not spend and save, conteracting the fiscal stimulus goals... they know someone has to pay for this debt, a day of reckoning will come... and I see their point.

6:20 - Rocky and Bullwinkel are on the last slide

6:21 - Alright. I am out the reception, where the food is not free, but of no financial cost to me.

Law of Demand At Work: Chinese Scoop Up SoCal Foreclosurers

This video is a great example of market correcting forces. A demand curve tells us when the price of a product decreases, the quantity demand increases. While housing prices, especially in California, have fallen dramatically, eventually the price decreases will attract buyers in the US... and in China

The Crash of 2008: Causes and The Aftermath

Here is a great article I heard about at my economics conference today at SCSU. This may help my regular economics class students with their paper regarding the housing crisis.

The economist I am listening to today, Rich MacDonald, from SCSU, is on the Minnesota State Board of Economists, and has a quite dire prediction for the US economy in 2009. In his eyes, the recession will last until at least 2010.

Here is another description about the Credit Crisis, a powerpoint in PDF format.

The Dow Jones: Down 47% in 16 months.

Ouch.

PBS Special: The Financial Meltdown

1980's vs. Today

Unchartered Territory

Cartoon of The Day

Value of Education

According to the BLS, there now over an 8% difference between employment rates of people who have not finished high school (12%) vs. college grads (3.8%).

More on "Buy American" Proposals

Paul Krugman, Princeton economist and Nobel Prize winner has previously written about trade wars. Unfortunately, he claims that a trade war is one where no one can win. Krugman claims that a trade war is one where both countries use their ammunition to shoot themselves in the foot, with the lower standards of living than inevitably result from decline in trade. To put it another way, British Prime Minister recently said that "protectionism protects nobody, least of all the poor."

In todays Wall Street Journal, Princeton Economist Burton Malkiel, writes about the negative, unintended consequences that a trade war would have.

Malkiel writes: "This Buy American momentum is bad economics, and by threatening to destabilize trade and capital flows, it risks turning a global recession into a 1930s-style depression. Asked about Buy American on Tuesday, President Barack Obama told Fox News that "we can't send a protectionist message." He said on ABC News that he doesn't want anything in the stimulus bill that is "going to trigger a trade war." He's right.

Suppose that we did not allow free trade between the 50 American states. Citizens like me in New Jersey would be far worse off if we could not buy pineapples from Hawaii, wine and vegetables from California, wheat from Kansas, and oil from Texas and Louisiana while we sell pharmaceuticals to the rest of the country. The specialization that trade makes possible allows all of us to live better.

The situation is the same with respect to world trade. Both we and the Chinese are better off if we can import inexpensive clothing from China and sell them large-scale computers and data storage equipment.

To be sure, such trade does not make everyone better off, and that is why free trade is often a tough sell, especially during times of hardship.

If I am a textile worker whose job is lost because Chinese imports have caused my factory to close, I feel the pain far more acutely than consumers feel the benefits of cheap clothing. The pain tends to be localized while the benefits are spread broadly. No one person's benefit can compare with the loss felt by the textile worker. But the total benefits do exceed the costs. And competitive markets have spurred the innovation revolution that has made the U.S. the economic powerhouse that it is.

The solution for the displaced worker is job retraining and adjustment assistance, and to improve the safety net available to displaced workers during the transition period. We also need to revamp our educational system so that it prepares workers for the jobs that are available today -- and imparts the flexible skills that make our citizens ready for the future jobs that we cannot even imagine."

Smoot Hawley II? Say It Ain't So.

For those who remember their history, it was the Smoot - Hawley Tariff act that led to a dramatic decline in global trade during the Great Depression in the 1930's (See picture above). Most economists believe that this misguided policy put the "Great" in the Great Depression. In fact, a recession is a time to increase commitment to trade. Unfortunately, as quoted below, our Government not only as called for reduced trade disguised as "Buy American," but also angered our major trading partners as well.

From the New York Times, Monday, May 5th, 1930
From BBC NEWS: "The EU has increased its pressure on the US to reconsider the "Buy American" clause in the $800bn (£567bn) economic recovery package now before Congress.

The clause seeks to ensure that only US iron, steel and manufactured goods are used in projects funded by the bill.

A European Commission spokesman said it was the "worst possible signal" the Obama administration could send out.

The EU will launch a complaint with the World Trade Organisation (WTO) if the clause remains, the spokesman said."
The Cato Institute has even claimed this act to be Smoot - Hawley II. "For all practical purposes there is no difference between the Smoot-Hawley tariff bill of 1930 and the “Buy American” provisions in the $819 billion spending bill that passed the House Wednesday.

Smoot-Hawley was the catalyst for a pandemic of tit-for-tat protectionism around the world, which helped deepen and prolong the global depression in the 1930s. “Buy American” provisions will no doubt inspire similar trade barriers abroad and will have the same effect of reducing global trade—and therefore prospects for economic recovery. It is not unreasonable to say that U.S. policymakers are on the verge of taking us down that same disastrous path."

Here is more from the Washington Post: "The stimulus bill passed by the House Wednesday contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package. A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas. Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis. "

UPDATE: Obama backs down on the anti-trade, protectionist "Buy American" clause: Good Move. Read more here.