Weekend reflections

It’s time (on time for once) for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

9 thoughts on “Weekend reflections

  1. Just for a bit of fun, why not convert the huge amounts of supposed bailouts to actual physical amounts of money?

    Last weekend’s Fin Review [p18] showed that the US bailout was now 3 trillion (4 trillion $A).

    Well, as each dollar coin is 2.5cm diameter, each $A40 uses-up 1 metre ($40,000 per km).

    So the bailout stretches for one hundred million kilometres.

    This, my friends, is over half the distance from the earth to the sun!.

    Of course if you use halfpennies (the same size as modern dollar coins) and add amounts being proposed for non-US economies and IMF, the bailout is best measured by reference to the speed of light.

  2. Even if we still used dollar notes (0.1 mm), you’d get to the moon (400 000km). [Commenters, feel free to correct me on this].

  3. $3 trillion in a country of about 300 million means $10000 per capita. Surely it would have made more sence just to distribute the cash. Or even better they could have just slashed tax rates. Of course the bailouts were in some cases actually buyouts so you’d have to give those numbers a little more scrutiny.

    The US government reminds me of Yertle the Turtle who tried to stack turtles to heaven.

  4. a bit Yertle, a bit Iron Law of Institutions
    the people who control institutions care first and foremost about their power within the institution rather than the power of the institution itself. Thus, they would rather the institution “fail” while they remain in power within the institution than for the institution to “succeed” if that requires them to lose power within the institution.

  5. John, it seems like China is caught up in a catch twenty-two situation and prepared to gamble more of its hard earned foreign exchange reserves in long-term US securities to prop up both economies.

  6. Perhaps even predatory lenders have to be mindful of killing the golden goose Michael. Makes you wonder what they’ll do in the event they conclude the goose looks a goner and is no further use to them.

  7. After seeing JQ’s opinion piece in yesterday’s AFR, I saw a chance to beat one of my favourite drums so I sent in the following letter:-

    John Quiggin’s article “Fallout can be mitigated” (20.11.08, page 70) asserts that “the alternative of wage subsidies is least effective during the initial contraction phase of a recession, when employers are cutting back or freezing their staff numbers”.

    This depends on just what sort of subsidies are implemented and how. Professor Kim Swales of the University of Strathclyde has worked on an approach that applies properly packaged tax breaks to GST in a virtual subsidy. It would not only encourage new hiring down the track but would have a constructive immediate effect, reducing incentives to cut or freeze staff numbers as employers would lose their tax breaks on existing staff or new hires if they did so.

    Professor Swales’s research indicates that not only would employment be encouraged but government budgets would be unaffected and GDP would actually increase – the typical outcome of a Pigovian approach to market failures, here imperfections in the labour market.

  8. Terje, the problem with these kinds of bailouts is that they may reduce economic pain in the short term, but in the long run they create worse economic problems through increased moral hazard, reduced economic incentives, higher taxes or debt to fund them etc.

    But politicians are focussed on the short-term, so they want to assuage the pain until the next election.

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