Michael Ewens

The problem is that Keynesian stimulus is designed to induce households to save less and spend more. Currently, households need to save more and are finally beginning to do so. Having the federal government borrow money just so households can save it is an exercise in futility. As difficult as it may be in the current political environment, the federal government needs to spend its resources fixing the financial situation, not on another fiscal boondoggle.

Does the U.S. Need Another Stimulus Package?

Follow the AIG Money

An analysis of tax records of firms receiving bailout funds shows that many lied about their tax bills.  The incentives to do so were in place:

Banks and other firms receiving federal money were required to sign contracts stating they had no unpaid taxes, Lewis said. But he said the Treasury Department did not ask them to turn over their tax records.

Of course, the complexity of the tax code may mean that these firms didn’t know they owed taxes (see Daschle, Geitner, etc.).

[M]odern economics gives very little reason to believe that fiscal stimulus will do much to raise output or lower unemployment. How can borrowing money from A and giving it to B do anything? Every dollar that B spends is a dollar that A does not spend.3 The basic Keynesian analysis of this question is simply wrong. Professional economists abandoned it 30 years ago when Bob Lucas, Tom Sargent and Ed Prescott pointed out its logical inconsistencies. It has not appeared in graduate programmes or professional journals since. Policy simulations from Keynesian models disappeared as well, and even authors who call themselves Keynesian authors do not believe explicit models enough to use them. New Keynesian economics produces an interesting analysis of monetary policy focused on interest rate rules, not a resurrection of fiscal stimulus.

John Cochrane on Fiscal Stimulus

Part of the stimulus package goes towards increasing broadband adoption.  The motivation for such spending is that increasing the reach and speed of internet connections will improve productivity and eventually growth.  However, as the Economist discusses, such gains only occur after people learn to use the new infrastructure toward productive ends (rather than say, faster YouTube downloads):

Paul David, an economist at Oxford University, has shown that electric power, introduced in the 1880s, did not immediately raise productivity. Not until the late 1920s—when around half of America’s industrial machinery were finally powered by electricity—did efficiency finally climb. New technologies need a 50% adoption rate before the effects are seen, he reckons.

Broadband, too, may just need more time before its real benefits show through. After all, the top six countries only have penetration rates between 30%-35%. Although policymakers and the public might feel that super-fast broadband is essential, that view is based more on faith than fact.

“Contrary to recent rhetoric that claims banks aren’t lending to businesses, today’s data show solid lending growth at record low contract rates. During the survey week, banks extended $95.6 billion in credit to businesses, an increase of 13% from the same quarter last year. Moreover, much of the recent decline in policy rates has passed through to rates facing businesses: the average rate for C&I loans in the first quarter was 2.34%, the lowest since the series began in 1997.” – Michael Feroli

A survey of CEO executives by Chief Executive magazine concludes that California is the worst state in the US to run a business.  The final tally does not give the weights that generate the ranking, however, according to these sub-rankings “access to capital” and “technology” and innovation (California is #1) have very little weight.

The lack of importance of these two measures is likely a sample selection problem: the magazine surveyed established firms.  Such firms likely already have access to capital (i.e. good credit ratings) and in-house technology that generates revenue.  In fact, the sub-rankings confirm why the majority non-established firms — entrepreneurial companies — start in California.

(hattip: GigaOm)

The State of State Budgets: Revenue Shortfalls

A Credit Trader points out that uses the price of CDS or their spread across countries doesn’t necessarily tell you something about underlying default risk:

[O]ne shouldn’t look at CDS as a “default” trade. Though their pricing is clearly driven by the likelihood of default and the payout upon default, I can tell you that 99% of people buying CDS do not believe that the entity upon which they are buying protection will actually default. In this, they are similar to investors in stocks. People buy and sell stocks because they think the stock in question will increase or decrease in price. Same goes for CDS.

If you use multiple linked databases or tables, I highly recommend linking mysql and Stata for both data merging and analysis. You can store the data in one clean place with relational tables and have all of Stata’s capabilities at hand with the odbc command. Before you start running “odbc insert” commands, you have to make sure the data is compatible with SQL queries. This means all strings need the quotes escaped. I was doing so many of these escapes that I wrote an ado file to simplify the process.

Download: escape_all_quotes

The script loops through all the variables in your dataset, checks if each is a string and if so, escapes any quotes. Although it has worked for 1000s of my “odbc insert”s, their could be bugs or speed improvements. Let me know.