Creating money out of thin air

The Federal Reserve has taken some major action in an effort to stimulate the econnomy:

The Federal Reserve escalated its efforts to get the U.S. economic recovery back on track Wednesday, again entering the realm of risky and untested policy in response to the worst downturn in generations.

The plan to pump $600 billion into the financial system is designed to stimulate the economy in large part by lowering mortgage and other interest rates.

Although the approach carries significant risks for both the economy and the central bank’s credibility, the steps announced by Fed policymakers could represent the nation’s best hope for breaking free of sluggish growth, especially with bold initiatives unlikely from a newly divided Congress.

Fed officials concluded that growth is too slow to bring down the 9.6 percent unemployment rate and is at risk of staying that way for some time absent new action. They were also concerned that inflation has been running too low and were looking for a way to encourage modest price increases, which would give consumers and businesses more reason to spend money before its value declined and help energize the economy.

“The pace of recovery in output and employment continues to be slow,” the Fed’s policymaking panel, the Federal Open Market Committee, said in a statement. “Employers remain reluctant to add to payrolls. Housing starts continue to be depressed.”

The Fed usually manages the economy by adjusting short-term interest rates. With those rates already near zero, Fed officials had to dust off a strategy for boosting the economy that debuted during the darkest days of the financial crisis. The Fed plans to create money, essentially out of thin air, and then pump it into the economy by buying Treasury bonds on the open market.

via Fed to buy $600 billion in bonds in effort to boost economic recovery.

I am neither an economist nor an economist’s son, so could someone explain how creating money out of thin air could possibly be a good idea?

Death is better than Taxes

The estate tax kicks back in on December 31, unless Bush’s tax cuts are extended.  Reportedly,  some elderly folks who want to give a big inheritance to their children planning to discontinue  life-saving medical treatments so as to die before that date.  So says Wyoming Congressional representative Cynthia Lummis, reporting that she is hearing this from some of her constituents, specifically, children of those who are planning their deaths.  See   Wyoming Rep. Lummis: Estate tax rise has some planning death.

If this is so, what would be the moral status of that action?   Does it matter that those who choose death would be doing it for the good of their children?

Outsourcing jobs to America

The good thing about becoming a Third World country is that foreign countries will outsource their manufacturing to us.  From The Washington Post:

GREER, S.C. – When German automaker BMW put out the call recently to hire a thousand factory workers here, the people who responded reflected the upheaval occurring in the U.S. economy.

Among the applicants: a former manager of a major distribution center for Target; a consultant who oversaw construction projects in four Western states; a supervisor at a plastics recycling firm. Some held college degrees and resumes in other fields where they made more money.

But they’re all in the factory now making $15 an hour – about half of what the typical German autoworker makes.

The trade debate in the United States usually focuses on the jobs lost to factories in the developing world. But the recession has forced countless skilled workers in this country to consider jobs they would have rejected in the past. They now offer foreign manufacturers a resource that was far less common just a few years ago: cheaper wages for better talent.

“We are a low-wage country compared to Germany,” said Kristin Dziczek, director of the Labor and Industry Group at the Center for Automotive Research. “And that helps put jobs here.”

via A bargain for BMW means jobs for 1,000 in S. Carolina.

The opiate of the people

Communism teaches that religion is the opiate of the people, a consolation that prevents the masses from rising up against their oppressors.  Apparently, judging from this article by David Ignatius, the true opiate of the people in still-Communist China is material prosperity and pop culture:

Americans sometimes assume that a richer China will soon demand greater freedom and democracy. Don’t bet on it: What Chinese repeat to foreign visitors, in so many settings that the canned phrases become credible, is something like this: We like what we’ve got; we’re worried about losing it; we want stability even if it means less freedom and openness.

Chinese don’t seem to know much about Xi Jinping, the man who this week became heir apparent to President Hu Jintao, beyond the fact that he is a “princeling” son of power and that he is married to a star singer. This makes him a man who is likely to maintain the status quo — and perhaps reform the system and spread the wealth just enough to keep any dissenters quiet. For most Chinese I encountered, those qualities seem to be enough. . . .

There’s protest in China, to be sure, but it’s largely about economic and property issues. The freedom agenda of Tiananmen Square in 1989, embodied today by the imprisoned Nobel Prize winner, Liu Xiaobo, has mostly been throttled. Among the elite in China’s wealthy cities, fear of the peasants in the hinterlands seems to be a bigger concern than the opaque Communist Party leadership.

For a snapshot of China’s future, talk with students at Beijing High School 101. Decked out in their blue-and-white uniforms to meet visiting Western journalists (organized by the Committee of 100, a private U.S. group that promotes Chinese-American dialogue), the children are astonishingly bright and well-spoken in English. But even here at the top of the heap, there’s a fragility. They’re all products of China’s one-child policy, and you sense the heavy expectations of their parents: Study, succeed, prosper, don’t lose your seat on the express train to riches. . . .

At Tsinghua University, a graduate student named Yin Wang offers a catchy and probably accurate line: “Young people don’t care who succeeds Hu Jintao; they care about who succeeds Michael Jackson.”

A recurring theme here is self-censorship by a population that doesn’t want to risk crossing the fuzzy limits on free speech. Students attend journalism school partly to learn what subjects are off-limits. Young reporters who dig beyond the official account get branded as “unreliable” and lose good assignments.

The government monitors the Internet to keep it tame, and Chinese businesses and consumers play along. One of China’s biggest Web sites is said to employ 100 people to scan the proliferation of micro-blogs here. Parents avoid telling their children about the Tiananmen protests for fear they will ask more questions — and get in trouble.

The threat to this elite urban life comes from the still-poor rural provinces. The Chinese revolution began among such peasants, and there’s an almost palpable fear that the new China’s growing inequality could trigger another such revolt. That’s one reason people are nervous about democracy: They don’t want to enfranchise those angry peasants.

via David Ignatius – In China, it’s all about prosperity, not freedom.

And isn’t that a danger here as well, that materialism and our entertainment fixation (“who will succeed Michael Jackson?”), are breeding political and spiritual apathy?

Money pollution in the Gulf

The Gulf coast way of life survived the oil spill.  But will it survive all of that money BP has thrown at them?

On a truly normal evening, Acy Cooper Jr. would be out shrimping. Instead, one recent night, he was staying home, as he has done more often these days.

“Why? It don’t pay me to do that when they’re going to pay my claim anyway,” said Cooper, vice president of the state’s shrimpers association.

Today, it is BP’s money, not its oil, that is most visibly altering the Gulf Coast. The company has been trying – on federal orders – to protect not just the water but the way of life there. But BP’s waterfall of cash has changed people’s lives profoundly.

The oil company has already paid out $965 million and set aside $20 billion in a separate compensation fund. The money has been welcomed as a lifeline. But it has made the coast feel like an open-air economic experiment: Some hardworking fishermen think it’s in their best interest to be idle, losing market share they will need next year. And those who haven’t been paid are looking for legal and illegal ways to work the system. . . .

So far, BP has paid $569 million to locals who participated in the Vessels of Opportunity program, helping to spot, sop up and burn the oil.

It also gave out about $396 million to compensate fishermen, hotel owners and others who lost money during the spill, before handing the process over to Feinberg in August.

For those who played their cards right, BP’s money brought a summer of quiet windfall. Ted Melancon, a shrimper from Cut Off, La., worked for BP for 130 days.

“They sure helped us out, you know, they stepped up to the plate and helped us out. . . . It would have been a bad year,” said Melancon (pronounced “meh-lan-sahn”). He said he hasn’t counted his full take, but he made enough to buy new nets and new cable for his shrimp boat, as well as a new Ford F-150 pickup.

“Which I didn’t really need, but I had to buy. Because, you know, tax write-offs,” he said, meaning that the truck and other items could be written off as business expenses. On top of that, he’s expecting to get another BP payout, compensation for the shrimping he couldn’t do this summer while large areas of the gulf were closed.

“I’m done for the season,” Melancon said. “It don’t pay to go back to work.”

via Adrift in oil, then money.

Vindicating middle management

As we saw in the mortgage foreclosure fiasco, paperwork is necessary.  And, according to some research in India, so are the processes, policies, and record-keeping associated with “bureaucratic” business management:

Imagine a world without middle managers. If you’ve done time in a cubicle, you might picture a paradise where workers are unshackled by pointless bureaucracy, meaningless paperwork and incompetent bosses. A place where stuff actually gets done.

Despite a proliferation of management gurus, management consultants and management schools, it remains murky to many of us what managers actually do and why we need them in the first place. A new World Bank-Stanford study titled “Does Management Matter?” provides an answer. Working in collaboration with the consulting firm Accenture, the researchers randomly selected a set of textile factories in India to receive a complimentary five-month management makeover and compared the profitability and efficiency of these revamped factories with a control group of factories that continued doing business as usual. It turns out that management does matter: The consultants boosted productivity by about 10 percent by improving quality, managing inventory and speeding up production.

via In defense of middle management.


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