The Bear’s Lair: Fool, Britannia!

Prime Minister Liz Truss’s £150 billion subsidy to energy consumers is yet another economically foolish policy, of a type that have been regrettably predominant since Lord Liverpool left office in 1827. For a country where previously sound policies had produced the Industrial Revolution, Britain has developed a remarkable propensity to shoot itself in the foot economically, providing a Shakespearean low comedy to disinterested observers but condemning its people to increasing impoverishment. Alas, there is little sign that this behavior is about to change. Continue reading

The Bear’s Lair: Time Preference in Reverse

Edward Chancellor’s admirable “The Price of Time” (Allen Lane, 2022) demonstrates clearly that interest rates are a matter of time preference; lenders charge interest because $1 today is worth more than $1 in say two years’ time. That is all very well, but at present, with markets heading downwards, interest rates heading upwards and interest rates still far below inflation rates, a real $1 in September 2024 is likely to be worth considerably more than $1 today. Time preference for rational investors has thus gone into reverse; it is worth discussing the strategies and economic implications of this bizarre phenomenon. Continue reading

The Bear’s Lair: The Country-Club Country

President Biden’s lax immigration policy has one inescapable economic effect: it lowers the earnings of low-skill Americans. Conversely, the policy of the 1620s and 1630s that shipped convicts and the indigent to the American colonies as indentured servants had a remarkable positive effect in reversing the hundred-year decline in real English wages. The recent failure and the 400-year-old success have a similar principle: governments should treat their poorer subjects as members of a country club, whose happiness and welfare is of the utmost importance.

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The Bear’s Lair: The Incredible Shrinking U.S. Economy

U.S. non-farm labor productivity declined at a 4.6% annual rate in the second quarter of 2022, following a 7.4% decline in the first quarter. Although predictable from the expansive employment numbers and the declining GDP, this is shocking news, which the media have largely ignored. There also seems little likelihood of a near-term reversal. Like the hero of the 1957 sci-fi movie classic “The Incredible Shrinking Man,” the U.S. economy has woken to find itself shorter than its wife and will shortly be battling the spiders. Continue reading

The Bear’s Lair: Creating an Innovation Economy

The Financial Times this week had a lengthy piece “When the tech boom met reality” detailing how truly galactic levels of venture capital funding have produced little innovation and are now leading to truly galactic levels of losses. It is now clear that the “all point in one direction and throw money at it” approach to innovation does not work. Since technological innovation is key to our future prosperity and indeed happiness, it is perhaps worth reviewing how better approaches in the past have produced better results. Structural changes are needed. Continue reading

The Bear’s Lair: Decade of Economic Denial

The 0.9% decline in U.S. second quarter GDP Thursday brought an immediate denial from the Biden administration that the United States was in a recession, following similar denials that inflation was persistent and that high oil prices were due to restrictions on U.S. pumping. As this column has frequently forecast, the 2020s will be a difficult decade. It is now clear that it will be a decade of economic denial, in which administrations of whichever party attempt to obfuscate the economically obvious. We have seen this pattern before; it is one of the reasons economics is a truly dismal science. Continue reading

The Bear’s Lair: The investment banking down cycle

Goldman Sachs’ (NYSE:GS) second quarter income falling 47% with threats of job cuts is just the beginning of a major downtrend in investment banking, reversing the surge of 1982-2021. This should not be a surprise: it has happened three times before. The most recent occasion was after the 1968 stock bubble; that crash was short. The two longer-term declines were after the 1929 stock market crash and the 1720 South Sea Bubble. The three downturns have interesting lessons for today’s investment bankers now seeking a new line of work. Continue reading

The Bear’s Lair: The Death of Productivity Growth

June’s unemployment figures showing growth of 372,000 jobs were hailed as unambiguously good news by the media and the markets. However, there is a problem: advance estimates of second quarter GDP, to be announced at the end of this month, suggest a decline of 1.5% at an annual rate, similar to that in first quarter GDP. If that figure pans out, it can only do so by a catastrophic fall in productivity, already down at a 7.3% annual rate in the first quarter. That says something very ominous indeed about current monetary and regulatory policy, and about Americans’ living standards going forward. Continue reading

The Bear’s Lair: The deflationary decades ahead

The last six months have shown that the absurdly loose Fed policy and benign monetary conditions have gone – the 39-year bull market in bonds (1982-2021) is over. Inflation will not disappear soon, and the Fed will not raise rates far enough to control it, but the next decade or more will inevitably see a bear market in bonds and in asset values. We have forgotten what those deflationary markets are like, so I thought it worth setting out some pointers. Continue reading

The Bear’s Lair: How the Supreme Court can make itself useful

The Supreme Court’s decisions in “Dobbs v. Jackson Women’s Health” and “New York State Rifle & Pistol Association v. Bruen” demonstrate that, for the first time since its emasculation in 1937, the U.S. Supreme Court is capable of holding firm in protection of basic Constitutional rights. The media have obsessed over the possibility of further possible decisions restoring previous norms in social issues, which I think unlikely (will a Supreme Court Justice with a mixed marriage vote to outlaw them?) Much more interesting is the possibility of some reversals of the more outrageous economic decisions of the last 87 years, thus restoring the Constitution’s guarantees of property rights. Continue reading