Weekend links

Kevin Murphy was the smartest person I met at Chicago. Becker ran a close second. It's sad to see them write editorials like this one in the WSJ:

In terms of discouraging a rapid recovery, other government proposals created greater uncertainty and risk for businesses and investors. These include plans to increase greatly marginal tax rates for higher incomes. In addition, discussions at the Copenhagen conference and by the president to impose high taxes on carbon dioxide emissions must surely discourage investments in refineries, power plants, factories and other businesses that are big emitters of greenhouse gases.

The stuff on reserves and the banking system is standard academic macroeconomics, and therefore completely wrong. I cannot think when "the market hates uncertainty" sounded more tone deaf.

A number of articles pointed to the ongoing de-leveraging within the private sector. This is the key story of the economy, with the only question being whether the Govt funds this de-leveraging by actively running deficits, or instead uses unemployment as a policy tool and does nothing, letting automatic stabilizers fund private demand for savings.

Consumer Credit outstanding fell a greater than expected $17.5b m/o/m in Nov vs an estimated drop of $5b and follows a revised $4.2b decline in Oct. It is the 13th month of the last 14 that has seen a reduction and is the biggest monthly drop ever. The decline was led by a sharp 18.5% annualized drop in revolving credit which consists mostly of credit cards. Nonrevolving credit outstanding fell 2.9% annualized and is made up mostly of auto loans. Total consumer credit outstanding now stands at $2.464T, the lowest since July ‘07 and has fallen $117b from the record high in July ‘08. To put the last decade of credit growth into perspective, nominal personal consumption rose 55% (same increase as overall GDP) while consumer credit rose 61% over the same period. Thus, highlighting how dependent on credit the US became rather than on savings in generating growth.

People want to save more. Will the Govt help or hinder?