life lessons of an ad man

How behavioral economics can be applied to marketing and what to think of perceived versus actual value

It's almost over? Or not?

US economy emerges from recession:


The Guardian

 "Suggestions that this figure marks the end of the recession in the US, although technically correct, ignore the relatively low quality of the growth registered in this release. Such suggestions also ignore the likely soft fourth quarter that is now in the pipeline. The US economy is not out of the woods yet."

NY Times

A slower drawdown in inventories was one bright spot in Thursday’s report, as it indicated that businesses have largely sold out their current stock and may rev up orders in the coming months to replenish supplies.
“Everybody had been dealing with a just-in-time status quo,” said Sandra Westlund-Deenihan, president and design engineer for Quality Float Works, a plant in Schaumburg, Ill., that manufactures metal float balls and valve assemblies. “They were living off inventories they’d built up over the last several years. Now they’ve drawn that down and reached a point where they may have to have it ready and back on the shelf again.”

Financial Times

Boosting growth was an upturn in consumer spending, residential investment and strong government spending. The impact of government stimulus measures succeeded in jolting the economy during the latest quarter, as the soon-to-expire first-time home buyer tax credit and the “cash for clunkers” car rebate programme lifted residential investment and chipped away at car inventories

BBC

"It's good to have the economy growing again," said Brian Bethune, economist at IHS Global Insight.
"But we don't think that rate of growth is sustainable because it is
distorted by all the government stimulus.
"The challenge here is to get organic growth - growth that isn't helped by fiscal steroids."

The Economist

It probably ended in June.

Dan Ariely on (ir)rational decisionmaking

U.S. Considers Reining In ‘Too Big to Fail’ Institutions

Congress and the Obama administration are about to take up one of the most fundamental issues stemming from the near collapse of the financial system last year — how to deal with institutions that are so big that the government has no choice but to rescue them when they get in trouble....

...The measure would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution.

Read the whole story here.

quantitative easing: Japan's experience

"The Bank of Japan (BoJ) pioneered the process known as quantitative easing (QE) in 2001-06, when it massively boosted the reserves that commercial banks held at the central bank. Its verdict on how well QE worked then ought to interest policymakers today. It will also discomfort them. For all that it propped up Japan’s creaking banking system, QE did not really improve the economy nor end the country’s deflationary mindset "

Read the full story here.

how an inconvenient economist upset the cool crowd - Tim Harford

"Rather than re-establishing the primacy of rational choice theory, List’s experiments show that psychological factors are important – but far more subtle and complex than previous experimenters seem to have appreciated."

Rational choice, experiments showing that people are altruistic and the ones that show that they are not. Read the full story here

NB anyone living in London looking for a job? .

For Gun-Shy Consumers, Debit Is Replacing Credit (Washington Post)

"Consumers are rational thinking individuals, and they're going to shift their behavior in a way that fits with their current economic situation," said Scott Strumello, an associate with the Auriemma Consulting Group, a Long Island-based payment card advisory firm. "They're thinking more seriously about it, and many may decide, 'I'm going to use debit where I can and reserve credit for larger purchases.' "

Full story here.

Krugman (nobel prize for economics 2008) on economics

"Readers have sent Paul hundreds of questions about the economy. He addresses some of them, in a few takes, here. Due to the volume of questions received yesterday, Paul is not taking any more.

Jump to a topic:

Definition of “Economy”

Signs of Recovery

Stimulus Money

Rescue Efforts

End of the Recession

Economic Indicators

Jobs

Health Care Myths

Public Programs

Energy and the Environment

Bailouts and the Banks

GDP

Income Inequality"

IMF World Economic Outlook October 2009

".. a sustained recovery will require rebalancing of demand at two margins: first, from public to private demand; and second, from current account surplus countries to current account deficit countries."

More here.

a new "normal" for the world economy

"the prospect of a “new normal” (a phrase popularised by Mohamed El-Erian, the boss of Pimco, a fund manager) still spans at least two distinct possibilities. One is that the world economy returns roughly to its pre-crisis rate of growth, without regaining the ground lost. That, the IMF points out, is what happens after most financial crises. The second, more depressing possibility is that growth stays at a permanently lower rate, with investment, employment and productivity growth all feebler than before."

no title needed

Krugman on economics in 24/7

"These are 24 seconds of impenetrable jargon, followed by a 7-word explanation of your field.

24:

Given decentralized constrained optimization by maximizing agents with well-defined convex objective functions and/or convex production functions, engaging in exchange and production with free disposal, leads, in the absence of externalities, market power, and other distortions, there exists an equilibrium characterized by Pareto optimality.

7:
Greedy people, competing, make the world go round."

Can "charter cities" lead to development and economic growth? A Q&A with Paul Romer

Weak institutions and bad rules are some of the most significant obstacles to economic growth in developing countries. Paul Romer, an economist known for his work on economic growth, has a plan to change that and recently resigned his tenured teaching position at Stanford to devote his full energies to the challenge.

“Moving from bad rules to better ones may be much harder than most economists have allowed.”

Romer’s plan calls for the establishment of Hong Kong-like “charter cities,” special zones within developing countries with better rules and institutions.

The project has already attracted quite a bit of attention from both economists and the media. William Easterly, the development economist, told Newsweek, “There’s a thin line between revolutionary and crazy. Paul Romer has been adept at walking that line throughout his career, staying just out of the crazy part. He’s still tiptoeing along that line with this new idea.”

Read the full Q&A here

profile of Kahneman

FOR Daniel Kahneman, one of the most moving episodes in the current global economic crisis took place when a humbled Alan Greenspan, the former chairman of the U.S. Federal Reserve, confessed before a congressional committee that he had put too much faith in the self-correcting power of free markets.

“He basically said that the framework within which we had been operating was false, and coming from Greenspan, that was impressive,” said Kahneman, who was awarded the Nobel Prize in Economics in 2002 for his pioneering work integrating aspects of psychological research into economic science.

But more to the point for Kahneman was how Greenspan, in his testimony, treated not only individuals but also financial institutions as rational agents. “That seemed to me to be ignoring not only psychology but also economics. He appeared to have a belief in the magic power of the market to discipline itself and yield good outcomes.”