“Many investors realize that stocks have been among the worst investments of the past decade. But they may not realize quite how bad the decade was, because most people forget about the effects of inflation.”
“The U.S. stock market is wrapping up what is likely to be its worst decade ever. In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.”
“Many investors realize that stocks have been among the worst investments of the past decade. But they may not realize quite how bad the decade was, because most people forget about the effects of inflation.”
“The U.S. stock market is wrapping up what is likely to be its worst decade ever. In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.”
Here’s a list of articles that I have been reading today, accompanied in some cases with some of my own commentary (organized by topic):
The Economy
In the Battle for Stimulus Jobs, Shoe Store Owner Tells War Story, by Louise Radnofsky
Here’s a practical, step-by-step guide to “creating or saving” 9 jobs for only $889! Thanks to Greg Mankiw for the pointer! Professor Mankiw has previously written on “Create or Save“, where he notes, among other things, that while this “statistic” is politically clever, it is based upon counterfactual reasoning and not measurable in any meaningful sense.
The White House uses this created or saved “metric” regularly; e.g., last Friday, the White House claimed that the $787 billion economic stimulus plan approved early this year “…has generated or saved more than 1 million jobs” and that “…it is on track to create or save 3.5 million jobs by the end of next year.” (Source: “White House: 1 million jobs created or saved”).
Finance and the Financial Crisis
Is Market Efficiency the Culprit?, by Eugene Fama
“Justin Fox (“The Myth of the Rational Market”) and many other financial writers claim that much of the blame for the financial meltdown is attributable to a misguided faith in market efficiency that encouraged market participants to accept security prices as the best estimate of value rather than conduct their own investigation. Is this a fair assessment? If so, how should policymakers respond?”
Professor Mankiw points out an important unintended consequence associated with the House of Representatives’ version of health reform unveiled last Thursday by Speaker Nancy Pelosi. Specifically, the House bill imposes very high implicit marginal tax rates on labor income. For example, a family of four earning $54,000 would pay only about 1/3 of the actual cost for health insurance. However, if that same family earns additional income of $12,000, then the health insurance subsidy falls by $3,800, which translates into an implicit marginal tax rate of 3,800/12,000 = 32 percent. This is an implicit tax that must be “paid” on top off of all the other explicit (income and payroll) taxes which normally apply to $66,000 of personal income.
Politics
Obama and the Liberal Paradigm, by John Stele Gordon
“The sheep are quite capable of looking out for themselves. Someone tell the Democrats.”
I would like to call everyone’s attention to a formal online debate concerning executive compensation which began on Tuesday, October 20 and is scheduled to conclude on October 30th. Later in the semester, we’ll discuss how to structure compensation to align incentives between owners and managers of firms. However, this debate, which is sponsored by The Economist, addresses the ongoing public controversy concerning whether senior executives are worth what they are paid.
Specifically, the motion reads as follows: “This house believes that on the whole, senior executives are worth what they are paid.” The person defending the motion is Steven N. Kaplan, who is the Neubauer Family Professor of Entrepreneurship & Finance at the University of Chicago Booth School of Business. Professor Kaplan may very well be one of the most widely published and prolific scholars on the topic of executive compensation. The person who is against the motion is Nell Minow, who is Editor and Co-founder of The Corporate Library, which is an organization that bills itself as “…the leading independent source for U.S. and Canadian corporate governance and executive & director compensation information and analysis”. Anyway, this debate should certainly be interesting to follow!
57th Annual Management Conference 2009 on “The Future of Markets”, held at the University of Chicago Booth School of Business, May 29, 2009. Of particular interest is the 2 hour, 7 minute long keynote panel webcast featuring the following six University of Chicago faculty panelists:
Gary Becker, University Professor of Economics and of Sociology and winner of the 1992 Nobel Prize in Economics
Kevin Murphy, George J. Stigler Distinguished Service Professor of Economics
Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance
Steven Kaplan, Neubauer Family Professor of Entrepreneurship and Finance
Marianne Bertrand, Fred G. Steingraber/A. T. Kearney Professor of Economics
Anil Kashyap, Edward Eagle Brown Professor of Economics and Finance
“At 35 percent, America’s levy on corporate income is one of the highest in the developed world. In 2007, about 2.5 million companies prepared lengthy returns at great expense, yet the tax generated only about 15 percent of total federal tax revenue. The tax on corporate profits discourages capital formation, targets shareholders regardless of their wealth, and fuels frantic, and costly, business efforts to dodge it. Among experts who study its effects, support for the tax is at best sort of sheepish.”
The risk management literature actually has much to say about how the corporate tax code discourages capital formation. Specifically, the asymmetricnature of the corporate income tax creates disincentives for firms to bear risk. Tax asymmetries derive from two important features of the corporate income tax; specifically, tax rate progressivity and incomplete tax loss offsets. Thus tax asymmetries incentivize firms underinvest in risky (but potentially profitable) assets, which in turn limits the economy’s prospective growth potential.
Here’s the “longlist” for the 2009 Financial Times and Goldman Sachs Business Book of the Year Award. Apparently this list will get whittled down to a “shortlist” on September 17, and the “winner” will be announced at the end of October at a gala event in London.
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A Akerlof, Robert J Shiller
Clever: Leading Your Smartest, Most Creative People by Rob Goffee, Gareth Jones
Free: The Future of a Radical Price by Chris Anderson
Good Value: Reflections on Money, Morality and an Uncertain World by Stephen Green
House of Cards: A Tale of Hubris and Wretched Excess on Wall Street By William D Cohan
How the Mighty Fall: And Why Some Companies Never Give in by Jim Collins
Imagining India: The Idea of a Renewed Nation by Nandan Nilekani
In Fed We Trust: Ben Bernanke’s War on the Great Panic by David Wessel
Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed
The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals by Frank Partnoy
The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox
Supercorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good by Rosabeth Moss Kanter
This Time Is Different: Eight Centuries of Financial Folly by Carmen M Reinhart, Kenneth Rogoff
Waste: Uncovering the Global Food Scandal, by Tristram Stuart
Why Your World Is about to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin
I have read only two of the books on the list (cf. items 5 and 11 below), so it looks like I have some catching up to do!