Daily Archives: December 14, 2006

Ed Prescott’s five macroeconomic myths

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edprescott4.jpg2004 Nobel Laureate Edward Prescott in this WSJ ($) op-ed lays out five macroeconomic myths and observes as follows:

The sky is not falling. No need to panic and start playing around with all sorts of policy responses. Despite the impression created by some economic pundits, the U.S. economy is not a delicate little machine that needs to be fine-tuned with exact precision by benevolent policymakers to keep from breaking down. Rather, it is large and complex, with millions of people making billions of decisions every day to improve their lives, the lives of their families and the health of their businesses.
On the one hand, it’s difficult to screw up all these well-intentioned people by crafting bad policy, but, on the other hand, it is of course entirely possible to do so. And once things are broken, they are much harder to fix. For example, all those doomsayers predicting a recession will get their wish if taxes are suddenly raised, new productivity-strangling regulations are enacted, the U.S. turns against free trade, or some combination thereof. Otherwise, we should expect 3% real growth, based on 2% increases in productivity and 1% population growth. This economy is fundamentally sound.
So we have to be careful that we don’t believe everything we read in the papers. Things are never as bad as the last data that was released, nor are they as good. Likewise, policy should not be revised at every turn, nor rules changed by political whim. Meaning, we should be careful about accepting conventional wisdom as, well, being wise. One of the great disciplines of economics is that it challenges us to question status quo thinking.

In other words, it’s hard to screw up something as big and complex as the U.S. economy, but we’re eminently capable of doing it with unnecessary and ill-advised policy moves. And it’s much harder to correct the bad policy than to screw up in the first place. That’s a good reason to support this.

The NFL Network’s one week special

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nfl-network.JPGYou have to hand it to the owners of the National Football League — they recognize a public relations blunder when they see one coming.
As noted in earlier posts here and here, the NFL owners’ attempt to drive a hard bargain with cable companies that service most of the nation’s television viewers has backfired badly in regard to the owners’ NFL Network venture. The viewing marketplace couldn’t care less about the NFL Network’s product and the NFL owners have come off looking like petty moneygrubbers by not making a deal that allows most football fans to watch the NFL Network’s games. In the meantime, the NFL owners’ refusal to cut a deal with the cable companies meant that two post-season bowl games to be televised by the NFL Network — Houston’s Texas Bowl between Rutgers and Kansas State and the Insight Bowl pitting Texas Tech against Minnesota — would not be seen by most viewers in the nation.
Well, the huge collective yawn of viewers, combined with the growing crescendo from long-suffering Rutgers fans who were not going to be able to watch their team play in the Texas Bowl, has prompted the NFL owners to offer an olive branch — one week of free access to the NFL Network in the New York area during the week of the two bowl games.
Now, the only problem with the offer is that Time Warner — one of the largest cable companies in the country and the one that services most of Houston — has not decided whether to accept the NFL owners’ offer. Regadless, most football fans in Houston won’t see the game because the NFL owners’ offer is limited to the New York area.
Are you getting the same impression that I have that the NFL owners have overplayed their hand a bit on this one? ;^)

Krispy Kreme’s new strategy

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krispy6.jpgThe mercurial rise and fall of Krispy Kreme used to be a common topic on this blog, so I took notice of an interesting observation about the company that the NY Times’ business columnist Floyd Norris recently made on his blog:

Krispy Kreme came out with some more sort-of numbers today, and the market liked it. Its stock rose 17 cents, to $9.98.
The doughnut company said sales were down, and that it continued to lose money in the quarter ended in October. But it said it couldnít get out a 10-Q report to the Securities and Exchange Commission, or calculate just how much it lost, because it was too busy working on older reports.
The company has not put out any reports for the current fiscal year, and is still missing one from the quarter than ended two years ago.
But the stock has done well. It is up 74 percent this year. Short-sellers still hate the company, with the last monthly report showing a short position of 19.3 million, more than 30 percent of the shares outstanding, but others think the glory days will return. Some of those shorts evidently cannot find shares to borrow, but hold on to their positions anyway. The company has been on the list of stocks with a large number of failures to deliver for 110 days.
When the New York Stock Exchange continues to list a company, and investors continue to embrace it despite long-delinquent filings, it is hard to see what incentive the company has to get the full numbers out. It promised the S.E.C. today that it ìintends to file the Exchange Act Reports at the earliest practicable date,î but did not speculate on when that might be.

In other words, the company is doing so poorly that it has almost crossed the line to doing well. ;^)