NoteMod.org » Blog Archive » Secondary Sources: G-20 Guide, Animal Spirits, Stimulus

Secondary Sources: G-20 Guide, Animal Spirits, Stimulus

Posted by Michael Stone in Economy on 11 15th, 2008 | no responses

A roundup of economic news from around the Web.

G-20 Guide: On the Baseline Scenario blog, Simon Johnson offers some indications of successes and failures that can come from the G-20 meeting. â€œWe should have some indications of how things are going by the end of Friday (today). Any big announcements will probably be floated or previewed in some way by 11pm Washington time. Weâ€™ll know a lot more after the end of the formal meeting, mid-afternoon Saturday, when weâ€™ll see the final communique. Then, of course, come the press conferences and the spin. And, in case anyone has forgotten the lessons of October 19th-12th (when the Europeans did a spectacular last minute U-turn on bank recapitalization), most of Sunday â€“ U.S. time - is also available. So feel free to go home and announce major new policy initiatives. But itâ€™s not all of Sunday, as Asian markets open in the early evening US East Coast time, and their initial reaction can influence the broader passing of market judgment on Monday.â€

Reviving Animal Spirits: Writing for the Project Syndicate, Robert Shiller talks about a crisis of confidence. â€œThe erosion of animal spirits feeds on itself. Immense market volatility serves only to reinforce peopleâ€™s sense that something is really wrong. A volatility feedback loop begins: the more volatility, the more people feel they must pay attention to the market, and hence the more erratic their trades. Perhaps the saving grace in this situation is that animal spirits can and sometimes do change direction. Confidence is a psychological phenomenon, and can make seemingly capricious jumps up as well as down. The most promising prospect for a return of business confidence now would be some kind of public inspiration. In the U.S., President-elect Barack Obama seems to have the charisma to create this, and his status as the first minority president marks a major historical transition that might have great positive psychological impact in the U.S. and around the world.â€

Depression Economics: Writing for the New York Times, Paul Krugman says that the U.S. needs massive stimulus to get the economy up and running. â€œAll indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion. So the question becomes, will the Obama people dare to propose something on that scale? Letâ€™s hope that the answer to that question is yes, that the new administration will indeed be that daring. For weâ€™re now in a situation where it would be very dangerous to give in to conventional notions of prudence.â€