Ray Kurzweil: The Singularity Is Near: When Humans Transcend Biology
A must-read about the pace of change in our world. Thrilling and utterly convincing
David Deutsch: The Beginning of Infinity: Explanations That Transform the World
With the possible exception of Ray Kurzweil's The Singularity Is Near, this is the most optimistic book I have ever read. If you choose to read the book, you will understand, among much else, what optimism really is. But, I have to warn you, the book is long and very difficult, being a combination of quantum physics and philosophy. I would not suggest it, if I didn't think it was extremely important, and, especially for younger persons, life-changing and life-affirming in the best senses of those over-used terms.
Niall Ferguson: The Ascent of Money: A Financial History of the World
A very readable history and analysis of the major financial marekts.
Hyman P. Minsky: Stabilizing an Unstable Economy
Minsky got it right. He was just 20 years ahead of his time.
Robert F. Bruner: The Panic of 1907: Lessons Learned from the Market's Perfect Storm
A brilliant case study of the 1907 crash and bank panic with lots of application to the Panic of 2007.
Tim Harford: The Undercover Economist: Exposing Why the Rich Are Rich, Why the Poor Are Poor--And Why You Can Never Buy a Decent Used Car!
An excellent common-sense guide to the value of economics in the real world.
Ted Fishman: China,Inc.
A comprehensive view of America's greatest trading partner...and rival.
Bryan A. Garner: Garner's Modern American Usage
Ideal & inexhaustable bathroom reading for anyone who loves language and aspires to write it well
Out of Focus
This month’s commentary will explore some of the difficulties involved in adequately interpreting the emerging information economy and how those difficulties are playing out in market interest rates. The first difficulty is with the act of measurement itself.
On the first Friday of each month, the BLS reports on the employment situation for the prior month and revises data for the two months previous to that. Other revisions follow periodically. For example, the net increase in private payrolls during September 2006 was first reported as 59,000 jobs. It was subsequently revised to 120,000 jobs, then 147,000, and 145,000 by February 2007. This was a change of 86,000 from first to last. There were similarly large revisions in the August and July data. None of the individual month’s revisions showed any coherent pattern but the net result was a continual increase in the number of jobs created during the third quarter, beginning at 325,000 and ending at 498,000. Then, last month, the BLS released its quarterly Business Employment Dynamics report. Based on far more complete data, it showed that only 19,000 net new private jobs were created during the quarter!
The constant outsized changes in the BLS’ estimates have evoked lots of criticism, which I think misses the point. The really important message is that difference to the economy between 498,000 new jobs and 19,000 new jobs was imperceptible. Had the revised number been reported initially, there would have been a clamor for the Fed to cut the fed funds rate. It wasn’t, so there was no clamor. Fortunes were made and lost in the financial markets based on economic analysis based on incorrect data Meanwhile, the economy—the real economy we live and work in—felt the same. Why? The answer is that in an information economy, quality of work more than quantity of work influences the strength and growth of the economy.
Productivity is another crucial economic indicator. It’s defined as how much an employee produces for each hour of work. Productivity is spiky from quarter to quarter, but it has generally been trending downward over the last few years. How can this be when corporations are earning record profits and stock market averages are making record highs? Again, the answer is that in an information economy, the value of work bears less relationship to the time worked. In an agricultural economy, the farmer who wastes time risks not bringing in a crop. In an industrial economy, a factory that takes twice as long as its rivals to produce a ton of pins goes under. Only artists in these economies produce work whose value is truly independent of time. Today, more and more of us are, in our own way, artists.
But if the nature of what a job is and what productivity is changing, we still can’t get away from the facts that consumer spending is the key to the US economy and consumers need jobs to spend. Everyone knows consumers are being buffeted by all-time high gasoline prices and stagnant or falling home values; there is no problem with data measurement here! So why has consumer spending remained consistently robust?
It’s true today as it’s been for decades that the vast majority of Americans’ personal income comes from salaries and wages. But personal income as a predictor of consumer spending means something different in a cash-based society than it does now. A job still provides access to current income, but, more importantly, it provides access to credit. Again, our challenge is the interpretation of work and productivity in the information economy. The “work” consumers do is to consume, and consumers use information to become better at this work. In particular, consumers have become extremely savvy users of credit, a skill that has revolutionized the way the economy works. Americans are adept at moving from one credit card to another, drawing on home equity lines, borrowing from 401(k) accounts, retrenching for a month or two, refinancing their homes, and starting all over again.
The data will catch up to the new reality, and probably sooner rather than later, but we are not wholly in the dark now. As facts become less reliable predictors, the best guides, oddly enough, may well be opinions, by which I mean not random musings such as this, but scientifically designed surveys conducted by private research organizations. The Institute for Supply Management, a trade group for purchasing executives, polls its members monthly to compile indices of economic growth in the manufacturing and non-manufacturing economies. Both indices were surprisingly strong for April and May. The Conference Board and the University of Michigan produce monthly indices of consumer sentiment, and both of these are trending up as well.
The confidence exhibited by business and consumers alike is behind the rise in US Treasury interest rates that began in mid-May. They are signs that production and consumption are increasing. A strengthening economy typically produces inflation as people are willing and able to pay more for scarce goods and services they desire. Market interest rates rise when investors begin to fear that inflation will erode the value of fixed income securities. Commerce Department data indicates, however, that inflation is retreating. The latest reading for year-over-year core personal consumption expenditures showed a rise of just 2%. The is the smallest increase since March 2006 and on the verge of the Federal Reserve’s comfort level of 1% to 2% annual inflation growth. But the bond markets are voting with their dollars against the government’s data and for the opinion surveys. They are saying that the portrait of the economy presented by the official information is too blurry to be reliable.
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