The Auto Industry of the Future

One my colleagues in the Harvard econ department recommends to me this George Will column.

More on Negative Interest Rates

From LSE economist (and former central banker) Willem Buiter, who concludes

Removing the zero lower bound on nominal interest rates would represent a valuable addition to the policy arsenal of the central banks. We know something about how interest rates work. There is no reason to believe there would be any dramatic change in the effectiveness of policy rate cuts if these cuts to the rate [are to a] level below zero. We know next to nothing about the effectiveness of the alternative policies that central banks are forced to adopt if they don’t just want to sit on their hand[s] once the[y] hit the zero lower bound: quantitative easing and credit easing, relaxing the collateral requirements for central bank lending etc.

I should note that, economic logic aside, the "optics" of negative interest rates are not very good. I received more hate mail from my NY Times article on the topic than from anything else I have ever written. Indeed, Harvard University President Drew Faust received several emails suggesting that I be fired for writing the piece. She graciously copied me on her replies, which noted that Harvard faculty are not sacked for espousing controversial ideas. Central bankers, however, do not enjoy the same luxury.

Melitz to Harvard

Good news for Harvard. Marc Melitz has decided to accept the offer to return to our economics department. I am delighted.

Marc is, according to a standard ranking, the number one young economist in the country. (Note that Raj Chetty, who is number five on this list, has also recently decided to join our faculty.)

Here is one summary of the rightly famous Melitz model of international trade.

5/7/09

Happy Odd Day!

Enjoy it. It occurs only six times every century.

Is the White House bullying hedge funds?

A hedge fund manager defends the rule of law:

Cliff Asness, whose firm manages some $20 billion of assets, has written an open letter blasting President Obama for his attack on the hedge fund industry in the wake of the Chrysler bankruptcy.

As you'll recall, hedge funds, which hold approximately $1 billion in Chrysler bonds, refused the government's offer to take approximately thirty cents on the dollar. Obama accused hedge funds of holding out "for the prospect of an unjustified taxpayer-funded bailout."

These comments have enraged many in the industry but few have spoken out publicly. Asness, whose firm doesn't hold Chrysler bonds, says the industry is genuinely afraid in the face of Obama's power. Stating that he himself is "fearful writing this," Asness still pulls no punches:

"Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing."

"The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along."

"The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power."

Inflation or Deflation?

A Reading for the Pigou Club

Alan Viard explains why, if a cap-and-trade system to regulate carbon is adopted, the permits should be auctioned.