Tuesday, June 23, 2015

What causes recovery?

The answer comes from Stanford's Ed Lazear:

First, a business-friendly climate—market-oriented labor policies and lower taxes—is effective in raising the growth in a state’s gross domestic product and employment. Second, states that suffered the worst employment shocks in the 2007-09 recession had the most rapid postrecession employment growth.

The first finding is self explanatory; the second casts doubt on President Obama's explanation for the slow recovery, the depth of the recession.  Lazear's work suggests that the deeper the recession, the faster the recovery.

Lazear is careful to credit Nashville's own Art Laffer who has been saying the same thing for years, along with coauthor Stephen Moore and Jonathan Williams.


  1. I don’t really have any clue about what causes recovery, I don’t even worry over this because of having highly rated broker OctaFX, it’s a mind blowing company with excellent features which really helps me trade better and never have to really worry about anything especially with their rebate service where I get 15 dollars profits back per lot size trade, it’s really excellent to have such great features that help me recover my personal losses in this high risk market!

  2. Interesting. But here in Kentucky, we are giving away tax incentives as fast as we can while companies incorporate in Delaware. We are probably the most biz-friendly state on the planet. We give away land, money and even foot the bill for employment costs but we're broke. Our state pension is $3 billion in the hole. We have Ford, GE, Humana, big, big corporations but their tax dollars flow to Delaware. Is this an example of the winner's curse? -SC

  3. Russia
    Rank by Population: 8th
    Rank by Economy: 10th
    “Russia has the dubious distinction of having the world’s worst economy. The biggest cause is the precipitous drop in the price of crude oil. According to the U.S. Energy Information Administration, in 2013, oil and natural gas sales accounted for 68% of Russia’s total export revenue. Moreover, during the 20-year period from 1995 through 2014, each year Russia was among the top three oil-producing nations. Thus, the drop in oil and natural gas prices has created a rather untenable situation for the Russian government and people. This prompted the Central Bank of Russia to begin a series of interest rate cuts in early 2014. Since then, the CBR has slashed its benchmark, one-week repo rate from 17% to its current level of 11%. The CBR also expanded the money supply during this period. Although the action was considerable, the results have been marginal as loans to the private sector declined in early 2014 and have been relatively flat since. A slowing global economy caused partially by lower oil prices, added insult to injury. Russia’s oil production has fluctuated, but more recently, it has spiked. Despite this, total exports have been falling. Negative conditions in Russia will likely persist for a while” (FORBES MAGAZINE ONLINE)

    According to Froeb “wealth is created when assets move from lower uses to higher uses, which invariably means the asset is in high demand”. As in the case of Russia the price of crude oil has done the reverse it has moved from a high value usage to a low value usage and as a result Russia’s economy is slowing as crude oil accounts for 68% of its total export revenue, which is means a significant amount of money is missing from the government’s budget.
    In order for a country to be successful its government must play a critical role as government enables movement of assets from lower to higher uses due to policies such as taxes etc. In this case with Russia, due to its internal decision to Annex Crimea there has been huge international sanctions such as bans on trade, ban on visas, frozen assets etc. Due to Russia’s government policies the countries’ assets have declined from higher use to lower use. Per Froeb an economy is good whenever assets are actualized at the highest values which invariably creates greater efficiencies. With crude oil prices slowly slipping and trade limitations, Russia’s economy is struggling due to its internal inefficiencies as their position on Crimea has created an obstacle for its free trade ventures. One requiem of transaction is that it must be benefit all parties involved, the annexation of Crimea was seen as a sole benefit to Russia and not the international community therefore it was met with strong resistance and the resulting bans.

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