Is RBC the New Business Cycle?

Monday, May 07, 2012 – by Staff Report

Murray Rothbard
Why Economies Boom ... One of the major schools of thought in macroeconomics rarely makes it into mainstream discussions: Real Business Cycle Theory. RBC, as it is known, claims that a lot of year-to-year economic volatility is caused by changes to the supply side of the economy: perhaps tax and regulatory changes, bad weather in farm economies, spikes in oil prices, and above all, the mysterious force known as the "technology shock." Finn Kydland and Ed Prescott shared a Nobel, partly for creating RBC theory ... [But] people don't switch from consuming to investing in a boom, they do more of everything. So you can see where I'm going: A change in the weather really is a technology shock. But can this possibly be relevant for explaining the boom-bust cycle in real-world economies? Not always, for sure, but I'm no monocauser: Monetary policy seems to matter a lot, as Friedman/Schwartz and Romer/Romer argued; and other business cycle stories abound. – Megan McArdle/TheAtlantic
Dominant Social Theme: The business cycle is a mysterious thing.
Free-Market Analysis: Megan McArdle is out with an interesting rumination about the business cycle. It's not merely a theoretical examination, however.
Who is she? From The Atlantic: "Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist."
The Atlantic is a truly elite thought magazine so in the end the article turns out to be a kind of defense of RBC and of the changes brought by ... wait for it ... global warming.
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Greece: New Elections May Oust ECB Bankers

Athens, Greece (CNN) -- Greece's center-right New Democracy party looks set to get the first chance to form a new government Monday, but party leader Antonis Samaras will have a complicated task after an election where angry voters punished politicians for backing harsh government budget cuts.

No party is likely to have anything approaching a majority, leaving the politically and economically volatile nation even more in flux.

The Greek stock market plunged about 7% Monday morning as the final votes from Sunday's election were being counted.

With 97% of votes counted early Monday by the interior ministry, New Democracy -- part of the present ruling coalition -- finished first with 19% support to capture 109 seats.

That figure is barely half the percentage that it won in elections in 2009 and well short of what party leader Samaras admitted it hoped for entering this weekend.

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"I asked for a strong mandate, but people chose differently. I respect their message," Samaras said in remarks carried live on state television. "Today's result expresses people's disappointment towards the implemented dead-end economic policy that tested their limits and didn't include the necessary development policy."

In an apparent backlash against austerity measures, the two parties that spearhead the current coalition government earned far short of 50% of all 300 parliamentary seats. That means a new coalition government will again have to be formed.

Politicians have until May 17 to come up with a new working alliance or, if they cannot, set a date for another round of elections.

Samaras acknowledged the results were disappointing to his party, but said that as the first-place finisher and "only pillar of political stability in Greece," New Democracy now has even more responsibility.

If a coalition government can be formed, he said its two priorities would be to remain in the eurozone and alter existing policies, including stringent austerity measures, to "achieve development and offer people relief."

"I understand people's rage, but I will not let the country (exist) without a government," Samaras said.

The other party to see its support plummet was left-leaning PASOK, New Democracy's coalition partner.

Three years after beating out all other parties with 44% of the vote, PASOK took 13.3% this time -- giving it 41 spots in parliamentary, compared to 160 after the previous election.

PASOK's leader, Evangelos Venizelos, said he favored the formation of a unity government that is "EU-oriented, regardless of what their take is on" previously implemented measures.

The tribulations of New Democracy and PASOK were matched by triumphs of a number of other parties that were also-rans and in some cases nonexistent just a few years ago, propelled by voters angry about stringent austerity measures.

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The radical leftist coalition Syriza passed PASOK with a strong second-place showing. Exit polls predicted it would garner 10% support, but instead Syriza garnered 16.7% support, according to the results. That more than triples its parliamentary representation to 51 seats.

"This is a message of a peaceful revolution," said Syriza party leader Alexis Tsipras. "European leadership and especially (German Chancellor Angela) Merkel have to understand that austerity policies have suffered defeat."

The fourth-place finisher, the Independent Greek party, was founded in February by ousted New Democracy parliamentarian Panos Kammenos. With 10.6% backing, this right-wing nationalist party, which opposes Greece's agreement with the European Union and International Monetary Fund, will now have 33 seats in parliament.

The Communist Party, which wants Greece to leave the single-currency eurozone, also saw gains in winning 8.5% support.

And the far-right Golden Dawn party, which got 0.3% of votes the previous election, ended up with 7% support on Sunday. That equates to rise from zero to 21 parliamentary seats.

Its leader, Nikos Michaloliakos, gave a rousing speech after Sunday's vote saying Golden Dawn would "fight so that Greece won't be a slave of the memorandum and of the social jungle that illegal immigrants have brought in this country."

"Everyone who betrays Hellenism should be afraid. We are coming," he said.

Katerina Sokou, financial editor of the Greek daily newspaper Kathimerini, called what happened Sunday "a protest vote (against) the main two political parties of Greece."

Yet Sokou added that she expects New Democracy and PASOK again will be part of the ruling coalition government, even though there may be notable policy changes and challenges to come, including a "renegotiation" of already approved austerity measures.

"I believe that these electoral results ... show that people need a coalition government," she said. "They also want the parties to cooperate."

One young mother interviewed by CNN said her aim Sunday, before the voters were counted, was to "punish" pro-austerity politicians and "get rid of them for good."

Austerity is "the wrong path," said the woman, who did not give her name.

"Austerity measures just make people poorer and the situation does not get any better in the long term or in the short term either," she said.

But another voter at the same polling station said politicians have been doing the right thing.

"We don't have an alternative," he said, saying he backed "whichever party actually understands that and wants to deal with it and wants to take these hard measures."

He also did not give his name.

The country's national debt threatened to force it to drop Europe's common currency, the euro, prompting the European Central Bank and other lenders to swoop in with emergency funding last year. In exchange, they demanded that the government slash spending brutally.

Austerity measures already enacted have led to cuts in jobs, wages, pensions and benefits, and have negatively affected many people, especially pensioners and those who get state assistance.

Taxes have gone up and the national unemployment rate for January, the latest month for which figures are available, was just under 22%. Among 25- to 34-year-olds, it was nearly 29%, leading many young people to leave the country in search of work.

Furthermore, for the past two years, the country's massive amount of debt has threatened the stability of the 17-country eurozone.

Greece pushed through a huge debt swap in March to save it from disorderly default and clear the way for it to receive a second bailout from the European Union, the European Central Bank and the International Monetary Fund, worth €130 billion ($171.5 billion).

The debt restructuring deal gave some breathing space to the eurozone bloc, where fears that Greece might collapse had increased pressure on other debt-laden nations such as Spain and Italy.

But the outcome of Sunday's vote raises fresh questions as to whether Greece will stick with the painful path of austerity.

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France: just put GOP and teaparty into the hopper

(CNN) -- The U.S. economy is currently on autopilot: A sharply polarized Congress and a tapped out Federal Reserve can't do much more to stimulate it this year.

But the economy may still hit turbulence after voters in France and Greece delivered a resounding anti-austerity message over the weekend to their governments.

That message, say analysts, is likely to have implications for the United States that extend from its fragile economy to its planned withdrawal from Afghanistan.

The first sign of a possible issue could come as early as Monday when U.S. markets open.

"A change in leadership brings uncertainty because you don't know exactly what you're getting into," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

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"It won't be a be-all end-all sell signal, but new leadership in France could cause investor jitters that reverberate through global financial markets."

Even the news Friday that Nicolas Sarkozy, one of the most America-friendly French presidents in decades, may lose to socialist Francois Hollande appeared to play a role in the market's movement. After nearing four-year highs at the start of the week, U.S. stocks ended with a thud on Friday as the S&P 500 logged its biggest weekly decline of the year.

Hollande swept to victory Sunday, becoming France's first-left wing president since Francois Mitterand left office in 1995.

That was followed by news that voters in Greece dealt major blows to the country's two most established parties in parliamentary elections, leaving no party with anything approaching a majority.

The message from voters in both countries appeared to be the same: The current policy of deficit-cutting, reduced spending and cuts to benefits and public services is unacceptable.

The election results leave in question what happens now to the eurozone and its debt crisis. France is a key player in plans to navigate it. And Greece is a recipient of bailout by the European Central Bank that requires the government to slash spending.

The European Union is America's largest trading partner. The U.S. economy has suffered in the slow down in European markets, and further economic problems in the eurozone could mean less trade with the United States.

Outside of the economy, the election of Hollande poses serious questions about the diplomatic and military relationship between the United States and France.

With Sarkozy, the United States enjoyed support in its positions on Syria, Iran and Afghanistan. Sarkozy was a proponent of the NATO air campaign in Libya.

But with Hollande, there is no guarantee that the United States can count on support.

Hollande campaigned on the promise to pull France's troops from Afghanistan by the end of the year, two years ahead of a planned withdrawal that was choreographed to coincide with U.S. plans.

During the campaign, Hollande also raised questions about Sarkozy's decision in 2009 to place French troops under NATO command.

Hollande can expect NATO leaders to urge him to change or soften his position when he attends a summit in Chicago later this month where the focus will be on Afghanistan.

President Barack Obama called Hollande shortly after results were announced to congratulate the president-elect and invite him to the White House.

While any talks between the two leaders will likely to focus on diplomatic and economic relations, Obama is probably taking a lesson from the outcome of the French election.

Obama, like Sarkozy, is campaigning for re-election amid a faltering economy, high unemployment and voter discontent over spending and cuts.

CNN

France: Elects non-austerity Socialist

Paris (CNN) -- Francois Hollande defeated French President Nicolas Sarkozy in a presidential runoff Sunday, signaling a shift to the left as the country and Europe fight to dig out of a weak economy.

In a victory speech to supporters in Tulle, Hollande declared his win "a great date for our country, and a new start for Europe." The Socialist challenger promised to govern for all of France.

"Many people have been waiting for this moment for many long years. Others, younger, have never known such a time. ... I am proud to be capable to bring about hope again," he told the cheering crowd.

"Tonight, there are not two Frances. ... There is only one France, only one nation that is united with the same destiny," Hollande said.

The president-elect, who will be the nation's first left-wing president since Francois Mitterrand left office in 1995, suggested there was a sense of relief in many European countries because of his win.

"Austerity can no longer be something that is inevitable," he said.

Later, Hollande went to Paris, where he addressed a large crowd at the Bastille. Supporters waved flags and shouted his name.

"I know what many people feel -- years and years of wounds, of ruptures, and we have to repair, recover, unite. That is what we're going to do together," he vowed.

Hollande congratulated Sarkozy, who earlier conceded to Hollande as results from exit polls and official tallies in the runoff election came in.

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"I carry the entire responsibility for this defeat, and I'm going to say why. I fought for the values of responsibility, and I'm not a man who does not accept his responsibilities," Sarkozy said from his Paris campaign headquarters, as members of the crowd shouted, "No!"

"I'm ready to become a French person amongst French people, and more than ever I have the love for my country deeply ingrained in my heart," Sarkozy said.

With almost all of the votes counted, Hollande was leading with 51.6% to Sarkozy's 48.4%, the nation's Interior Ministry said. Voter turnout was reported at more than 80%.

Exit polls said Hollande won 51.9% of the vote, France 2 television reported.

Crowds roared at the center-left candidate's campaign headquarters as the exit poll results came out Sunday evening. Celebratory car horns blared along the Champs-Elysees in Paris.

"It's a great night, full of joy for so many young people all across the country," said Thierry Marchal-Beck, president of the Movement of Young Socialists.

U.S. President Barack Obama called Hollande shortly after results were in to congratulate the newly elected president and invite him to the White House.

Sarkozy had fought to keep his job amid a wave of discontent over his inability to rein in unemployment. He defended his economic record despite low growth and unemployment at about 10%, saying the impact of Europe's debt crisis could have been far worse.

France is a key player in plans to lead the eurozone out of its debt crisis, making the election vital to the region.

Sarkozy's defeat marks the latest -- and most significant -- of at least half a dozen European leaders swept from office during the eurozone economic crisis, including the Greek and Italian prime ministers.

France's vote came the same day as the Greek parliamentary election. Exit polls in that country indicated Greece's ruling coalition appeared headed for steep losses, while parties on the far left and far right were poised to make significant gains amid anger over austerity measures.

Hollande and Sarkozy traded insults last week in the only televised head-to-head debate of the campaign. Sarkozy labeled Hollande a liar and a "little slanderer," while Hollande accused the president of shirking his responsibilities, cronyism and favoring the privileged over France's poor.

Both candidates reached out to France's undecided voters since the first-round vote on April 22 left them the only two standing.

Centrist Francois Bayrou, who took 9% of the first round vote, delivered a boost to Hollande's campaign Thursday when he said he would vote for the Socialist and urged his supporters to vote according to their conscience.

Sarkozy has been president since 2007.

CDNN

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France: Financial markets reeling after France and Greece elections

Election of anti-austerity François Hollande in France and hung parliament in Greece create uncertainty about eurozone debt crisis

• •  

Asian stock markets have been pummeled by election results in France and Greece that heightened uncertainty about Europe's ability to solve its debt crisis.
The election of François Hollande in France and the Greek election result put Asian markets in a spin. The results threaten the fragile political consensus that has kept Europe's currency bloc intact through more than two years of crisis and raise pressure on Germany to take a more growth-oriented approach to the crisis.
Signs of a faltering economic recovery in the US compounded the dour mood while oil slid below $97 a barrel. Japan's Nikkei 225 index plunged 2.6% to 9,134.26 and Hong Kong's Hang Seng slid 2.4% to 20,582.24.
The Australian dollar fell to a four-month low near $1.0111 against the US dollar on Monday while the euro fell to its lowest since 25 January of $1.2955.
Election results in Greece sent tremors throughout Europe as voters punished the parties responsible for highly unpopular austerity measures instituted to prevent the country from defaulting on its massive debts. No political party won enough votes to form a government, leaving the political and financial future of the country in serious doubt.
In France, President Nicolas Sarkozy lost to the Socialist candidate, Franois Hollande, who has criticised the country's austerity program and wants to boost government spending.
Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said the election results were likely to heighten political instability and market volatility.
Australia's S&P/ASX 200 lost 1.8% percent to 4,316.20 and South Korea's Kospi shed 1.7% to 1,955.53.
"The issue is that in Greece the outcome raises the level of uncertainty a lot, because it's not clear who can form the government or in fact how long they will last, and what their attitude to the current agreements that the Greek government had reached would be," said Richard Yetsenga, Head of Global Markets at ANZ Research.

"The French outcome was as expected. The markets have already shifted to a view that austerity on its own wasn't the right policy mix and that other things needed to be considered."
Jeff Sica, president of SICA Wealth Management, said: "Austerity will not work to solve Europe's debt crisis. However, shifting austerity to higher earners and business will accelerate the debt crisis."

Merkel has invited Hollande to visit Berlin as soon he can for a meeting that would set the groundwork for a consensus on growth policies vital to the eurozone's future health.
"The Merkel/Hollande initiative will never materialise due to Hollande and Merkel being polar opposites with no chance to agree on anything," Sica said.