Global Boom ?

Monday, April 09, 2007 | 10:30 AM

We've mentioned the Recency effect several times of late. You can see no better example of this cognitive bias than in David Malpass' WSJ editorial today, crowing over Friday's NFP data.

To his credit, Malpass at least tries to contextualize the release into some historical framework, looking at the drivers of the global boom over the past few years. IMO, he downplays what's significant and overemphasizes what is less significant, but give him credit for looking at the bigger picture.


"The sea change in global conditions toward fuller employment has profound implications. This is an opportunity to build on success rather than dwell on U.S. recession odds. Developing countries could double their housing stock by adopting stable currencies and market-based banking systems, the building blocks for tapping into global liquidity and mortgage finance. Mexico, vital to U.S. immigration concerns and behind in global job creation, has the opportunity to take an economic leap forward, using today's plentiful liquidity to expand housing, raise living standards, and transform energy exploration and development. Brazil, India, Israel, South Africa and others could use part of their international reserves to reform their anti-growth tax systems, a step blocked until now by the fear that tax revenues from the existing system would decline before tax receipts from the new system replaced it.

What's driving the improvement in the global economic and labor environment? In the 1990s, the strong and strengthening dollar created a shortage of global capital and a crippling global deflation as the U.S. drew liquidity inward. U.S. big businesses, especially their stock prices, did well as global investors chased after "king" dollar, but most of the rest of the world sank. Europe was stagnant, while Asia suffered an extended deflation crisis.

But the post-9/11 switch in U.S. monetary policy injected liquidity into the global economy, lowered real interest rates, and brought the value of the dollar down, stopping deflation.

The 2003 tax cuts accelerated the expansion, adding profits, jobs and asset price gains. These two key growth steps -- reflation and the reduction in the marginal tax rates on labor and capital -- are largely ignored in economic headlines dominated by concerns about global imbalances and looming recessions. Meanwhile, the global economy is adding more to jobs, output, literacy and government tax receipts than ever in its history."

Global Boom
April 9, 2007; Page A13

Monday, April 09, 2007 | 10:30 AM | Permalink | Comments (42) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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I guess we don't have to surmize his political leanings as it's there in the last paragraph, first sentence of yor excerp.

Why can't these people see those for what they truly were?? Tax subsidies to the top 5%...
The last paragraph should just be a political ad for any republican running...all they have to do is cut and paste that into a current "speech"..


Posted by: michaelmschumacher | Apr 9, 2007 10:37:28 AM

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