We laud the politicians and the war makers and perhaps the great scientists, but almost never the entrepreneur and the inventor even though the latter have done more for humanity than the former. (Unless, of course, like Bill Gates, the entrepreneur is seen as “atoning for his sins”.) I suspect the reason for this is that these people are unseen doers of unintended good. Perhaps they are motivated by making money. Few of them are likely motivated by a desire to...make the world a better place. The beauty of the market is that they don’t need to be altruistic...to generate consequences that do, in fact, help others.
Let them buy stocks
It is now clear beyond a reasonable doubt that the Fed wants to prevent sudden sharp drops in the stock market.
It has not, however, drawn the logical conclusion from this endogenous widening of its mandate. So, instead of pussyfooting around with 75 basis points cuts in the target for the Federal funds rate, I propose that the Fed put its money where its heart is by engaging in outright open market purchases of US stocks and shares.
By intervening through the purchase of the most broadly based value-weighted index of US stocks, e.g., the Wilshire 5,000 Total Market Index, any unlevelling of the playing field between listed stocks can be avoided.
I would prefer the Fed to acquire only non-voting shares, or to put any shares it acquires in a blind trust, to avoid any temptation to micromanage the enterprises whose shares it purchases.
On 25 January, the Wilshire 5,000 index stood at 13,423.62. The 52-week peak was on 7 October 2007 at 15,806.69. Let’s split the difference and request the Fed to put a floor below the Wilshire 5,000 at, say, 14,500. If the Hong Kong Monetary Authority can make large-scale domestic equity purchases during the Asian Crisis in 1998, the Fed can make large-scale domestic equity purchases during the North Atlantic Financial Crisis in 2008.
What I propose is effectively the same as the Fed attaching a free put option to every equity share in a US-registered and -listed enterprise.
It would put paid forever to all those jokes about the Greenspan put and the Bernanke put.
Let’s do it!
Some wishful prizes
A website proposes billion-dollar prizes for the first person(s) (who) solves any of these problems:
1. Develop a cure for breast cancer.
2. Develop a cure for diabetes.
3. Reduce greenhouse emissions from petroleum-powered automobiles by 95% without increasing the cost of a normal car more than 5%.
4. Achieve 150 miles per gallon of petrol in a 3,000lb car, using EPA standards; without increasing the cost of a normal car more than 10%.
My first reaction is that I would rather see do-gooders using this sort of thing than trying to work the political system.
Tariffs for a growing nation
The Globalization Institute blog links to a book which contests the idea that protectionism is good for developing countries. Yes, the currently rich countries imposed heavy tariffs when they were in the growing phase. But this does not mean that the tariffs were good for them.
Rather, the tariffs themselves are evidence that a lot of trade was occurring. Note that an isolated country does not need to impose tariffs, because no one can import or export to that country anyway.
It is only when the country is exposed to the outside world that domestic producers start lobbying for tariffs on imports. In the 19th century, something similar happened.
New transport technologies reduced the costs of trade so much that imports suddenly became possible. It was to stop those imports that tariffs were imposed.