NYFed's Bill Dudley Speech at VAE / VMI

Mike Smitka, Washington and Lee

Tonight I had the opportunity – perhaps I should say privilege – of hearing Bill Dudley, President of the Federal Reserve Bank of New York, speak at the Virginia Association of Economists conference at Virginia Military Institute. (Tomorrow they move next door – literally – to my own Washington and Lee, in a venue 45 seconds from my office.) I've been to many such events, and he spoke largely from script: the text of his talk, The Role of the Federal Reserve—Lessons from Financial Crises is already available on the FRB New York web site. He's been here before, and prefaced his talk with details about VMI and W&L and H. Parker Willis, the first Dean of what is now the Williams School. As a friend of Congressman and then Senator Carter Glass [of Lynchburg VA], Willis helped draft the legislation that set up the Federal Reserve System in 1913, and then went on to become the first Secretary of the Federal Reserve Board. (I'm currently sitting underneath what a century ago was Willis' office.)

"Kei" Cars in Japan: A "Galapagos" Sector?

Mike Smitka

Under Japanese taxation, licensing and inspection systems there are 3 broad classes of cars (and light commercial vehicles): full-sized, compact and "kei" minicars. The latter have to have a small engine, a narrow width and a short length (the BMW "Mini" is too big, even the Smart is too wide!). They get a different (yellow) license plate, face lower taxes and inspection fees (annual taxes of ¥10,800 – in contrast a friend pays about ¥70,000 a year for his C-class Mercedes). They also face less stringent safety regulations (basically, don't get in an accident in one). The leaders in this segment – Suzuki, Daihatsu [a subsidiary of Toyota], and Honda – spend significant resources developing new models. But as with Japanese cell phones – if you haven't seen one, there's a reason why! – is this a niche peculiar to Japan. Are they – like Japanese cell-phones – a dead-end strategy, a niche that due to the peculiar development of domestic cell phones have no market in the rest of the world? If so, it's a commercial disaster that will drag down these players, as over the next decade the level of sales confronts an aging and domestic population.

Peak Oil Revisited: Did I get anything right?

Mike Smitka, Economics, Washington and Lee University

In 2014 I wrote on the arrival of peak oil. That now appears at best premature. So what did I get wrong, and what (if anything) did I get right?

In my initial post I made two key assumptions. The first was that fracking would not be that important, because it remained a high-cost method of extraction. The second was that Saudi Arabia still had market power, and that therefore would respond to rising costs by cutting output. The third that changes in demand would be modest. Finally, though not (then and now) relevant, I assumed that alternative energy sources would remain marginal and substitution away from petroleum small.

The Nature of Economic Knowledge: Divergent vs Convergent

Mike Smitka, Economics, Washington and Lee University

Discourse in economics presumes that knowledge is convergent: more empirical research and better theory will together refine our knowledge and helps us approach a "true" understanding. That implicit methodological assumption is not only wrong, but leads to the flawed application of economics. In practice, economics is perhaps better thought of as divergent.

US Employment: Age-specific patterns of recovery

Mike Smitka, Economics, Washington and Lee University

Here's another quick cut on what's been happening over the past decade. Prior to 1997 employment as a percentage of the population in different age brackets was nearly constant. During the Great Recession older workers either didn't lose their jobs or found new ones.

US Employment relative to Population Growth

Mike Smitka, Economics, Washington & Lee Univ

Today's Employment Situation. Adding jobs isn't enough, because our population is growing. I've created a normalized level of employment that accounts for example for "boomer" retirement. At the current rate we'll be back pretty close to normal within 2 years. Since the are headwinds, basically the entire rest of the world, the Fed will be slow to raise rates, but raise they will, so the next President will face quite a different environment. (Note: the age-specific levels of employment for the age brackets I display were stable for the 10 years preceding the start of the Great Recession in January 2007. That provides the basis for my calculations. For details see HERE.)

The US Market: How many brands, how many models?

Mike Smitka, Economics, Washington & Lee Univ

Toyota will eliminate the Scion brand; Ford is withdrawing from Japan. In the US, Suzuki, Hummer, Pontiac, Plymouth, Mercury, Oldsmobile, Isuzu, Renault, Yugo, Saturn, Hyundai (since returned) and others vanished years ago. Excluding upscale marques, today only 2 other brands have market shares in the US below Dodge's 3.5%: Fiat at 0.2%, and Mitsubishi at 0.6%. Meanwhile Scion averaged 0.3% for the whole of 2015, and hasn't been consistently above 0.5% since hovering near the 1% level under the high gas price era that ended in 2008. The Fiat 500 had the misfortune to launch even later, in 2011. Now my categories are arbitrarily mine. BMW's Mini is also at 0.2%, but the base two-door starts at $20,000 while net of current rebates the Fiat 500 starts at $15,000. Even the Chrysler brand, which to me is not now particularly upscale, has a 1.6% market share.

Trump: Time to flop, er, flip: an economic analysis

Mike Smitka, Economics, Washington & Lee Univ

Trump has run a strategically brilliant campaign, playing the media to the hilt to speak to the very specific and fairly narrow section of the electorate who vote in Republican primaries. He employed his savvy for publicity to see that, no matter how much they spent, Donald would be the name on the home page of all the news sites, every day.

Only some of today's votes are in, but so far that strategy is working.

from the start, Trump needed only a third of the primary vote to garner the nomination