The Marijuana Legalization Success Story

For once, Paul Krugman wrote a post I Liked as he endorsed the legalization of marijuana. He points out that though he don’t use it, he does drink alcohol, and why should his recrecreational drug be considered better than others?

It can also be pointed out that the experience from legalization in Colorado has been very good:

-Crime is down..

-Tourism is up. 

-The State not only receives tax revenues from pot sales, they save money by not pursuing and jailing pot smokers.

And there are no signs that any of the negative predictions, like increased marijuana related traffic accidents, have come true

It could be argued that it’s too soon to evaluate the experiment, and thatäs a partially valid point, but so far there seems to be only positive effects. And of course, even if there wasn’t positive effects, that would still indict marijuana prohibition since it restricts personal freedom. To justify it, advocates of prohibition must prove very negative effects from freedom.

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The Argentinian Currency Debasement Role Model Default

Remember how Argentina and its currency debasement policy was held as a role model for troubled Southern European economies? Well, the currency debasement has continued (the peso has dropped 88% against the USD), but its economy is now in a deep crisis and is approaching default. 

As good as Argentina may be in football (the form of football where the foot is used to move the ball) it is very bad in economics.

So much for that role model…..

Krugman Uses The Success Of Austerity To Argue Against It

Paul Krugman argues that the big drop in the U.S. budget deficit shows that previous calls for austerity measures were unwarranted. What he fails to mention is that a key reason for this drop was the austerity measures implemented last year, you know the spending cuts and tax increases that were refered to as “the fiscal cliff”. In other words, Krugman uses the success of these policies in bringing down the deficit to argue that they weren’t needed.

America’s Falling Productivity

Interesting article on how America suffers from a supply shortfall.
They estimate that GDP likely rose 1.6% in America between Q2 2013 and Q2 2014 yet the unemployment rate fell 1.3 percentage points.

Yet the reality is even worse than they suggest. If GDP only rose 1.6% then this suggests a drop in productivity as employment increased 1.9%. And with population growth also slowing this means that potential growth is lower than ever.

This also implies that the fear that “machines will take our jobs” seems unwarranted for the time being. If that happened, productivity growth would accelerate, not come to a halt.

Sweden’s New Inflationary Strategy

Recently, Paul Krugman and others have criticized Sweden’s central bank for pursuing an insufficiently inflationary policy.

It has for long deliberately undershot its consumer price inflation target of 2% because it is worried about high money supply and debt growth. However, increased criticism has apparently changed its mind about that as it lowers its main interest rate from 0.75% to 0.25%.

This will no doubt increase inflation in Sweden, partly through the drop in the krona’s exchange rate, partly through increased debt growth. But the side effect of too high house prices and debt levels will hurt Sweden’s economy in the long run.

This illustrates the problem with strict consumer price inflation targeting. When positive supply schocks pushes down prices, central banks are compelled to respond by pursuing monetary policy that creates unsound levels of debt and asset prices.