A sure way to increase uncertainty

Is it me, or did Treasury Secretary Tim Geithner make matters worse with his announcement about the TARP today.

Given how long people have been waiting for a “solution” from government, statements like:

We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it

Seem a bit soft. Surely the market thought that the US government had already done this!

In fact, the market did think this – which is why the DOW collapsed. You increase uncertainty, you reduce the value of capital – it’s as simple as that:

Source (The Austrian Economists)

Labour skills and sticky wages: Is the problem worse now?

The mass unemployment in the 1930’s has sometimes been put down to “stick wages”. Fundamentally, the value of labour fell but the price didn’t – leading firms to cut back on employment at a faster rate than would have been socially optimal.

Since then, wage stickiness appears to have eased to some degree: Unions are less powerful than they were, and employees have a greater level of understanding about why firms may have to cut nominal wages – leading to less of a psychological impact (Note: These statements are just conjecture – if you don’t agree with them feel free to state in the comments, we could really do another post on it :) ).

However, does that mean that the underlying issue of labour market adjustment has abated? The short answer is no.

Read more

Another sign that our labour market is surprising?

So the unemployment rate was on the low side of expectations. However, as I and others have said – hours worked collapsed, so surely this is the first sign of worse to come.

However, lets think about this a little more. Falling hours worked only really matter (in a welfare maximising sense) if people want to work more hours. Fundamentally, we need to see underemployment ticking up. But is that the case?

Read more

Supermarket Brands: Killing in the name of?

I read with great interest that Progressive considering killing all of their supermakret brands and turning all of their stores into Countdowns.

Given that supermarkets typically differentiate their offerings via their different brands (e.g. Pack’n Save is cheap, New World is high quality etc..) this is quite an interesting move. If this does go ahead it will be quite interesting to see how they compete-will their be one generic offering or will we see “budget” Countdowns and “high end” Countdowns depending on the location and what rival supermarket is in the vicinity?

Time will tell.