"Kee" Points with Jim Kee, Ph.D.

Overall, the data last week supported continued growth in the U.S, weaker growth in China, and lower but positive growth in Europe and Japan. Recall that from an investor’s perspective, it is really growth “surprises” that move markets (most of last week’s data was in-line with expectations). Policy responses to new data are a big source of surprises, and I think markets right now are watching as to whether the Chinese government will surprise with a positive stimulus plan, and whether the European Central Bank will enact some form of central bank asset purchases in response to fragile  growth there. The sentiment is still pretty negative for emerging markets as a whole, particularly the mostly “extractive” or commodity based economies. But I am seeing more “buy India” enthusiasm, primarily because of coming elections there. When combined with the fact that University of Chicago economist Raghuram Rajan is heading up India’s Central Bank, it increases the expectations of positive policy surprises there. But the big news will be Friday’s monthly jobs report here in the U.S. That report will give us an estimate of the number of jobs created in March; expectations are in the 200,000 range (February’s number was 175,000, and January’s was 129,000).


Last week I mentioned that there is far more agreement as to what constitutes stimulative monetary policy than there is regarding fiscal policy. Nevertheless, it is possible to discern some agreement on basic tenets among members of the IMF, the Federal Reserve, the European Central Bank, etc. Those tenets are that less bureaucratic rigidity (more open and flexible labor, product, and capital markets) is more stimulative than more rigidity, and that more certainty regarding tax and regulatory policy is preferable (more stimulative) to less certainty. That is, there is a basic recognition of the power of market forces. By the way, you don’t have to be a fan of capitalism or free markets in order to respect market forces. There is much wisdom in the following profound (in my opinion) statement from economist Arnold Harberger, who has been influential in promoting free market capitalism throughout the world. Harberger argues against those:


“for whom market solutions are always best, always beneficent. In contrast, I like to say that markets are tough and cruel, like the winds and the tides. He who tries to fight them has himself one hell of a battle. Our big challenge is to understand market forces, so that we can take advantage of them, rather than find ourselves standing in front of the tidal wave when it appears.”


Those forces are basically the laws of supply and demand, and the fact that people and resources tend to move away from activities that promise low rewards and into activities that promise high rewards.