News From the Disaster Front

Some of you may have seen the news about the huge California wildfires. One of the biggest started just outside of Chico, but has been moving up toward Paradise, about 10 miles away. 5000 homes are at risk and much of the city has been evacuated. It is also very close to the junior college. As of this morning, the fire is only 10% contained. The expected shift in the winds will blow the fire up the canyons causing enormous damage.

Part of the problem is the inadequate rainfall we have had. Maybe we could make a trade with the midwest.

35 miles an hour winds kept much of the smoke away until this morning. Visibility is now very bad. I do not know how many pack-of-cigarettes-equivalents I am getting from breathing the air.

On Sunday morning, I will be on my NAFTA tour, giving a talk in Mexico City and then attending the History of Economic Society meetings in Toronto.

3 comments so far

  1. Thomas Molitor on

    Michael,

    I listened to your WORT radio interview and to make a point about the Feds “building up contradictions to avoid recessions” you cited the Feds “lowering interest rates after the 1987 stock market crash in order to stimulate the economy and avoid a recession.” You went on to say that this action “directly led to the Dot Com bubble.” First off, at the time of the 1987 stock crash, the bank prime rate stood at 9.00. The rate stayed ABOVE 9.00 and rose between 1987 and 1991 before returning to 9.00 and falling thereafter. I have two questions for you: One, is it simply untrue your belief that the “Feds cut interest rates during that period to avoid a recession? – and two, how do you see a correlation between the stock market crash (albeit lasting for one day only) and the creation of the Dot Com bubble you also cited during your interview?

  2. mperelman on

    It was a lagged reaction. Because of the delay, Bush blamed Greenspan for Clinton’s victory. Then Greenspan lowered interest rates, setting off the bubble. I should have been more clear.

  3. Thomas Molitor on

    Are you saying that the ’87 stock market crash triggered a lagged response by the Feds (to avoid a recession) in which it began an interest rate cut cycle in late ’91, which in turn led to the Dot Com bubble? I would suggest the Dot Com bubble was a speculative bubble (I guess by definition all bubbles are ‘speculative’) created by an exuberant investor environment in which standard business models were dismissed in the pursuit of placing the right bets on Internet start-ups. I’m still unclear what you meant when you said “cutting interest rates in order to avoid a recession led to the Dot Com bubble.”


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