The new issue of Jack Ciesielski's Analyst's Accounting Observer has a list of "20 Questions to Ask on Conference Calls." He means quarterly earnings conference calls, and the questions are all related to the current financial and economic turmoil. You'll have to pay Jack some big bucks if you want to know all 20, but the first two should be enough to give you an indication of what a changed (and suspicion-filled) financial world we now live in:

1. What is the firm's accounting policy on credit card receivables--are they considered cash equivalents?

2. If credit card receivables are "cash"--who is the bank handling credit card receivables?

A Danish friend who watched the debate from Copenhagen sent me this e-mail last night. He was a little groggy--it was 5 a.m. his time--but I figured it was worth sharing:

[A]mericans don't understand that you're a part of a global economy and society. The whole world is struggling with financial problems mainly because of the US-problems. Still, both candidates make a huge effort in giving the voters economic guarantees they probably won't be able to fulfill due to...eh...oh yes: The development in the rest of the world!

It's time for America to realize that your role as world leader is shrinking way faster than you think. Asian countries are gaining ground fast, and if you guys don't start to adapt to that fact soon, in few years you'll wake up to the same situation that Europe started to adapt to few years ago--but still haven't accepted either.

For example: Americans can't produce cars in few years, because others will do it cheaper--so start educating the workforce or an even larger number will have to get in line for their welfare check. Americans will--also in four years--spend huge amounts of money (they said 700 billions...?) on Saudi oil, because you guys been sleeping for far too long and not accepting global agreements that promote alternative energy or invest in other energysources to heat your houses or save energyconsumption.

The world is developing in a less America-oriented way and has started shopping elsewhere. Maybe your politicians and lawmakers should start realizing that fact, before you make promises that everybody with the slightest interest in other countries and cultures knows you'll never be able to keep.

What do I say to that? Hej is what I say to that.

University of Chicago economist Casey Mulligan had a provocative piece on the New York Times op-ed page last Friday arguing that, financial crisis or no, the economy would be okay. The reason he's so sure? The strong performance of a measure he calls marginal product of capital:

Since World War II, the marginal product of capital, after taxes, has averaged 7 percent to 8 percent per year. (In other words, each dollar of capital invested in the economy earns, on average, 7 cents to 8 cents annually.) And what happened during 2007 and the first half of 2008, when the financial markets were already spooked by oil price spikes and housing price crashes? The marginal product was more than 10 percent per year, far above the historical average. The third-quarter earnings reports from some companies already suggest that America's non-financial companies are still making plenty of money.

The marginal product has accurately reflected hard economic times in the past. From 1930 to 1933, for instance, the marginal product of capital averaged 0.5 percentage points per year less than the postwar average. The profit per dollar of capital was also below average in the year before the 1982 recession and the year before the 2001 recession. Sure, the financial industry has taken a hit, and so have cities like New York that depend on that industry. But the financial system is more resilient today than it has been in the past, because it's a much easier industry for companies to enter than it was in the 1930s.

When I read that, I immediately wondered: What about 1929? Then I found a blog post by Mulligan that includes an essential detail edited out of the NYT piece:

Compare this to the marginal product of capital in 1930-33 (the years of Depression-era bank panics): 0.5 percentage points per year less than the postwar years and significantly less than in 1929.

I later took a look at a chart Mulligan had made (it's on page 12 of this paper), and it turns out that marginal product of capital was high throughout the 1920s--higher than it has been in the 2000s. Meaning that the marginal product of capital is perhaps not a flawless predicter of future economic performance. When I called Mulligan and asked him about this, he agreed that if we had severe deflation as in the early 1930s, all bets would be off. He just doesn't think today's Fed would allow that to happen. And his data do show that marginal product of capital has in the past fluctuated far less than interest rates. That is, financial markets are far more volatile than the real economy. Which was controversial when Bob Shiller pointed it out back in 1981, but shouldn't really surprise anybody now.

So Mulligan's (unstated) argument No. 1 is that this isn't the 1930s--which is not something that can be inferred from his marginal product of capital charts, but is probably valid.

Argument No. 2 is that, absent complete financial breakdown, the real economy is not as closely tied to the financial economy as a lot of people think. This can be inferred from Mulligan's charts, but it's worth noting that his charts represent only the U.S. experience--not that of countries like South Korea or Chile or Sweden that have been through major financial crises in recent decades.

Argument No. 3 is that because marginal product of capital has been pretty high lately, we will sail through the current crisis nearly unscathed. I don't think Mulligan offers enough evidence to make that prediction with any kind of confidence. But I do agree that measures like marginal product of capital and productivity growth (Mulligan focuses on the former because it's not nearly as volatile as the latter) say a lot about the ability of the U.S. economy to recover from the current crisis and recession. Which is what I wrote my column about this week.

My column in the new TIME that goes on sale Friday (it's got Lincoln, FDR, Obama and McCain on the cover) is already up online. It begins:

John McCain's claim that "the fundamentals of our economy are strong," uttered just before the financial crisis turned dire, may go down as one of the great blunders of presidential-campaign history. "Senator McCain, what economy are you talking about?" Barack Obama exclaimed hours after the words escaped his opponent's mouth. The mocking TV ads soon followed, and as the weeks wore on and financial jitters gave way to near collapse and certain recession, McCain's statement began to evoke unsettling memories of Herbert Hoover, who said similar things in the early 1930s.

Less likely to be remembered is running mate Sarah Palin's defense. "He means our workforce, he means the ingenuity of the American people," she said. "And of course that is strong, and that is the foundation of our economy."

Palin was actually on to something. Our workforce and the ingenuity of the American people are in fact among the most important of economic fundamentals. And it's not at all crazy to argue that these fundamentals are still strong.

When economists talk about such matters, they focus on the concept of productivity. "Productivity growth," wrote economist (and now Nobel laureate and New York Times columnist) Paul Krugman back in 1990, "is the single most important factor affecting our economic well-being." It was growth in productivity — most commonly measured as economic output per hour worked — during the Industrial Revolution that powered the rise of the West out of millenniums of stagnation. It was a productivity boom that ushered in America's postwar era of mass affluence. Read more.

See, Sarah Palin and Paul Krugman agree about something. Why can't we all just get along?

The column was inspired to a certain extent by University of Chicago economist Casey Mulligan's op-ed piece in the New York Times last Friday, but Mulligan ended up being excised from it because confronting readers with both productivity growth and Mulligan's marginal product of capital in one column was deemed by my editor (correctly) to be too much. Mulligan's argument that the financial crisis simply doesn't matter to the real economy was overstated, I thought, and I'll post on that later today. But I did want to point out that we're having this financial crisis because we borrowed too much money, not because there's something fundamentally wrong with the U.S. economy. And at some point in the next couple of years--barring total financial breakdown--the fundamentals are going to start to matter again.

I didn't give the actual productivity trend forecasts of Robert Gordon and Dale Jorgenson in the column because of a complication: I confirmed with Jorgenson that he's sticking with his base-case forecast for the next decade of 2.4% labor productivity growth. But I didn't get hold of Gordon until after my deadline, and thus was relying on what he told Business Week's Michael Mandel back in February--that his estimate of the productivity growth trend was 1.78%. The last two quarterly productivity numbers from the BLS beat that trend, so it's possible that he has since revised it slightly upwards. Which is why I didn't want to put the exact February number in the column. I hope to talk to Gordon this afternoon, and will report back then.

The Krugman quote is from his book The Age of Diminished Expectations. Anything I'm forgetting?