Attention Economy
Friday, July 27, 2012
Thursday, July 26, 2012
Government and Effective Economic Policy
Harvard Economist Ed Glaeser Makes a Key Point Regarding Effective
Governments:
“Every big government
makes mistakes -- generous public pensions that start at young ages, subsidies
that pay farmers to leave fields fallow, unlimited health-care promises.
Effective governments are able to abandon mistaken policies that imperil
society, even against the powerful opposition of the favored few who benefit
from the programs.
Sweden may be the most
obvious example of a social democracy that went too far and reshaped itself. In
the early 1970s, Sweden was an economic rock star, but its overregulated,
overtaxed economy lost ground in the 1970s and 1980s and experienced a crisis
from 1990 to 1993. The country responded with significant reforms,
deregulating, privatizing pensions and moving from vast deficits to budget
surpluses. The reforms weren’t easy -- previously favored companies and workers
lost out -- but the good of the country triumphed over the good of particular
interest groups.”
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Meanwhile, Stanford Economist Michael Boskin Considers the
Impact of Bad Governance on California:
Tuesday, July 24, 2012
Interesting Policy Debates
Fixing US Higher Education
The Debate Regarding Further Monetary Policy Action –
Atlanta Fed President’s Speech
The Tax Fairness Debate
http://online.wsj.com/article/SB10000872396390444873204577537250318931044.html
Richard Posner on the need for US Patent Reform
US vs. Japan – Different Approaches to Firearms
US vs. China – Who Will Dominate the 21st
Century? – BBC Radio 4 Discussion Moderated by Stephanie Flanders
Friday, July 20, 2012
Paean to Traditional Education
Mark Edmundson’s excellent op-ed from the NYTIMES. A true
insight from the op-ed:
“Every memorable class
is a bit like a jazz composition. There is the basic melody that you work with.
It is defined by the syllabus. But there is also a considerable measure of
improvisation against that disciplining background.”
State-Level Income Convergence & Housing Prices
Fascinating study from Harvard's Kennedy School of Government on the link between inequality, state-level income convergence and housing prices.
Interesting Graphics
Related article:
Thursday, July 19, 2012
Estonians Expose Krugman's Ignorance
The most important economics related story of 2012 (only a
slight exaggeration) – Krugmenistan vs. Estonia (BusinessWeek article):
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My Comments on the article:
It is wonderful to see excellent, well-argued ripostes being made by little known economists from a country (Estonia) that few
Americans have heard about.
Far too often, it is assumed that nearly all the important
progress in the field of Economics originates in the US and that the rest of the
world has little to contribute. The recent crisis has taught us of the dangers arising from groupthink (in academia and on Wall Street).
For instance, many pay undue attention to the policy related ramblings of Paul Krugman, despite the fact that he is NOT a career macroeconomist (he is an (Nobel Prize winning) international trade economist). Krugman, utilizing the wide reach of the NYTIMES, often makes highly simplistic and narrow-minded arguments regarding critical macro issues which negatively affect real world policy debate.
The article, Krugmenistan vs. Estonia, is probably best feature story BusinessWeek has done
in ages.
First key point from the article –
The article notes:
“In his blog post,
Krugman started his graph—and his logic—when Estonia’s GDP had reached its
peak, in 2007. Wages were high, and unemployment was low. Good for most
citizens, and for most citizens now things are still worse than they were then.
But if you move Krugman’s graph all the way back to 2000, you see slow, steady
growth in GDP, then a short boom, then a hard crash, and now growth leveling
back off to where it would have been without the boom. In the boom years, says
Varblane, “GDP growth was not real. It was artificial,” fueled by cheap debt
from abroad. The peak, Krugman’s point of comparison, was not “real,” he says.”
Relevance to America: The US GDP for several years prior to
the Great Recession was artificially inflated by real estate and equity market
bubbles and debt fueled consumption. To repeatedly call for massive fiscal and monetary stimulus to get back
to 2007 levels of unemployment rate as quickly as possible seems utterly misguided. Years of
structural changes are needed to get the American economy on a new sustained
growth path and just throwing more money won’t fix the problem (that was nearly
three decades in the making).
The second key point from the article –
“Large countries have
the luxury of a discretionary currency policy. Small countries have a credibility
problem no matter what they do.”
Relevance: Decades ago, Ronald McKinnon (1963, “Optimal
Currency Areas”, AER Vol 53 (1)), showed the limited significance of nominal
exchange rate devaluations for small open economies attempting to restore competitiveness.
Monetary Policy Dilemmas
TIPS – Negative Yield
QE – An Appraisal
Emerging Markets – Cloudy Skies Ahead
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