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Warwick McKibbin in today’s AFR argues that Australia is in danger of mimicking the worst economic policies available by pursuing the European approach. He cites specifically the attempt to use a carbon pricing scheme to control greenhouse gas emissions, continued protectionist support for the car industry and an excessive reliance on redistributionist policies together with [...] Martin Feldstein is by no means a radical economist. He advised President Reagan and is a former President of the NBER. But even he warns of the peril implicit in the failure to distinguish structural from cyclical deficits in the European economies. Moreover, this failure seems implicit in the stance of the European Central Bank. [...] Joe Stiglitz nicely summarises the current US macroeconomic dilemma. (HT BR). Modern events confirm that monetary policy failings could not have caused the Great Depression. Policies seeking to avoid such failings – policies to expand the money supply to induce private investment did not work then and have evidently not worked now. Enhanced massive fiscal expansions [...] Gavyn Davis in the Financial Times points out that the cost to the US economy of the GFC-inspired continuing Great Recession is $5900b or about 41% of annual GDP once the divergence between actual and potential GDP is accounted for. The effects of other issues on US output are, by comparison, always trivial. Some may wonder if Thomas Sargent has made a lasting contribution to economics. The Nobel Prize Committee thought so but I don’t and neither does John Kay. Novel ideas such as rational expectations provided fodder for a lengthy cohort of PhD students employed in the model-building industry (I started early on) and it still feeds [...] That’s what the IMF says and that repeats my earlier claims (and those of all sensible macroeconomists). Increased personal savings, savings by firms and pressure on governments around the world to reduce deficits are driving a situation that replicates events that ocurred during the Great Depesssion of the 1930s. Too little demand due to excessive [...] John Lancaster in the London Review of Books gets it right. It is self-evidently good for an individual who is in excessive debt to cut back spending, less good for a single nation to adopt this stance and downright dangerous for the developed countries as a whole to do so. The Lancaster article expresses this idea more [...] I’ve got to admit my macroeconomics is rusty. I got my PhD in this area but have worked almost entirely in applied microeconomics ever since. I am worried however about the current debt ceiling outcome in the US mainly because, on the basis of long-held views, I am an old-fashioned Keynesian It does not make [...] I was pleased today that the value of my paltry stock portfolio rose with the announcement of a predicted agreement to increase the US public debt constraint. The move involves a forward commitment to substantially cut government spending and not to raise taxes. It seems like a fairly comprehensive Republican victory. But it is a [...] My colleague Dr Jan Libich recorded an interview with Professor Eric Leeper today that I attended. The interview went for about an hour and is recorded in YouTubes. First is part of the interview here and then then an interview with Jan here. An interesting approach to providing teaching material for macroeconomic students. Leeper was pessimistic about the [...] This short piece in Foreign Affairs by Alan Blinder is as good a statement as I have seen on the state of the US economy: “The majority of Americans can be forgiven for believing — as they do — that the U.S. economy is still in a recession when it’s not. The economy is certainly [...] Joseph Stiglitz is warning of a double dip recession in Europe because governments are becoming overly concerned with their deficits. Europe has similar fears but emphases weaknesses in US private sector housing demand that they some claim call for an increased US fiscal stimulus. Equity markets around the world – including Australia – are tipping [...] Several of the Fairfax newspapers ran this op ed by Laurence Kotlikoff. The linked version is superior to the local version because of the valuable IMF hyperlinks it contains. The stalling of the US recovery is no news to anyone who watches international equity markets. The bloodbath over the last few days reflects these fears but also [...] The latest issue of Agenda in which my paper in the previous post is published contains a symposium titled: Krugman on Economics in the Light of the Crisis. My colleagues Don Harding and Jan Libich have a piece there called: Froth and Bubble: The Inconsistency of Paul Krugman’s Macroeconomic Analysis. Their summary reads: ‘ We have documented [...] This blog prophet Edward Hugh said no – the demographics of free spending exhuberance don’t mix with those of the penny-pinching oldies and even the IMF are courting his views. His blog is here and worth a look – one of his followers is Brad de Long! Hugh is an interesting guy who is thoughtfully introspective. He respects [...] By Martin Wolf, Financial Times, May 25 2010. This amused me. [...] Gregory Mankiw ponders whether the US economy will default on its national debt, inflate to decrease the real value of its debt or (most responsibly) raise taxes massively to what he calls European levels. He favours the latter view. Grim reading. A default seems improbable but the second solution – to devalue the debt by [...] I am not a keen supporter of numerical modelling of economic phenomena. I have seldom seen key issues of controversy in economics resolved by numerical modelling and think that, as a policy tool, numerical modelling does not improve on sensible thinking through of the issues using low order non-numerical and even purely conceptual models. It is [...] Paul Krugman in 2002 after the moderately severe 2001 US contraction: “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble”. [...] One of the surprising aspects of the GFC has been the rush to endorse expansionary fiscal programs. The motivation for such programs is that $1m spent by the government is sometimes claimed to lead to more than $1m extra spending in the economy so that such fiscal spending stimulates the economy. When I first went to university I [...] |
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