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Tag Archives: policy

U.S. Federal Reserve Chairman Ben Bernanke is scheduled to testify before the Senate Banking Committee today, and this report gives a helpful glimpse at the difficulties he faces.

We learned in the 1970’s, when OPEC first managed to raise oil prices, about the double-edged sword of stagflation. Oil has become such a strong supply side influence that it can cause both inflation and slow economic growth.

Bernanke wants to maintain the Fed’s 600 million stimulus package to battle low growth rates and unemployment that is still around 9% in the U.S. The problem is that many Americans–and many in Congress–are afraid of inflation and the large public debt in the states.

It is a dilemma, but with inflation at only 0.8% over the last year, I agree that Bernanke is emphasizing the correct problem, despite higher oil prices. The time to fight inflation and deficits is when we see strong growth.

On the other hand, perhaps the American economy has reached income levels where more growth should not be emphasized.

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Never have I heard that William Jennings Bryan was promoting monetarist policy long before Milton Friedman and Anna Schwartz published their ideas. This article claims that Bryan promoted and practiced monetary policy in fighting the US recession of 1893, predating the birth of formal monetarist economics by about 60 years.

The author (I can not find his or her name) also claims that increasing money supplies now is what the US needs, not Keynesian style fiscal policy. One catchy phrase, “deflation is more dangerous than cheap money,” is used to support the notion that our fears of inflation are misplaced right now. In fact, inflation would be good for many people–

Yet – as Bryan argued in 1896 – inflation is what we need. In an inflation, debts gradually melt, and depressed assets like houses begin to recover their value relative to cash.

Defenders of the administration argue that there is nothing more that the Federal Reserve can do — that it has already cut interest rates to zero, that monetary policy is exhausted. But there’s always more that monetary policy can do! As Milton Friedman famously proposed back in 1968, when all else fails, the monetary authorities can print money, load it into helicopters, and drop cash over the landscape. That’s stimulating!

It is also argued that money growth is a natural way to battle deflation, but–despite the observation of cheaper housing–I do not think the data backs-up the deflation argument.

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Is Another Economics Possible–This article attracted my attention because I have been thinking, for a couple of years now, that another economics is necessary.

Disappointment followed as I read through the article. The views described are those of the World Social Forum, “based on more cooperative, sustainable, egalitarian and democratic institutions than those favored at (the World Economic Forum in) Davos, Switzerland.”

Textbook economics treats individuals as selfish optimizers, unconcerned about the welfare of others. Only recently have economists begun to explore the importance of fairness, reciprocity and altruism, and to consider the possibility that incentives to behave selfishly can undermine both moral norms and altruistic preferences.

Textbook economics also largely ignores worker-owned businesses and consumer cooperatives, although these are geographically widespread in the United States. Recent research suggests that many workers would like to play a larger role in the management of their companies and that “shared capitalism” works remarkably well.

Of course these views are only valid for a superficial sort of economics. In real economics, being a “selfish optimizer” includes our desires to help our friends and communities.

While I like the idea of encouraging cooperative enterprise and egalitarianism, those are not new ideas and there is not a new economics being introduced. only old ideals reborn.

A new economics needs to explain how the world’s markets are working, and how government policy can help or hurt social welfare. My opinion? We need to get away from the Keynesian measures of growth and employment. They are not the best measures of welfare and happiness and satisfaction with our lives. Ultimately, those are much more important than how much money and stuff we have.

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Obama and the myth of job creation is a story designed for debate. The basic argument is that job creation comes from the supplier–the worker–not from government nor from companies.

When we imagine that government – and even companies – “create” jobs, we’re missing half the story: the crucial part. The part that most of us can actually influence, right now.  

It’s a paradox, but job seekers are actually job creators. People (and the politicians that love their votes) tend to focus on how many employers happen to be hiring. But an overlooked tenet of labor economics says that what’s equally vital to creating jobs is the presence of an adequately skilled workforce capable of filling them. 

In other words, when the workers are ready, the jobs appear.

The author goes on to describe the diffferent ways that job-seekers can retrain themselves for a new career. I have sympathy for the argument, but I think the point is overstated, and–like the article says–it is “missing half the story.”

One point that needs to be made, supply-side incentives can also be encouraged through government and business, not only through the extra dedication of the worker. Secondly, retraining and retooling are solutions for an economy suffering from structural unemployment, but not from cyclical or demand-deficient unemployment. There are some structural elements of the unemployment in US and Europe, but I think most would agree that a lack of investment and consumer spending are the biggest problems.

The article closes with, “a few steps to create sustainable job growth.”

  • redefine the idea af a job to include contract work and free agency
  • retool, quickly and regularly
  • redesign unemployment benefits (like Friedman’s Negative Income Tax)
  • welcome free trade
  • recognize immigration for the competitive advantage it is

Any free-market economist would agree that all of these steps would probably be positive, but now it all seems contrary to the earlier part of the article. How do we change these things without government policy? Government needs to play a role, but maybe a different role than we have seen lately.

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This story–China’s growth accelerates to 10.7 percent in 4Q–creates some curious reactions in world markets. Asian stock indexes went down, and the US dollar rose to a five-year high. The funny part is that the good news also brought renewed expectations that China would raise interest rates and tighten money supply growth. Inflation is feared, apparantly more than a reduction in the rate of growth.

Strong Chinese growth could help to drive a global recovery by boosting demand for foreign oil, consumer goods and other imports. It also might give Beijing confidence to ease currency controls and allow its yuan to rise against the dollar, which could boost imports by making them cheaper for its consumers. China has kept the yuan steady against the dollar since late 2008 to keep its exporters competitive abroad.

But that progress could be derailed if a burst of inflation saps the spending power of Chinese families and forces the government to clamp down so severely on credit and investment that it slows the creation of new jobs.

So the expected increase in interest rates explains the lower spending expectations in the rest of Asia, but that would normally make the currency stronger against the dollar. Must be that the “confidence to ease currency controls,” is seen as a stronger influence.

Myself? I doubt it. For years China has been able to keep the Yuan relatively low through currency purchases, and still manage inflation domestically. Like mentioned later in the article, most of China is still a developing country.

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More upsetting news about trade battles between China and the US. Last time it was tires, now it is steel pipe. The International Trade Commission gave approval for an import tariff of 10 to 16% on Chinese steel pipe.

Maybe not that much to be afraid of. The International Trade Commission is not international at all, but an independent federal agency that only gives advice to congress and the white house. They themselves have no legislative power, so the news is not that bad, though the commerce department has approved the tariff.

The United Steelworkers union, which was the driving force behind the tires case, joined with the Maverick Tube Corporation, the United States Steel Corporation and other American manufacturers in asking for import duties on Chinese-made pipe.

No surprise of course that American steel and pipe manufacturers are pushing for the tariffs. What I don’t understand is where are the American oil companies? The oil companies and their customers will be the ones paying the higher prices that result from the tariff.

The real fear is that the US is going to go even further with protectionist policy, and many countries will follow in retaliation. Like during the Great Depression, protectionism gets politically easier during hard times, and you can not get any more counterproductive.

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This story brings some perspective to the Obama administration’s plan to “renew its push for stimulus dollars to be directed to minority groups and women.” It is pointed out that–

Three-quarters of the recession’s total job losses have fallen on blue collar workers. Two-thirds of all Americans who have lost jobs are blue collar men. And more than four-in-10 of the total job losses are blue collar white men.

It seems obvious that a plan focused on minority groups and women will not be effective for a huge segment of the unemployed. It is pointed out that, because of the smaller number of black, blue collar workers, the percentage of–

(Black men) have suffered most as a group. The number of jobs held by white men has fallen by 6 percent. Hispanic men by 5 percent. But the number of black men employed has fallen by 11 percent.

It is also noted that women have lost a smaller percentage of jobs than men. So why focus recovery policy on minorities and women? It is vaguely suggested that the policy is based on outdated views of prejudice against those minorities. The statistics do not support that view.

I do wonder about something–I wonder if the unemployment statistics are skewed by different participation rates with unemployment benefits. Finding unemployment we only measure those looking for work compared to those working. It may be that white men have easier access to the unemployment lists, for whatever reason. Maybe some women–when losing a job–are more likely to just stay at home rather than go to the employment office.

Another question–Will policy create opportunities for those who have opted out of the system and are not counted as unemployed? Or will it focus only on those on the unemployment lists now?

This article claims that Ben Bernanke has probably been reappointed chairman of the Federal Reserve. However, the article’s real topic–the real argument–is that Bernanke and the Fed. are the most likely source of meaningful help for the economic downturn.

As my students will recognize, this is a very monetarist argument, dependent finally on the Quantity Theory of Money, where money supplies are the final determinant of production.

Another perspective (Keynesian) might argue that monetary policy is ineffective if people are unwilling to borrow even at low interest rates.  The following bit suggests that the Fed. recognizes this as a problem, but not much of an argument that these problems can be overcome.

He has ordered the Fed’s bank examiners to muscle banks into boosting their lending. This often requires an examiner to tell a bank that it should value a property used as collateral higher than it may want to. The Fed is also reviving the market for the bundling of loans for small businesses. And it is bending the arms of potential investors to put more capital into banks to increase credit.

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beverly-hillbilliesA good editorial here about monetary policy, focused on the Federal Reserve and how it has dealt with the recession. Some valid criticisms here–rewards for the “imprudent financial firms at the expense of their more prudent rivals,” and a recent policy reversal that is poorly timed.

Then the amusing bit, critiqueing Bernanke’s claim that the recession was nearly over.

One doesn’t usually turn to old TV shows for economic insights. Yet the best way to put the Fed’s role in the recent crisis in perspective is by recalling an episode of “The Beverly Hillbillies” – the one in which Granny convinces everyone that a spoonful of her medicine can cure the common cold. Sure enough, it can: It just takes between a week and 10 days.

I like the mataphor. The message–of course–is that recessions are self-curing too, and Bernanke and money policy do not deserve credit for a recovery.

Finally, an aid policy that really makes sense, and–collectively–it may work as a global economic stimulus as well.

A United Nations agency said on Thursday it was giving researchers in least developed countries subscriptions to scientific journals worth $400,000 a year, to help spur more worldwide inventions.

The World Intellectual Property Organization said the 50 LDC countries would get some 64 technical publications free online, while 58 more developing nations would get them for $1,000 a year.

These kinds of projects are so rare, I think because the benefits are so vague and impossible to measure. Policy makers, generally, can not pursue projects without a defined, positive outcome. The difference here, presumably, is the very low cost of the project. Subscriptions worth $400,000, but nobody is subscribing from these places anyway.

What would be a good image for this post?

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