Economics

Macro and Other Market Musings: What Role Did the Fed play in the Housing Bubble, by David Beckworth, Sept. 3, 2010

Keywords: Fed, Monetary Policy

Keywords: China Manufacturing, China Wage Increase

Keywords: Economic Growth, Unemployment

VOX: Measuring the output responses to fiscal policy, by Alan J Auerbach and Yuriy Gorodnichenko, both from UC Berkeley, Sept. 3, 2010

The return from a fiscal stimulus – the fiscal multiplier – remains one of the most controversial topics in economics today. This column considers the influence of expectations, of variation in recessions and expansions, and of different components of government spending. It finds that the size of the multiplier varies considerably over the business cycle: between 0 and 0.5 in expansions and between 1 and 1.5 in recessions.



The effect of fiscal policy on output – and its components – has long been a central part of fiscal policy analysis. And yet, as has been made clear by the recent debate over the likely effects of fiscal stimulus in the US and elsewhere, economists are a long way from reaching a consensus. Indeed economists remain divided over areas such as:

•the strength of fiscal policy’s macroeconomic effects,
•the channels through which these effects are transmitted, and
•the variations in these effects and channels with respect to economic conditions. read more on Vox

Keywords: Fiscal Multiplier, Government Spending, Output Response

EuroIntelligence: Policy Makers of Last Resort, by Barry Eichengreen (Berkeley), Sept. 2, 2010

The clouds over the U.S. economy are now parting, and the view from 35,000 feet is not pretty. It is clear that the risk of a double dip is now high. While I am mindful of the eminent forecaster Edgar Fiedler’s admonition that he who lives by the crystal ball soon learns to eat ground glass, I would now put the odds of a double dip at 3 to 1. The recent data flow, from home sales and new unemployment claims to exports and manufacturing activity, leave no doubt that U.S. growth will be less than 1 per cent in the second half of the year. That could be stall speed.

It is also clear that there will be only a token fiscal response. President Obama will try to come up with more finance for infrastructure spending and more help for the states. But the results will be no more than cosmetic. The American public doesn’t understand the case for another stimulus. And with the November elections approaching, the Congress lacks the courage to buck popular opinion. The definition of political courage is going against public opinion when public opinion is wrong. But saying that the Congress should display political courage is different from saying that it will. read more

Keywords: Monetary Policy, Stimulus

Find here a link to a new sovereign debt study by the IMF:

Long-Term Trends in Public Finances in the G-7 Economies, by Carlo Cottarelli and Andrea Schaechter, IMF, Sept. 1, 2010

Keywords: Sovereign Debt, G7

Project Syndicate: Why America Isn’t Working, by Kenneth Rogoff, Sept. 1, 2010

As the US economy limps toward the second anniversary of the Lehman Brothers bankruptcy, anemic growth has left unemployment mired near 10%, with little prospect of significant improvement anytime soon. Little wonder that, with mid-term congressional elections coming in November, Americans are angrily asking why the government’s hyper-aggressive stimulus policies have not turned things around. What more, if anything, can be done?

The honest answer – but one that few voters want to hear – is that there is no magic bullet. It took more than a decade to dig today’s hole, and climbing out of it will take a while, too. As Carmen Reinhart and I warned in our 2009 book on the 800-year history of financial crises (with the ironic title “This Time is Different”), slow, protracted recovery with sustained high unemployment is the norm in the aftermath of a deep financial crisis. read more

Keywords: US Economy, Unemployment, Aftermath of Financial Crisis

Related:

Reinhart and Rogoff:

MO: This time is not very different, April 19, 2008
MO: The economy after financial crises, Jan. 29, 2009

Airtime: Wed. Sept. 1 2010 | 10 03 00 ET

Keywords: China Output, China Economy, Economic Data

Guardian: Rise in US industrial output drives markets higher • Dow Jones up 200 points as recession fears recede; • But UK industrial orders lowest for nine months, Sept. 1, 2010

Share prices rose strongly in the City and on Wall Street after a stronger than expected showing by America's factories last month helped ease concerns of a double-dip recessionin the world's largest economy.

Amid signs of relief in New York, the Dow Jones industrial average surged by more than 200 points following the release of the monthly snapshot of US manufacturing from the Institute for Supply Management.

Dealers shrugged off separate data indicating further declines for the US construction sector and a decline in private sector employment over the past month to concentrate on a pick-up in manufacturing activity in America and China. read more

Keywords: US Economy, US Output, Economic Data

Related:

CNBC: Thursday Look Ahead: Markets Already Looking to Friday's Jobs Report, Sept. 1, 2010

David Kotok, Cumberland Advisors, and Michelle Meyer, BofA Merrill Lynch Global Research, discuss economic data:

Airtime: Wed. Sept. 1 2010 | 10 16 00 ET

Some analysis from Calculated Risk:

Calculated Risk: Some comments on August ISM Manufacturing Index, Sept. 1, 2010

Reaction on Robert Barro's WSJ article "The Folly of Subsidizing Unemployment":

Does Anyone Believe That Unemployment Would Be Just 6.8% If Obama Hadn't Extended Jobless Benefits

Keywords: Unemployment, Jobless Rate, Jobless Benefits

Keywords: Bubble, GDP, US, Australia, Income Distribution, Standard of Living, Middle Class

BIS Annual Report 2009/10: Chapter III: III. Low interest rates: do the risks outweigh the rewards?

Keywords: Interest Rates, Monetary Policy, Risks of Low Interest Rates, BIS

Keywords: US Economy, Unemployment, Obama

WSJ: The Folly of Subsidizing Unemployment; My calculations suggest the jobless rate could be as low as 6.8%, instead of 9.5%, if jobless benefits hadn't been extended to 99 weeks, by Robert Barro (Harvard), August 30, 2010

Here is an excerpt of the article linked to above:

..."I want to focus here on another dimension of the Obama administration's policies: the expansion of unemployment-insurance eligibility to as much as 99 weeks from the standard 26 weeks.

The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.

In a recession, it is more likely that individual unemployment reflects weak economic conditions, rather than individual decisions to choose leisure over work. Therefore, it is reasonable during a recession to adopt a more generous unemployment-insurance program. In the past, this change entailed extensions to perhaps 39 weeks of eligibility from 26 weeks, though sometimes a bit more and typically conditioned on the employment situation in a person's state of residence. However, we have never experienced anything close to the blanket extension of eligibility to nearly two years. We have shifted toward a welfare program that resembles those in many Western European countries."...

Keywords: Unemployment, Unemployment Insurance

Related:

Here is an overview of employment programs around the globe. Among them the Swiss method of short time work, government giving support to companies to keep employees part-time in their jobs. The programme is timely limited but helps to keep people in the working process.

Labour market policies in times of crisis, ILO, 2009

Discussion between R. Barro and R. Reich:

Airtime: Aug. 31 2010 | 10 01 00 ET

Guardian: Global markets fall as investors are braced for poor US economic results; Countries fear US heading for a double-dip recession; Poor US employment figures expected on Friday, August 30, 2010

Financial markets around the globe fell today as investors faced a crucial week of data on the US economy.

The prospect of poor employment figures on Friday and a snapshot of the state of manufacturing on Wednesday has unnerved markets which fear the world's biggest economy could be heading for a double-dip recession. read more

Keywords: US Economy, US Employment, Global Economy

Keywords: China Glass Making

China Daily: China's central firms woo global talent, August 30, 2010

"China is now in a new global hiring spree for 20 top posts at its centrally administered companies, according to a notice on the State-owned Assets Supervision and Administration Commission (SASAC) website.

Positions are available for five general managers, four deputy general managers, three chief accountants, three legal advisers and five posts for chief engineer, chief designer, and institute president and vice presidents.

Eight of the companies were on the 2010 Fortune 500 list.

The SASAC's notice said the move was a renewed attempt to promote the personnel system reform of China's State-owned enterprises (SOEs).

In recent years, more than 100 global talents were hired from tens of thousands of applicants in the country's previous seven worldwide recruitment cycles.

As of the end of 2009, the number of managers at China's SOEs hired through public competition instead of by administrative appointments has surged from 334,000 in 2004 to 521,000, an increase of 56 percent, the notice said.

Details of the positions and requirements are available in Monday's China Daily."

Keywords: China, Executive Search, Chinese Companies

CNBC: Why Even Central Bankers Are Unsure What to Do Now, August 30, 2010

The 50-million-year-old Grand Tetons, which formed the majestic backdrop for last week's annual meeting of central bankers in Jackson Hole, Wy., are still rising.

But the bedrock of monetary policy for the past decade, the so-called Jackson Hole Consensus, is crumbling.

What was obvious at this year’s meeting was that monetary policy experts are not certain how to conduct policy now that interest rates are near zero.

What was less obvious is that there are big differences among them in how to run the world’s central banks once things return to “normal” —whatever and whenever that may be. read more

Keywords: Central Banks, Monetary Policy

Richard Posner asks whether the Federal Government is Broke:

The Becker Posner Blog: Is the Federal Government Broke? Posner, August 29, 2010

Posner presents a calculation by Morgan Stanley which is intended to show that the US is not substantially better off as countries such as Greece:

"Because American tax rates are low by international standards and resistance to increasing them is fierce, Morgan Stanley’s report estimates that the ratio of current U.S. public debt to realistically realizable tax revenues is 3.58 to 1, which is the highest by a large margin of the countries in the report’s list; only Greece comes close (3.12 to 1). But America has certain advantages, such as a younger population and a more rapid rate of economic growth, and as a result its ratio of net worth to GDP is in the middle of Morgan Stanley’s list of countries—but it is strongly negative, as are the ratios of all the countries in the list (Italy, surprisingly, being at the top, and Greece, unsurprisingly, at the bottom). According to Morgan Stanley’s calculation (which obviously is merely suggestive, as the report emphasizes, because of the uncertainty of the future), America’s net worth is negative, and this negative net worth is eight times larger than our GDP. This means that the net present value of the government’s liabilities, minus assets, is approximately $120 trillion."

Posner believes that political pressure of bondholders, and holders of other contractual rights against the government might be a turning point:

"The deeper the financial hole that the government has dug for itself by incompetent economic management—and our government has dug itself a very deep hole, largely because of the mismanagement of monetary policy and financial regulation by the Federal Reserve under Greenspan and Bernanke and by other government agencies—the more difficult it is to climb out of the hole on the backs of holders of entitlements and recipients of government services. The political resistance is too intense. It’s at that point that the bondholders, and holders of other contractual rights against the government, have to start worrying about the prospects for outright default or default through inflation. These are possibilities in our future, just as in the future of Greece."

Source: Excerpts from Posner article linked to above

Keywords: US Government, Public Finances, Public Debt, Government Bondholders

VOX: Is it worth it: Does corruption influence firm productivity? by Donato de Rosa (World Bank), Nishaal Gooroochurn(London Metropolitan Business School), Holger Görg (Kiel Institute for the World Economy), August 30, 2010

Does it pay to be corrupt? This column presents evidence from 22 emerging economies in Europe and the former Soviet Union on the effects of corruption on firm productivity. It finds that in a highly corrupt country, bribing officials actually has a negative effect on productivity, whereas in countries with strong institutions, it can open doors that competitors dare not touch. read more

Keywords: Corruption, Productivity, Institutions