Economics

The Weekly Standard: The Coming Euro Crack-Up; A currency divided against itself cannot stand, May 9, 2011

A spectre is haunting Europe​—​the spectre of the disintegration of the eurozone. All the powers of old Europe have entered into a holy alliance to exorcize this spectre: German chancellor and French president, the Brussels eurocracy and the bonus-laden bankers. Let the ruling classes tremble. The debtors have nothing to lose but their burdens. read more

Keywords: Euro, Euro Zone Disparities

The Atlantic: The Cost of Bin Laden: $3 Trillion Over 15 Years, May 7, 2011

As we mark Osama bin Laden's death, what's striking is how much he cost our nation--and how little we've gained from our fight against him.

The most expensive public enemy in American history died Sunday from two bullets.

As we mark Osama bin Laden's death, what's striking is how much he cost our nation--and how little we've gained from our fight against him. By conservative estimates, bin Laden cost the United States at least $3 trillion over the past 15 years, counting the disruptions he wrought on the domestic economy, the wars and heightened security triggered by the terrorist attacks he engineered, and the direct efforts to hunt him down. read more in The Atlantic

Keywords: Bin Laden, Cost of Bin Laden to the US, Fighting Terrorism

Find here an interesting column (last Sunday edition of the New York Times) of Harvard's star economist N. Gregory Mankiw. He deals with three major questions:

How long will it take for the economy’s wounds to heal?

How long will inflation expectations remain anchored?

How long will the bond market trust the United States?

NYT: If You Have the Answers, Tell Me, by N. Gregory Mankiw, Published: May 7, 2011

AFTER more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don’t know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention — the ups and downs of the business cycle — is where I find myself most often confronting important questions without obvious answers.

Now, if you follow economic commentary in the newspapers or the blogosphere, you have probably not run into many humble economists. By its nature, punditry craves attention, which is easier to attract with certainties than with equivocation. read more in the New York Times

Keywords: Economics, Economics Profession, N. Gregory Mankiw

Related:

Star Blogger Barry Ritholtz' reaction on the article:

Ritholtz.com: To Find the Answers, Look Beyond Economics..., May 8, 2011

NYT: Friedrich A. Hayek, Big-Government Skeptic By Francis Fukuyama, Published: May 6, 2011

Related:

April 29, 2011

Whether following report is true or not, it would not be a surprise if a depressed country such as Greece would try to find options which give it more economic degree of freedom:

Spiegel Online International: Athens Mulls Plans for New Currency; Greece Considers Exit from Euro Zone, May 6, 2011

Keywords: Euro Crisis, Greece

Related:

Airtime: 5/3/2011 1:21:15 PM

Keywords: Dollar, Euro, Pimco

Excellent post by J. Hamilton, dealing with the question whether high Oil prices can bring a new recession or not. He refers to valuable academic research being done on the subject:

Econbrowser: Will high oil prices bring a new recession? May 4, 2011

Keywords: High Oil Prices, Recession, Inflation

Related:

St. Louis Fed: OPEC’s Oil Exporting Strategy and Macroeconomic (In)Stability, by Luís Aguiar-Conraria and Yi Wen, May 2011

Keywords: Philipp Bagus, Fed, ECB, Euro

The Economist: Rich and poor, growing apart, May 3, 2011

Kewords: Income Inequality, Wealth Gap

Keywords: Innovation, Market Innovation

Interesting findings about innovation capabilities during the industrial revolution. It shows the importance of education and practical training outside the academic classroom and the value of a highly developed system of apprenticeship.

The Rate and Direction of Invention in the British Industrial Revolution: Incentives and Institutions, by Ralf Meisenzahl, Joel Mokyr, NBER Working Paper No. 16993, April 2011

Abstract:

"During the Industrial Revolution technological progress and innovation became the main drivers of economic growth. But why was Britain the technological leader? We argue that one hitherto little recognized British advantage was the supply of highly skilled, mechanically able craftsmen who were able to adapt, implement, improve, and tweak new technologies and who provided the micro inventions necessary to make macro inventions highly productive and remunerative. Using a sample of 759 of these mechanics and engineers, we study the incentives and institutions that facilitated the high rate of inventive activity during the Industrial Revolution. First, apprenticeship was the dominant form of skill formation. Formal education played only a minor role. Second, many skilled workmen relied on secrecy and first-mover advantages to reap the benefits of their innovations. Over 40 percent of the sample here never took out a patent. Third, skilled workmen in Britain often published their work and engaged in debates over contemporary technological and social questions. In short, they were affected by the Enlightenment culture. Finally, patterns differ for the textile sector; therefore, any inferences from textiles about the whole economy are likely to be misleading."

Keywords: Innovation, Innovation Secrets, Highly Skilled Labor, Apprenticeship

Peters, Bettina and Schmiele, Anja, The Contribution of International R&D to Firm Profitability (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-002. Available at SSRN: http://ssrn.com/abstract=

Abstract:

"The internationalisation of corporate R&D opens up the chances to participate in international knowledge sharing. This increasingly motivates firms to accelerate the pace and extent of their international R&D activities in order to enhance innovativeness and consequently competitiveness and profitability. Such business ventures, however, might be associated with huge organizational costs as well as risks of outgoing knowledge spillovers.

In this paper we empirically address the question whether international R&D activities boost profitability. We employ a large data set of about 1300 firms from the German Community Innovation Survey (CIS). The empirical results demonstrate that R&D location matters for profitability. Firms with both domestic and foreign R&D activities make significantly higher profits than all other firms, including those that carry out solely domestic R&D. We furthermore ascertain that the degree of R&D internationalisation affects profitability. Our findings suggest that medium decentralised firms which innovate in two or three foreign countries outperform firms with centralized or highly decentralized international R&D strategies. Notwithstanding, decentralized firms achieve a higher firm performance than firms that solely conduct R&D activities in their home country."

Keywords: R&D, Innovation, Internationalisation, Firm performance, Profit

New Vox article on the robustness of the current trade recovery and potential shifts in global competitiveness:

Recovery and beyond: Lessons for trade adjustment and competitiveness, by Filippo di Mauro (ECB) and Benjamin R. Mandel (Fed), May 5, 2011

Keywords: Global Trade, Competitiveness

Airtime: Tue 03 May 11 | 04:15 PM ET

Keywords: James Chanos, Chinese Economy, Cycles of the Chinese Economy

Related article on Spiegel Online International:

Spiegel Online International: Risks of Economic Overheating; German Boom Fuels Inflation Angst, May 3, 2011

The German economic boom is fuelling inflation, and prices are expected to keep rising because of Europe's one-size-fits-all monetary policy. The European Central Bank can't raise interest rates aggressively enough to curb German price pressures because that would hurt the weaker euro-zone economies. read more

Keywords: Eurozone, Inflation

What has been discussed since weeks finally happened:

Telegraph.co.uk: Portugal reaches bail-out agreement; José Sócrates, Portugal's caretaker prime minister, said on Tuesday night that he has reached agreement on a bail-out from the EU and the International Monetary Fund, May 4, 2011

Keywords: European Crisis, Portugal

Good paper published by the Kauffmann Foundation:

Lindsey, Brink, Frontier Economics: Why Entrepreneurial Capitalism is Needed Now More than Ever (April 2011). Available at SSRN: http://ssrn.com/abstract=1809996

Abstract:

"Here in the United States and around the world, we have entered what might be called the era of “frontier economics.” Older, easier sources of growth are drying up and, as a result, the prospects for continued dynamism and prosperity hinge more than ever before on the pioneering entrepreneurial upstarts that explore and extend the technological frontier. As a consequence, the political imperative to maintain satisfactory economic performance is putting national economies under ongoing pressure to free up markets and knock down artificial barriers to competition - in other words, to make their particular versions of capitalism more entrepreneurial. The purpose of this paper is to offer a general explanation of this trend and the social forces driving it."

Keywords: Economics, Entrepreneurship, Entrepreneurial, Startup, Capitalism, Economy, Economies, Policy

Here is some important reading for people who announced the "dead of Wall Street", the "dead of investment banking", the "end of capitalism" during the latest financial crisis:

The San Francisco Fed published a very relevant paper which demonstrates that the decreasing trust in various institutions during the latest economic downturn is a standard response to a cyclical downturn. The paper shows that the recent decline in the public’s confidence in the financial sector is particularly large. The researchers show that time series regressions indicate that much of this decline may be attributable to the recent recession.

San Francisco Fed: Trust in Public Institutions over the Business Cycle, by Betsey Stevenson The Wharton School, University of Pennsylvania, CESifo and NBER and Justin Wolfers, The Wharton School, University of Pennsylvania Brookings, CESifo, CEPR, IZA and NBER, March 2011

Here is an excerpt of the paper's conclusion:

"We have documented that trust in public institutions has declined in the United States over time and that this decline has accelerated over recent years, particularly following the recent financial crisis. The recent decline in the public’s confidence in the financial sector is particularly large. Simple time series regressions—which we interpret as no more than suggestive—indicate that much of this decline may be attributable to the recent recession. More convincingly, cross-country comparisons confirmed that those countries which experienced the largest rise in unemployment also saw public confidence in both their national governments and the finance sector decline particularly dramatically. Taken together, these two sources of data suggest that much of the recent decline in confidence—particularly in the financial sector—may simply be a standard response to a cyclical downturn. Equally, our most compelling evidence comes from the international data, and given their limited history, those data may simply be telling us about this recession rather than recessions in general. It remains a useful topic for further research to see the cyclicality of trust in a panel of countries with a longer history."

Keywords: Institutions, Trust in Institutions, Institutions an the Business Cycle

Good article in the Washington Post about US debt burden:

Read the article in The Washington Post:

Washington Post: Running in the red: How the U.S., on the road to surplus, detoured to massive debt, May 1, 2011

Keywords: US Economy, US Public Debt, Trade Deficit

April 29, 2011

Keywords: US Dollar, Dollar Drop