Thomas Palley

There is a growing business chorus calling for shrinking the Sarbanes – Oxley Act (Sarbox) regulating U.S. capital markets. Recently, a self-appointed “blue ribbon” committee financed by Wall Street interests called for making shareholder class action suits more difficult to bring, lowering the legal liability of auditors and directors, and easing accounting certification requirements. In response, the Securities and Exchange Commission (SEC) appears to be moving to implement some of this wish list. (more…)

The economics of regulation teaches that regulation only matters if it is binding and compels people to change their behavior. It also teaches that because binding regulation compels change, those subject to it oppose it. After all, they preferred doing what they were doing before the regulation was passed. That carries an important political lesson: those subject to binding regulation will want it repealed. (more…)

Over the last four years the U.S. trade deficit has persistently set new records, hitting $716.7 billion in 2005, equal to 5.7 percent of GDP. The trade deficit has both real and financial effects. Real effects refer to impacts on employment, incomes, and manufacturing capacity. Financial effects refer to the impact of accumulated indebtedness resulting from borrowing to finance the deficit. (more…)

A lot of newspaper ink has been spilled over immigration. So why write another op-ed? The reason is that the economics behind the debate remains badly out of focus, and understanding that economics is key to carving a passage through this nastiest of political wedge issues. (more…)

China’s President Hu Jintao will visit Washington DC next week (April 20) where he will meet with President Bush. For the last several years, China’s under-valued exchange rate has been imposing large costly distortions on the American economy. Unfortunately, the Bush administration has taken no action. Instead, it has allied itself with multi-national corporations who are profiting handsomely from the current U.S. – China economic relationship, which allows them to import cheap Chinese products on which they earn huge margins. If the President won’t take decisive action to get China to significantly revalue its exchange rate, Congress should. Here is an economic indictment against China that justifies such action. (more…)

Americans are justifiably confused by what they hear from economists. On one hand they are repeatedly told that America has a saving shortage problem and it must increase national saving. On the other hand, no sooner do households increase saving and reduce consumption, economists start worrying about recession and possible need to lower interest rates to maintain spending. (more…)

Economists have long had an obsession with physics, evidenced by the metaphors of utility indifference curves and production iso-quants that derive from 19th century force field physics. Recently (Financial Times, Friday 8 December – not The Onion, April 1), Harvard University economists Ricardo Hausmann and Federico Sturzenegger claim to have discovered financial “dark matter“ that shows that neither the U.S. nor the global economy suffer from international financial imbalances. Consequently, the U.S. trade deficit is no longer an issue of concern. (more…)

If you have a pulpit and say something over and over again, that something may eventually come to be believed. No one has a bigger pulpit than Alan Greenspan, Chairman of the Federal Reserve, who for the last decade has been saying that the secret of America’s prosperity is its economic flexibility. But there is another explanation, which is asset bubble Keynesianism. It too can make for a jolly old time – at least for a while. (more…)