Thomas Palley

In economics there is a phenomenon known as the “winner’s curse” whereby the winner of an auction over-pays. The most that she should have paid is the second-highest bid, which is the highest value attached by all other bidders. This curse provides a useful analogy for thinking about the recent selection of Federal Reserve Chairman Alan Greenspan’s replacement. There is a good chance that the winner, Ben Bernanke, may end up with a bout of the winner’s curse. (more…)

The current U.S. economic expansion is in its fifth year. At this stage, the possibility of its ending has raised two explanations that can be labeled the “foreign flight’ and “consumer burnout” hypotheses. While both predict a recession, they rest on very different reasoning and have different implications for interest rates and exchange rate policy. The foreign flight hypothesis is also politically troubling since it can be easily tinged with xenophobia. (more…)

September’s headline consumer price inflation was 1.2 percent and it was 4.7 percent for the past year. However, core inflation, which excludes volatile food and energy prices, was just 0.1 percent in September and was only 2.0 percent for the entire year. Despite core inflation holding at this subdued rate for the past five months, the Federal Reserve has embarked on an interest rate-raising crusade. This campaign is on the verge of killing the patient, and it is time for the Fed to take an inflation chill pill. (more…)

Alan Greenspan will retire as Chairman of the Federal Reserve in January 2006, and his retirement promises a flood of swooning retrospectives. Writing anything else at this moment risks the charge of churlishly raining on the parade. However, there are good grounds for a more critical reading of Greenspan’s eighteen-year tenure at the Fed. (more…)

Hurricane Katrina was an immense natural disaster that has already inflicted great harm and suffering. It has also wrought huge regional economic damage, the local effects of which will belong-lasting. Now, people are wondering whether Katrina could also spawn a national recession.

The Wall Street consensus seems to be that it will not, but there are robust grounds for believing that the consensus is wrong. (more…)