The old saying is that “If you only have a hammer everything looks like a nailâ€. For economists, the hammer is “saving†and a host of problems are reduced to questions of saving. Nowhere is this clearer than discussions of the U.S. trade deficit and global financial imbalances, which are often explained as a saving problem. Unfortunately, this focus on saving distorts understanding and distracts from the real challenge of creating mass consumption markets in developing countries. (more…)
Archive for the ‘Economics’ Category
Through the Looking Glass: Saving Glut or Demand Shortage
Wednesday, November 7th, 2007Exchange Rates: There is a Better Way
Wednesday, October 31st, 2007The world economy is poorly served by the current system of exchange rates. That system has contributed to today’s global financial imbalances, which are widely viewed as posing significant economic risk. These imbalances have also created political tensions between countries over how to adjust them, and within countries over job losses. Exchange rates matter more than ever under globalization, which means the world needs a better system. (more…)
Triangular Trouble: the Euro, the Dollar and the Renminbi
Monday, October 15th, 2007For the last several years the euro has been appreciating steadily against the U.S. dollar. Given the Chinese renminbi and other East Asian currencies are pegged to the dollar that means the euro has been appreciating steadily against all. This spells trouble for Euroland, and it suggests European policymakers should join with the U.S. to address the global problem of under-valued currencies. (more…)
The Flaws in Rubinomics
Tuesday, October 9th, 2007With Senator Hillary Clinton firmly cemented as the front-runner for the Democratic Party’s nomination, Rubinomics—named after former Treasury Secretary Robert Rubin, who shaped economic policy under President Clinton—has re-emerged as a critical issue. This is because Senator Clinton has firmly embraced it. Rubinomics rests on faulty economics and embodies bad politics. Progressive Democrats and the nation need to understand this. Here’s an explanation. (more…)
Jack Welch’s Barge: The New Economics of Trade
Monday, October 1st, 2007The classical theory of comparative advantage has driven US trade policy for the past fifty years. That policy, in combination with technical innovations that have lowered costs of transportation and communication, has opened the global economy. Yet paradoxically, this opening has rendered classical trade theory obsolete. That in turn has left the US economically vulnerable because its trade policy remains stuck in the past and based on ideas that no longer hold. (more…)
The Fed and America’s Distorted Expansion
Tuesday, September 11th, 2007The U.S. economy has been in expansion mode since November 2001. Though of reasonable duration, the expansion has been persistently fragile and unbalanced. That is now coming home to roost in the form of the sub-prime mortgage crisis and the bursting house price bubble. (more…)
Marginal Productivity Theory and the Mainstream
Thursday, June 7th, 2007In an earlier discussion on the state of orthodox economics hosted by TPM Café, I posted an article excavating the microeconomic foundations of neo-classical economics. In that article I wrote:
“There is one place that even orthodox lefties dare not go. That untouchable place is marginal product theory of income distribution, which basically says that competitive markets ensure that people are paid their contribution to production. This theory provides both a justification and an explanation of income distribution.” (more…)
The Case Against Inflation Targeting
Thursday, April 19th, 2007A few months ago the Federal Reserve seemed to be inexorably moving toward adopting an inflation targeting policy regime. Fed Chairman Ben Bernanke is known to support such a framework having co-authored several articles and books on the subject. Moreover, his institutional hand had been strengthened by Frederic Mishkin’s appointment as Vice-Chairman of the Fed, Mishkin being one of Bernanke’s co-authors. (more…)
Monetarism: Ideology Masquerading as Theory
Monday, January 29th, 2007January 29, 2007 has been declared Milton Friedman day. To add balance to the day, I am posting the following article on Monetarism. It draws on an earlier article, “Milton Friedman: The Great Conservative Partisanâ€, which provides a fuller survey of Friedman’s work. Readers may also want to visit www.Maxspeak.com that has an e- colloquium on Friedman. (more…)
Manipulating the Oil Reserve
Friday, January 26th, 20072006 was the year that oil prices came close to breaching eighty dollars per barrel. This was despite the fact that there were no significant supply interruptions and oil demand actually fell in industrialized countries. That raises the question of what caused the spike. (more…)