The Federal Reserve has recently received much criticism from economic conservatives who claim it has ignored inflation, thereby risking a rerun of the 1970’s inflation show. In response, renowned Princeton economist Paul Krugman has come to the Fed’s defense arguing today’s inflation is fundamentally different from that of the 1970s. Read the rest of this entry »
Re-thinking That ‘70’s Inflation Show
June 16th, 2008Defending the Bernanke Fed
June 6th, 2008Federal Reserve Chairman Ben Bernanke has recently been on the receiving end of significant criticism for recent monetary policy. One critique can be labeled the American conservative critique, and is associated with the Wall Street Journal. The other can be termed the European critique, and is associated with prominent European Economist and Financial Times contributor, Willem Buiter. Read the rest of this entry »
Tax Policy and the House Price Bubble
May 6th, 2008The bursting of the recent house price bubble has focused attention on the failures of monetary and regulatory policy. However, tax policy also likely played a role by providing tax subsidies that contribute to a cult of home ownership. This policy is flawed. However, it is politically difficult to change because households see the benefits of tax subsidies and higher house prices but do not recognize the accompanying costs. By showing the downside of high prices, the housing bust provides an opportunity to escape this political trap. Read the rest of this entry »
Curse of the Clintons
April 28th, 2008Speaking the truth is discouraged in Washington DC. For journalists there is the fear that truth telling will mean not being invited back for the next press conference or another exclusive interview. For political insiders the fear is that speaking up will injure their careers by costing them political appointment. This dynamic has helped keep the lid on the curse of the Clintons. Read the rest of this entry »
The Capture of Keynesianism
April 14th, 2008Communist revolutionary Che Guevara rapidly became an inspirational figure for revolutionary socialist change after his execution in Bolivia in 1967. Forty years later, Che lives on but his image now adorns t-shirts that have become popular fashion statements. This transformation reflects the extraordinary power of markets to capture and transform, turning an avowed enemy of the market system into a profit opportunity. Read the rest of this entry »
Demythologizing Central Bankers and the Great Moderation
April 2nd, 2008It is often said that the winners get to write history, which matters because the way we tell history frames our understandings. What is true for general history also holds for economic history, and the way we tell economic history affects our expectations and aspirations for the economy. Read the rest of this entry »
The Fed and Crony Capitalism
March 24th, 2008The Federal Reserve’s recent decision to grant Wall Street access to special borrowing facilities smells of special dealing for special interests. The decision subsidizes the biggest most powerful investment banks, thereby distorting financial markets in their favor. Behind the decision lies the problem of excessive representation of Wall Street interests within the Fed. Read the rest of this entry »
Preventing a Financial Crash
March 17th, 2008With the collapse of Bear Stearns, financial markets are moving closer to a crash that risks grave harm to the economy and the lives of working people. The Federal Reserve’s recently created Term Auction Facility (TAF) and Term Securities Lending Facility (TSLF) move policy in the right direction. However, more needs to be done if a crash is to be prevented. Read the rest of this entry »
Meltdown Moment: What Must be Done
March 10th, 2008Last week’s default of Thornburg Mortgage had an ominous sound, like the cracking of sheet ice. Wall Street now sits atop a potential collapse of confidence in asset valuations, threatening a panic that will wipe away both sound and unsound financial institutions. The week’s events also reveal how the Federal Reserve’s bail-out policy has failed to address the underlying problem of credit market seizure. Here’s what’s going on, and what must be done to prevent a meltdown. Read the rest of this entry »
The Debt Delusion
February 26th, 2008A second big American interest-rate cut in a fortnight, alongside an economic stimulus plan that united Republicans and Democrats, demonstrates that US policymakers are keen to head off a recession that looks like the likely consequence of rising mortgage defaults and falling home prices. But there is a deeper problem that has been overlooked: the US economy relies upon asset price inflation and rising indebtedness to fuel growth. Read the rest of this entry »