It 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 »
Demythologizing Central Bankers and the Great Moderation
April 2nd, 2008The 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 »
Winning the Edwards Vote
February 11th, 2008John Edwards’ exit from the presidential race puts his supporters up for grabs. Both Senators Clinton and Obama want those votes. Here’s how to win them.
The central plank of the Edwards’ campaign was restoring a prosperous and secure middle class, which requires ending wage stagnation and having wages again grow with productivity. This must be the central economic policy goal of any candidate wanting the Edwards vote. Read the rest of this entry »
Breaking the Neoclassical Monopoly in Economics
February 7th, 2008For the past 25 years, the so-called “Washington Consensus†– comprising measures aimed at expanding the role of markets and constraining the role of the state – has dominated economic development policy. As John Williamson, who coined the term, put it in 2002, these measures “are motherhood and apple pie, which is why they commanded a consensus.†Read the rest of this entry »
Welfare for Wall Street, Federal Reserve-Style
January 25th, 2008The Federal Reserve’s recent surprise decision to lower its short-term interest rate target by three-quarters of a point has received much attention. Most commentary has focused on the idea that the Fed is trying to stimulate spending in the hope of preventing a recession. Over-looked, and equally important, is the fact that lower interest rates raise asset prices, which is something Wall Street desperately needs to prevent a systemic meltdown. Read the rest of this entry »
Investing in China: Fool’s Gold?
January 15th, 2008Americans tend to disregard history. Henry Ford declared bluntly, “History is bunk,†while Gore Vidal calls the U.S. “the United States of Amnesia.†Usually, this disregard has few consequences, but sometimes not. That may be so with investing in China, where history suggests profits will be far below expectations, possibly making those investments fool’s gold. Read the rest of this entry »
The Subprime – Trade Deficit Connection
January 7th, 2008In recent months the U.S. subprime mortgage crisis has been rippling outward affecting other countries. British banks have made large loan loss provisions and there has been a run on the Northern Rock bank. German banks have incurred similar losses and Germany has suffered two large bank failures. European banks have also become leery about lending to each other, forcing the European Central bank to infuse emergency liquidity. Now, Japan’s banks are feeling the heat. Read the rest of this entry »