“Lock-in†is a concept developed by economic historians to describe how economies get tied in to using inefficient technologies. It also applies to institutions as economies and societies can get locked into sub-optimal institutional arrangements. This has relevance for globalization where the arrangements governing trade and the global economy may be sub-optimal, posing problems of how to change them. The economics of lock-in helps understand the problem and suggests how to solve it. Read the rest of this entry »
Globalization Lock-in: What Should Be Done?
May 14th, 2007US – China Trade: Pay Now or Pay More Later
May 6th, 2007After several years of patient negotiation, the US appears embarked on a harder stance in dealing with its China trade deficit. In Congress there is talk of veto-proof legislation addressing China’s under-valuation of its currency, while the Bush Administration has imposed tariffs on coated paper products to offset Chinese subsidies. Behind this shift is a dawning recognition that China is unwilling to reduce its surplus, and that reduces the policy choice to one of “pay now or pay more laterâ€. Read the rest of this entry »
The Case Against Inflation Targeting
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. Read the rest of this entry »
Real IMF Reform: Carpe Diem
April 10th, 2007The International Monetary Fund (IMF) has been the focus of extended debate and criticism, yet reform has been hard to come by. Now, owing to changes in the global economy, the issue of reform has forced itself onto the official agenda. The Fund’s management has responded with its own reform proposals, but they are too narrow. Instead, the IMF should be pressured to adopt bolder reform that incorporates missing social concerns into its mission. Read the rest of this entry »
Global Financial Imbalances: The Japan Factor
April 2nd, 2007Over the past several years, much attention has focused on the role of China’s trade surplus in creating today’s global financial imbalances. With so much attention devoted to China, little attention has been paid to the role of Japan’s policy of near-zero interest rates that has also contributed to these imbalances. With global financial uncertainty rising, it is time for Japan to decisively abandon this policy. Read the rest of this entry »
Memo to Fed: Cut Rates, then Reform Policy
March 20th, 2007The US economy is showing signs of a potentially rapid deceleration. In particular, there is accumulating evidence that the housing sector slowdown may be becoming a meltdown. In many areas house prices are falling, house sales are down nationally, and mortgage delinquencies and foreclosures are rising – especially in the sub-prime market. This has caused tremors in broader financial markets. The only good news is employment and wages continue growing, but labor markets conditions are also widely viewed as a lagging indicator. Read the rest of this entry »
Abandoning America: Corporate Foreign Direct Investment
March 13th, 2007In recent years outward foreign direct investment (FDI) by US corporations to other countries has been increasing rapidly, while inward FDI by foreign corporations into the US has been trending down. Since investment in the US is critical for future economic prosperity, these patterns are troubling and provide evidence of how globalization and flawed policy are encouraging corporations to abandon America. Read the rest of this entry »
Third Way, Wrong Direction
February 21st, 2007In anticipation of 2008, a potentially historic debate is shaping up within the Democratic Party. On one side are progressive Democrats whose lineage reaches back to FDR and the New Deal. On the other side are new Democrats, who emerged in the 1980s and embraced Ronald Reagan’s critique of big government. Read the rest of this entry »
Expand Sarbox, Not Shrink It
February 16th, 2007There 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. Read the rest of this entry »
In Defense Of Sarbox
February 7th, 2007The 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. Read the rest of this entry »