January 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. Read the rest of this entry »
Monetarism: Ideology Masquerading as Theory
January 29th, 2007Manipulating the Oil Reserve
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. Read the rest of this entry »
Deep Thinking and Economic Policy: Why It Matters
January 22nd, 2007Deep thinking involves going to the root of ideas, analyzing core assumptions and the logic upon which arguments are built. In a sense it is analogous to the Research component of R&D. Research represents deep thinking, while Development takes the product of that thinking and turns it into something that can be marketed profitably. In like vein, physicists distinguish between pure and applied physics, while economists distinguish between theory and policy. Read the rest of this entry »
Zombie Economics: The Myth of the Twin Deficits
January 15th, 2007It’s baaaaaack! After briefly disappearing in the late 1990s, economists have again revived the twin deficit hypothesis that asserts government budget deficits are the primary cause of trade deficits. Worse than that, some new Democrats and liberal commentators have also signed on to the “budget deficits cause trade deficits†argument, especially regarding the trade deficit with China. Take Nicholas Kristof in the New York Times (April 23, 2006): Read the rest of this entry »
Economics for Contenders
January 8th, 2007MEMO
TO: Progressive Presidential Candidates:
RE: Framing a Winning Economic Policy
FROM: Thomas I. Palley
The unbalanced U.S. boom that has followed the 2001 recession provides a real window of opportunity for progressive Democrats to reverse the laissez-faire extremism of the last 30 years. This window may open still wider if the economy suffers a recession in the next two years (The Next Recession ). If progressives are to take full advantage of this opportunity, they will need a new economic policy frame. Here’s a suggested road map. Read the rest of this entry »
World Asset Prices: What’s Really Going on?
January 1st, 2007World asset prices have been booming for the last five years, with many bourses setting new record highs. Along with record real estate values, this has created fears of a global asset price bubble. Now, MIT’s Ricardo Caballero has come up with the proposition that prices are rationally up because of a global shortage of financial assets, and there is little reason to worry. Close inspection reveals his analysis to be unpersuasive on both the facts and the merits, and it also carries dangerous policy implications. Read the rest of this entry »
The Knowledge Police in Economics
December 12th, 2006It is often said that knowledge is power. One implication of this is that the powerful have an incentive to police what gets called knowledge. Nowhere is this truer than in economics since how we describe the economy has vital consequences for economic policy, providing a clear motive to police the production of economic knowledge. Unmasking this reality is critical for a democratic equal opportunity society. However, it is extremely difficult to do. Read the rest of this entry »
Milton Friedman: The Great Conservative Partisan
November 27th, 2006Milton Friedman died on November 16, 2006 at the age of 94. Without doubt, Friedman was one of the most influential (perhaps the most influential) economists of the second half of the twentieth century. Not only did he contribute to reviving belief in the economic efficacy of the market system, he also had a profound political impact by linking capitalism with freedom. Read the rest of this entry »
The Economics and Politics of Trade Deficits
November 13th, 2006Over the last four years the U.S. trade deficit has persistently set new records, hitting $716.7 billion in 2005, equal to 5.7 percent of GDP. The trade deficit has both real and financial effects. Real effects refer to impacts on employment, incomes, and manufacturing capacity. Financial effects refer to the impact of accumulated indebtedness resulting from borrowing to finance the deficit. Read the rest of this entry »
Replace Europe’s Growth and Stability Pact with Market Discipline and Democracy
October 30th, 2006As part of the euro’s introduction, European governments agreed to constrain their budget policies through the Growth and Stability Pact. Though euphemistically termed the “growth and stability†pact, it in fact delivers neither. Moreover, owing to the constraints the pact places on national economic sovereignty, it risks contributing to political strains that threaten to undermine support for the euro. For these reasons, it is time to abandon the pact. In its place, Europe should let democracy and financial markets arbitrate the long-term viability of government fiscal policies. Read the rest of this entry »