Many Americans have rightly identified China, uncontrolled trade deficits, and Wal-Mart style competition as looming threats to the American economy. However, they remain hard-pressed countering the free market/free trade story of mainstream economists that these are all for America’s long run benefit. Read the rest of this entry »
Back to Basics: Progressive Economics for the 21st Century
January 18th, 2006Export-led Growth: The Elephant in the Room
January 13th, 2006Psychologists refer to the “elephant in the room†phenomenon as a condition where people talk about everything except the most important issue. I recently (January 10, 2006) attended a conference at Washington’s prestigious Institute for International Economics on the likelihood of a financial crisis in developing countries. All morning the elephant sat quietly in the room sipping coffee. Read the rest of this entry »
Silent Spring: How the Democrats lost their Economic Policy Voice
January 5th, 2006In 1962 Rachel Carson published her environmental epic, Silent Spring, which documented how chemical-based agriculture was killing the bird-life and birdsong of America’s countryside. Over the last forty years the Democratic Party has also slowly lost its voice and fallen silent on the economy, with Democrats substituting a laundry list of program plans for economic vision. Read the rest of this entry »
The U.S. Trade Deficit and Net Foreign Income: No Escaping the Problem
December 18th, 2005Economists have long had an obsession with physics, evidenced by the metaphors of utility indifference curves and production iso-quants that derive from 19th century force field physics. Recently (Financial Times, Friday 8 December – not The Onion, April 1), Harvard University economists Ricardo Hausmann and Federico Sturzenegger claim to have discovered financial “dark matter“ that shows that neither the U.S. nor the global economy suffer from international financial imbalances. Consequently, the U.S. trade deficit is no longer an issue of concern. Read the rest of this entry »
Exchange Rates, Labor Standards, and Democracy: Why China Must Change
December 10th, 2005For the past five years the global economy has been flying on one engine. That engine is the U.S. consumer who has been on a consumption binge financed by borrowing, in turn backed by a housing price bubble. This situation poses the threat of a serious hard landing when that engine eventually stalls, as it must. Ever inflating house prices and rising debt-to-income levels are not sustainable. And as the late Herbert Stein, Chairman of President Nixon’s Council of Economic Advisers, wryly observed: “If something cannot go on forever, it will stop.†Read the rest of this entry »
The Politics of Globalization: Why Corporations are Winning and Workers are Losing
November 20th, 2005Domestic political economy has historically been constructed around the divide between capital and labor, with firms and workers being at odds over the division of the economic pie. Within this construction labor is usually represented as a monolithic interest, yet the reality is that labor has always suffered from internal divisions. Globalization sharpens these divisions, which helps explain why corporations have been winning and workers losing. Read the rest of this entry »
Sabotaging Government: The New Politics of the Radical Right
November 20th, 2005Thirty years ago the economic debate between Democrats and Republicans was framed in terms of the case for bigger versus smaller government. Democrats emphasized market proclivities toward monopoly and inequality, failure of markets to efficiently provide public goods, market incentives to pollute, and above all the tendency of markets to produce less than full employment. Republicans countered that such market failures were over-stated. More importantly, using government to solve market failures could lead to even worse problems of government failure associated with bureaucratic inefficiency, policy misjudgments, and private capture of regulatory agencies. In an imperfect world, Republicans argued that it is better to live with the problem of market failure and opt for small government, than try and solve it by resort to big government. Read the rest of this entry »
Asset Bubble Keynesianism versus Economic Flexibility: Challenging the Greenspan Hypothesis
November 12th, 2005If you have a pulpit and say something over and over again, that something may eventually come to be believed. No one has a bigger pulpit than Alan Greenspan, Chairman of the Federal Reserve, who for the last decade has been saying that the secret of America’s prosperity is its economic flexibility. But there is another explanation, which is asset bubble Keynesianism. It too can make for a jolly old time – at least for a while. Read the rest of this entry »
Winner’s Curse: The Torment of Chairman-designate Bernanke
November 4th, 2005In economics there is a phenomenon known as the “winner’s curse†whereby the winner of an auction over-pays. The most that she should have paid is the second-highest bid, which is the highest value attached by all other bidders. This curse provides a useful analogy for thinking about the recent selection of Federal Reserve Chairman Alan Greenspan’s replacement. There is a good chance that the winner, Ben Bernanke, may end up with a bout of the winner’s curse. Read the rest of this entry »
Two Views About a Possible U.S. Hard Landing: Foreign Flight versus Consumer Burnout
October 23rd, 2005The current U.S. economic expansion is in its fifth year. At this stage, the possibility of its ending has raised two explanations that can be labeled the “foreign flight’ and “consumer burnout†hypotheses. While both predict a recession, they rest on very different reasoning and have different implications for interest rates and exchange rate policy. The foreign flight hypothesis is also politically troubling since it can be easily tinged with xenophobia. Read the rest of this entry »