Domestic 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 »
The Politics of Globalization: Why Corporations are Winning and Workers are Losing
November 20th, 2005Sabotaging 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 »
Time for the Fed to Take an Inflation Chill Pill
October 18th, 2005September’s headline consumer price inflation was 1.2 percent and it was 4.7 percent for the past year. However, core inflation, which excludes volatile food and energy prices, was just 0.1 percent in September and was only 2.0 percent for the entire year. Despite core inflation holding at this subdued rate for the past five months, the Federal Reserve has embarked on an interest rate-raising crusade. This campaign is on the verge of killing the patient, and it is time for the Fed to take an inflation chill pill. Read the rest of this entry »
The Questionable Legacy of Alan Greenspan
October 16th, 2005Alan Greenspan will retire as Chairman of the Federal Reserve in January 2006, and his retirement promises a flood of swooning retrospectives. Writing anything else at this moment risks the charge of churlishly raining on the parade. However, there are good grounds for a more critical reading of Greenspan’s eighteen-year tenure at the Fed. Read the rest of this entry »
Global Imbalances: Stop Thinking Saving, Start Thinking Demand
October 10th, 2005The Economist magazine (September 24, 2005) recently ran a story about the threat posed by global financial imbalances. The front cover showed a picture of a teeter-totter (see-saw in English) atop the globe. On the upper-end of the teeter-totter was a small stars-and-stripes piggy bank representing thriftless America; on the lower-end was a plump piggy bank representing the thrifty rest of the world. The moral of the story was that the U.S. is saving too little, the rest of the world is saving too much, and the net result is a dangerous global saving imbalance that requires an adjustment of saving patterns. Read the rest of this entry »
Manufacturing meets Wal-Mart: The Economics of Global Out-sourcing
October 1st, 2005General Motors and Ford have both recently announced plans to restructure their parts supply arrangements, the result of which will be the loss of thousands of middle-class manufacturing jobs. These plans involve slimming down the number of suppliers, as well as forcing domestic suppliers to match the lowest global price (the “China priceâ€) if they wish to retain business. Read the rest of this entry »
Super-sized: What happens when two billion workers join the global labor market?
September 25th, 2005There is a famous theorem in international economics – the Stolper-Samuelson theorem – that says when a rich capital-abundant country (such as the U.S.) trades with a poor labor-abundant country (such as China), wages in the rich country fall and profits go up. The theorem’s economic logic is simple. Free trade is tantamount to a massive increase in the rich country’s labor supply since the products made by poor country workers can now be imported. Additionally, demand for workers in the rich country falls as rich country firms abandon labor-intensive production to the poor country. The net result is an effective increase in labor supply and a decrease in labor demand in the rich country, and wages fall. Read the rest of this entry »