September’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 »
Time for the Fed to Take an Inflation Chill Pill
October 18th, 2005The 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 »
Hurricane Katrina: Why the Fed must stop its rate hike campaign
September 18th, 2005Hurricane Katrina was an immense natural disaster that has already inflicted great harm and suffering. It has also wrought huge regional economic damage, the local effects of which will belong-lasting. Now, people are wondering whether Katrina could also spawn a national recession.
The Wall Street consensus seems to be that it will not, but there are robust grounds for believing that the consensus is wrong. Read the rest of this entry »
Keynesianism: what it is and why it still matters
September 18th, 2005For the last three decades laissez-faire conservatives have sought to systematically discredit the ideas known as “Keynesianism.†This assault has had deleterious consequences for economic policy and public economic understandings. It is time for Keynesians to fight back. Read the rest of this entry »