Newly Revised & Updated for 2013
“As much a guidebook for our times as an explainer of economics.”
–From the foreword, by Mohamed El-Erian, CEO of PIMCO
If you’re looking for an easy-to-read, authoritative and witty guide to the economy, then The Little Book of Economics: How the Economy Works in The Real World is for you. The first edition, released in the fall of 2010, won rave reviews (see below) from media, readers, teachers and financial professionals alike. I’ve now updated it with plenty of new material to cover developments in the global economy in the last two years. Among the changes:
- • Extensive new discussion of debt, deficits, fiscal stimulus and austerity
- • New detail and descriptions of the Federal Reserve’s unconventional monetary policy, including quantitative easing
- • A new chapter about currencies and the euro crisis
For readers of The Little Book of Economics I’ve put together this brief overview of books, organizations, blogs, articles and other resources for those who want to dive more deeply into particular subjects or acquire more expertise. You can access it by clicking here. I welcome suggestions for additions.
Sep 8th 2014, 16:22 by G.I. | WASHINGTON, D.C
Europe does not yet have its equivalent of Japan’s Abenomics, but Mario Draghi, president of the European Central Bank, pretty much advocated it in his press conference last week. Europe, he said, needs fiscal, monetary and structural policy working together, the three arrows of Abenomics. He acknowledged the ECB’s duty of getting inflation, now 0.3%, back up to its target of near 2%. But the ECB, he said, can’t rescue Europe alone: it needs help from fiscal and structural reforms.
Of course, he’s right that monetary policy can’t initiate fiscal consolidation or liberalize product and labour markets, and that both those things are essential to Europe’s long term health. But the ECB can help determine whether either of those things succeeds. For Europe’s fiscal and regulatory policy makers to do their jobs, it will help immensely if the ECB does its own.
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Courts and regulators turn the screws on firms that use irregular workers
September 4, 2014
FEDEX, Walmart and McDonald’s are among America’s largest employers. Yet many of the people who drive FedEx’s delivery trucks, staff Walmart’s warehouses and serve McDonald’s hamburgers are not their employees. Instead, they work for subcontractors, franchisees or themselves.
Flexible work arrangements have long been a hallmark of America’s ever-shifting economy. Lately, though, they have drawn more criticism. Earlier this year David Weil of Boston University published “The Fissured Workplace”, which argues that many employers have met competitive pressures by splitting off functions to subcontractors, vendors and franchisees, where workers’ wages and benefits stagnate. On September 3rd the OECD, a club of rich countries, fretted that a divide is opening between secure, permanent jobs and insecure, ill-paid temporary ones. Read the rest of this entry »
America’s famously flexible labour market is becoming less so
Aug 30th 2014 | From the print edition
The European Central Bank should learn from the success of unconventional policies in America and Britain
In America and Britain, output and employment have surpassed their pre-crisis peaks and are growing solidly. But the picture in the rich world’s other two big economies is darker. In the second quarter Japanese output shrank sharply, largely because consumers had accelerated purchases in the first quarter in order to avoid a consumption-tax rise. The euro zone’s woes are harder to dismiss: second-quarter output was flat, and it remains no higher than it was in 2011. Read the rest of this entry »
Aug 23rd 2014, 4:14 by G.I. | JACKSON HOLE, WY.
The contradictory signals generated by American labour market data in the last year have provided grist for both hawks and doves at the Federal Reserve. For hawks, the rapid decline in the unemployment rate shows slack in the economy is disappearing so the Fed should tighten soon. For doves, the low rate of wage growth suggests there’s plenty of slack and tightening should wait.
Since becoming chair, Janet Yellen has usually been in the second camp, on balance interpreting the data as suggesting there wasn’t any urgency about raising rates. Her speech to the Kansas City Fed’s Economic Symposium on Friday in Jackson Hole, Wyoming struck a different tone. True, it covered both sides of the debate without coming down on either; Ian Shepherdson counted “1 coulds, 20 buts, 11 woulds, 7 mights, and a magnificent 56 ifs.” But she raised enough questions about the dovish case to suggest her own convictions are weakening. She was not telegraphing the case for raising rates soon. But it should be a wake-up call for investors who assume she would spin all the labour data that comes her way in a dovish direction. Read the rest of this entry »
Weighing the evidence
Aug 16th 2014 | WASHINGTON, DC | From the print edition
NEWS that America’s economy grew at a brisk annualised rate of 4% in the second quarter was greeted with relief. After a puzzling first-quarter contraction, growth has returned, though the recovery remains the weakest since the second world war. As of June, the expansion is now five years old, longer than the post-war average of 58 months (see chart 1).
Recessions have become rarer in recent decades. The three expansions preceding the 2008 crisis lasted on average for 95 months. For that, economists credit structural factors such as companies’ better control of stocks, and modest inflation. The latter is especially important because as the late Rudi Dornbusch, an economist, once said, post-war expansions didn’t die in their beds; they were murdered by the Federal Reserve. The economy would run out of spare capacity, profits deteriorated, prices and wages rose and the Fed hiked interest rates, precipitating a recession.
If that pattern holds, the current expansion should have plenty of life left in it. Inflation is actually lower than the Fed’s target of 2%. The huge hit sustained during the crisis has a positive side: it has given the economy plenty of running room. JPMorgan reckons that adding a percentage point to the output gap at the start of an expansion adds two quarters to its lifespan. (The output gap is the difference between actual output and the maximum an economy can produce without sparking inflation.)
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Restricting companies from moving abroad is no substitute for corporate-tax reform
Jul 26th 2014 | From the print edition
ECONOMIC refugees have traditionally lined up to get into America. Lately, they have been lining up to leave. In the past few months, half a dozen biggish companies have announced plans to merge with foreign partners and in the process move their corporate homes abroad. The motive is simple: corporate taxes are lower in Ireland, Britain and, for that matter, almost everywhere else than they are in America.
In Washington, DC, policymakers have reacted with indignation. Jack Lew, the treasury secretary, has questioned the companies’ patriotism and called on Congress to outlaw such transactions. His fellow Democrats are eager to oblige, and some Republicans are willing to listen.
The proposals are misguided. Tightening the rules on corporate “inversions”, as these moves are called, does nothing to deal with the reason why so many firms want to leave: America has the rich world’s most dysfunctional corporate-tax system. It needs fundamental reform, not new complications. Read the rest of this entry »