Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for March 2011

JFK and quantitative easing: Twisted thinking

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Government debt-managers may be undermining quantitative easing

Mar 31st 2011 | WASHINGTON, DC | from the print edition

[Greg Ip] QUANTITATIVE easing (QE) is an ugly name for a simple idea. Central banks buy long-term government bonds with newly printed money. This raises the bonds’ prices, lowers their yields and provides a helpful boost to growth when central banks’ main tool, the short-term interest rate, is close to zero.

There is plenty of dispute over whether QE works, but not over who should be doing it: the central bank, obviously. Yet is it so clear-cut? A new paper has found that a finance ministry can accomplish the same outcome simply by altering the maturity structure of its debt.

America tried precisely that in 1961. To lower long-term rates the administration of John Kennedy persuaded the Federal Reserve to co-operate with the Treasury in selling (shorter-term) bills and using the proceeds to purchase (longer-term) bonds. By altering the supply o

f different types of debt, the idea was to “twist” the yield curve. This came to be known as Operation Twist after the early 1960s dance craze sparked by Chubby Checker, a singer whose views on QE are not known.

Operation Twist has long been considered a failure. Early studies found little impact on y

ields, vindicating those who argued that the price of a security depends only on expectations—of inflation, for example, or monetary policy—not its relative supply. Eric Swanson, an economist at the Federal Reserve Bank of San Francisco, disagrees. Previous studies, he reckons, didn’t properly isolate the influence of Operation Twist from countervailing factors. By studying the behaviour of bonds right around announcements related to Operation Twist, he concludes the programme lowered yields by 15 basis points in total. Read the rest of this entry »

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March 31, 2011 at 4:02 pm

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Typically constrained policy

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Mar 25th 2011, 19:18 by G.I. | LONDON

[Greg Ip] THE failure of the American economy to achieve meaningful liftoff is too easily explained away by special factors. My colleague acknowledges this, yet wonders whether post-crisis recoveries by their nature have to be weak:

[G]rowth has been slower than it otherwise would have been thanks to tighter than necessary fiscal and monetary policy.

I think this sort of misses the point. Read the rest of this entry »

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March 25, 2011 at 3:12 pm

The global economy: Another year of living dangerously

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Turmoil in the Middle East and disaster in Japan arouse economic angst. Central banks must not make it worse

[Greg Ip] Mar 24th 2011 | from the print edition

THIS was supposed to be a stress-free year for the global economy. By January the financial crisis had faded and Europe’s sovereign-debt crisis seemed less acute. America’s economy was resurgent. Investors piled into equities and sold some of the government bonds they’d bought for troubled times. If there was a worry, it was that emerging economies would grow too quickly, inflating commodity prices.

The year without crisis is not to be. First, Arabian upheaval put oil markets on edge. Then earthquake, tsunami and a nuclear accident clobbered the world’s third-largest economy. How much of a setback to growth do these twin crises represent? And how should economic policymakers react to them?

The entire article is linked here.

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March 24, 2011 at 3:09 pm

It’s not about the multiplier

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Mar 21st 2011, 18:50 by G.I. | WASHINGTON

[Greg Ip] HOW you feel about fiscal stimulus generally comes down to how big you think the multiplier is. Does a dollar of stimulus produce two dollars of GDP, one dollar, or none? Stimulus sceptics generally assign a lower number to the multiplier. Conservatives usually assign a lower multiple to government spending than to tax cuts.

An extreme example would be that of House Republicans who backed last December’s tax deal, which both extended existing tax cuts and enacted new ones, on the grounds that it would avert great harm to the economy. That implied a large, positive multiplier on tax cuts. They argue, however, that their proposed cuts to spending this year will actually raise employment, implying a negative multiplier for government spending. That claim has been backed by John Taylor.

I find it hard to believe that the multiplier is zero, much less negative, in an economy sporting interest rates jammed up against zero and a reserve currency. But rather than rehash that debate, let’s take a look at an intriguing new case being made against stimulus via government spending. Proponents of this case agree the government spending multiplier is positive, but maintain that the thing that is being multiplied, GDP, is the wrong policy target. Policymakers should be concerned with welfare, not GDP, and those aren’t the same thing. If government spends the money badly, it might not raise anyone’s welfare.

Greg Mankiw and Matthew Weinzierl elegantly lay out this argument  in a paperpresented at the Brookings Papers on Economic Activity on March 17. Read the rest of this entry »

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March 21, 2011 at 3:16 pm

Patent reform: The spluttering invention machine

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America’s patent system has problems; a new law would fix only a few

FOR all America’s anxieties about its decline as a superpower, its deficits and its weak economy, it can still be proud of its strength as an innovator. Americans make four times as many patent applications per head as Europeans. Patents spur innovation and lay the foundations for future growth, by assuring inventors that they will reap the rewards of their effort and by publicising their discoveries.

But worries have grown that excessive patenting may now be having the opposite effect: businesses and other researchers may be discouraged from innovating in areas that depend heavily on prior discoveries, for fear of being sued for patent infringement. Besides making it too easy to bring patent lawsuits, it is argued, America hands out patents too readily: an often-quoted example is the one granted to Amazon for its “one-click” online-shopping button. Last year the Supreme Court restricted the scope of such business-process patents, but not by enough to satisfy critics.

Big technology companies complain of “patent trolls”—companies that buy lots of obscure patents and then bombard alleged infringers with lawsuits. (The “trolls” argue that by making patents valued they are helping to create a market in invention that will encourage inventors.) Surging patent activity has overwhelmed the US Patent Office, which is taking ever longer to process applications (see chart).

After years of failed attempts to remedy the situation, on March 8th the Senate passed the biggest overhaul to patent law since the 1950s. Read the rest of this entry »

Written by gregip

March 17, 2011 at 3:54 pm

Posted in Uncategorized

Patent reform: The spluttering invention machine

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America’s patent system has problems; a new law would fix only a few

[Greg Ip] Mar 17th 2011 | WASHINGTON, DC | from the print edition

FOR all America’s anxieties about its decline as a superpower, its deficits and its weak economy, it can still be proud of its strength as an innovator. Americans make four times as many patent applications per head as Europeans. Patents spur innovation and lay the foundations for future growth, by assuring inventors that they will reap the rewards of their effort and by publicising their discoveries.

But worries have grown that excessive patenting may now be having the opposite effect: businesses and other researchers may be discouraged from innovating in areas that depend heavily on prior discoveries, for fear of being sued for patent infringement. Besides making it too easy to bring patent lawsuits, it is argued, America hands out patents too readily: an often-quoted example is the one granted to Amazon for its “one-click” online-shopping button. Last year the Supreme Court restricted the scope of such business-process patents, but not by enough to satisfy critics.

The original article is linked here.

 

 

Written by gregip

March 17, 2011 at 3:06 pm

Manufacturing: Rustbelt Recovery

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Against all the odds, American factories are coming back to life. Thank the rest of the world for that
CHICAGO AND WASHINGTON, DC | from the print edition

[Greg Ip] ACME INDUSTRIES is a small contract manufacturer with only ten big customers. But those customers are a cross-section of the industrial economy, spanning mining, oil, transport and construction. Right now, Acme’s order book is bulging. “Everyone is up across the board,” says Bob Clifford, the company’s head of sales and marketing.

In one corner of its factory just outside Chicago, three workers polish what looks like a steel Lego brick the size of a steamer trunk. This is designed to channel water underground at high pressure, and will go into natural-gas-drilling equipment. In another corner sit rows of hollow steel cylinders that will hold bearings inside the wheels of gigantic mining trucks being built in nearby Peoria. Mr Clifford points to several parts destined for diesel locomotives built by a subsidiary of Caterpillar a big maker of heavy equipment. Caterpillar is booming, and its ecosystem of suppliers across Illinois is “seeing a real trickle-down effect,” he says.

At the nadir of the recession Acme’s sales had fallen 20% and it had laid off ten of its 125 employees. Sales are back up, the head count is now up to 130, and Acme reckons it will hire 20 more people this year to handle the growing order book.

For the first time in many years, American manufacturing is doing better than the rest of the economy. Manufacturing output tumbled 15% over the course of the recession, from December 2007 to the end of June 2009. Since then it has recovered two-thirds of that drop; production is now just 5% below its peak level (see chart 1).

The entire article is linked here.

 

Written by gregip

March 10, 2011 at 12:05 pm

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