Greg Ip

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

Archive for March 2012

America’s JOBS Act: Uncuffing capitalism

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A welcome attempt to restore the appeal of initial public offerings in America

Mar 31st 2012 | from the print edition

[Greg Ip] HAVING spent years heaping new rules onto its financial markets, America is about to take a modest step in the opposite direction. On March 27th Congress passed the JOBS (or, rather ludicrously, “Jumpstart Our Business Start-ups”) Act, which aims to revive growth by easing the regulatory burden on companies seeking to raise capital (see article).

The act is designed to address the decline in initial public offerings (IPOs). From 2001 to 2011 the annual tally of small companies going public in America was 80% lower than in the previous two decades. Read the rest of this entry »

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March 31, 2012 at 9:45 pm

Posted in Uncategorized

A theory of fiscal policy: Self-sustaining stimulus

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Larry Summers says fiscal stimulus can pay for itself

Mar 24th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] WHEN he was at the Treasury nearly 20 years ago Larry Summers would counsel President Bill Clinton on the merits of “stimulative austerity”: cut deficits, and interest rates will fall by enough to produce stronger economic growth. Now Mr Summers is making the opposite case: stimulate growth through a bigger deficit, and the long-term debt may shrink.

In a new paper* written with Brad DeLong of the University of California, Berkeley, Mr Summers, now at Harvard after a stint as Barack Obama’s chief economic adviser, says that in the odd circumstances America faces today temporary stimulus “may actually be self-financing”. Read the rest of this entry »

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March 22, 2012 at 1:30 pm

Posted in Fiscal policy

Potential output: Risking permanent damage

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Mar 20th 2012, 15:15 by G.I. | WASHINGTON

TWO spectacular failures stain 20th century macroeconomic policy in America: the Great Depression and the Great Inflation. They share an important ingredient: in both, policy makers could not properly gauge the economy’s potential output, i.e. its productive capacity.

As my colleague notes here, many in the 1930s blamed the Depression on supply-side causes: Austrians considered it payback for years of overinvestment, while others cited the inevitable pain of reallocating resources between dying and growing industries. John Maynard Keynes wrote in 1930, “We are being afflicted with a new disease…namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.” Read the rest of this entry »

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March 20, 2012 at 1:34 pm

Posted in Uncategorized

Explaining America’s macro puzzles: The worst of all worlds

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Mar 15th 2012, 21:08 by G.I. | WASHINGTON

America’s economy is a mosaic of puzzles and contradictions that has economists and bloggers scrambling for explanations and scrutinizing the data for quirks and flaws. Lately, I’ve been thinking dark thoughts: what if all it takes is a single explanation that assumes all the data are correct?

The first puzzle: why is GDP growing so slowly? Since the recession ended, growth has averaged 2.5%, roughly around its pre-recession trend-rate, which means no progress closing the massive gap between actual and potential output that opened over the course of the recession. We know recoveries are weaker after financial crises but they are still supposed to be recoveries, i.e. the output gap should close, albeit slowly. Read the rest of this entry »

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March 15, 2012 at 9:55 pm

Posted in Blog posts

The American economy: Unmired at last

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America’s recovery is neither robust nor dramatic. But it is real

Mar 17th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] SINCE Florida’s property market collapsed and its economy tanked, Hillsborough County has endured almost nonstop austerity. In the past five years the government of the county, halfway up the state’s Gulf coast, has eliminated a quarter of its 6,000 positions through attrition and lay-offs. It has scaled back after-school child care. Workers’ pay has been frozen for three years.

But the fiscal year that begins in October holds the prospect of relief. Property-tax revenue is declining more slowly. Tourism-related taxes have stabilised. Sales-tax revenue is actually up. There is still a deficit to be eliminated, but it is a third of the size it was a year ago; the county thinks it will need no lay-offs next year. Things aren’t getting better, says Tom Fesler, the county’s budget director. “It’s more a function of just not getting worse.”

Such faint praise is not as damning as it seems; there has been an awful lot of worse in the past few years. America’s recovery may have officially begun in mid-2009, but it has bogged down repeatedly since. That has in part been due to circumstances beyond American control, such as rising oil prices and Europe’s debt crisis. But it has also been due to the hangover of the recession: consumers have been shedding debt, lenders have been reluctant, housing markets have been moribund, and state and local governments like Mr Fesler’s have been cutting budgets in the face of prohibitions on deficits.

Some of those impediments have now gone away. Read the rest of this entry »

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March 15, 2012 at 1:40 pm

Explaining America’s macro puzzles: The worst of all worlds

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Mar 15th 2012, 21:08 by G.I. | WASHINGTON

[Greg Ip] America’s economy is a mosaic of puzzles and contradictions that has economists and bloggers scrambling for explanations and scrutinizing the data for quirks and flaws. Lately, I’ve been thinking dark thoughts: what if all it takes is a single explanation that assumes all the data are correct? Read the rest of this entry »

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March 15, 2012 at 1:37 pm

Free exchange: Bond shelter

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America’s ability to issue debt is helped by a resemblance between Treasuries and money

Mar 10th 2012 | from the print edition

IN A financial landscape full of oddities, the prospect of America being paid interest by its creditors when its national debt is rocketing is one of the oddest. The Treasury recently disclosed it is exploring how to let investors enter negative yields when bidding at debt auctions. Clearly, demand for American government debt is driven by much more than a hunger for returns. Financial-market participants use Treasury bonds and bills as collateral to secure lending, for instance. And for risk-averse investors such as foreign central banks, money-market funds and retirees, America’s debt is uniquely suited to storing savings without much due diligence. In short, its government debt is a lot like money.

This analogy is not perfect, of course. Treasury bonds are less useful for buying things and government debt carries at least the possibility of default. But in terms of liquidity, risk and returns, few things come closer to money. In a recent paper* Arvind Krishnamurthy and Annette Vissing-Jorgensen of Northwestern University quantify the money-like properties of American debt by comparing its supply from 1926 to 2008 with market-based measures of safety and liquidity. They find that when the supply of Treasuries is lower (as measured by the debt-to-GDP ratio), demand goes up, widening the spread between their yields and those on AAA-rated corporate bonds. Read the rest of this entry »

Written by gregip

March 8, 2012 at 1:48 pm

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