Archive for the ‘Economics focus’ Category
Alvin Roth and Lloyd Shapley have won this year’s Nobel for economics
Oct 20th 2012 | from the print edition
[Greg Ip] IN MOST countries it is illegal to buy or sell a kidney. If you need a transplant you join a waiting list until a matching organ becomes available. This drives economists nuts. Why not allow willing donors to sell spare kidneys and let patients (or the government, acting on their behalf) bid for them? The waiting list would disappear overnight.
The reason is that most societies find the concept of mixing kidneys and cash repugnant. People often exclude financial considerations from their most important decisions, from the person they marry to the foster child they adopt. Even some transactions that do involve money are not really about price. Universities in America do not admit students based on who pays the most, for example. Rather, they select students based on complex criteria that include grades, test scores and diversity. Similarly, students choose their university on more than just financial factors.
Money is not essential to a market. After all, economics is about maximising welfare, not GDP. But the absence of a price to allocate supply and demand makes it harder to know whether welfare is being maximised. This year’s Nobel prize in economics went to two scholars—Alvin Roth, who has just joined the economics department at Stanford University, and Lloyd Shapley, a retired mathematician at the University of California, Los Angeles—who have grappled with that very problem. Read the rest of this entry »
Central bankers wonder why success eludes them
Sep 8th 2012 | from the print edition
[Greg Ip] IMAGINE that the world’s best specialists in a particular disease have convened to study a serious and intractable case. They offer competing diagnoses and treatments. Yet preying on their minds is a discomfiting fact: nothing they have done has worked, and they don’t know why. That sums up the atmosphere at the annual economic symposium in Jackson Hole, Wyoming, convened by the Federal Reserve Bank of Kansas City and attended by central bankers and economists from around the world*. Near the end Donald Kohn, who retired in 2010 after 40 years with the Fed, asked: “What’s holding the economy back [despite] such accommodative monetary policy for so long?” There was no lack of theories. But, as Mr Kohn admitted, none is entirely satisfying. Read the rest of this entry »
America’s economy is growing at an unimpressive rate. It may not be able to go much faster
May 26th 2012 | from the print edition
[Greg Ip] WHEN the American economy emerged from recession three years ago, forecasters fell into two broad camps. Optimists reckoned brisk growth would quickly return the economy to its long-term potential level of output, the maximum sustainable GDP that could be achieved with the capital and labour on hand. That would pull down unemployment and prop up inflation. Pessimists, however, predicted sluggish growth, persistently high unemployment and inflation that would slip ever lower as a result of unused capacity in the economy.
What has actually happened since then has been a mixture of the two. Unemployment and inflation have moved in the directions that optimists expected. Since peaking at 10% in late 2009, the jobless rate has now fallen by nearly two percentage points. Core inflation, which excludes food and energy, dipped below 1% in 2010 but is now above 2%. Yet economic growth has averaged 2.5%, a rate more typical of the economy at full employment rather than when recovering from a deep bust.
Economists advance several explanations for this dichotomy. The drop in unemployment may simply be mechanical, a snapback after employers fired workers too indiscriminately during the recession. Inflation has been underpinned by the indirect effects of higher commodity prices, rising rents and the influence of stable inflation expectations on prices and wages. Optimists say that GDP may be revised up later.
America’s ability to issue debt is helped by a resemblance between Treasuries and money
Mar 10th 2012 | from the print edition
The business cycle matters when assessing the cost of new regulations
Oct 29th 2011 | from the print edition
AMERICAN policymakers are pulling every lever they can to revive the economy, from fiscal stimulus to quantitative easing. The big exception has been regulatory policy. From environmental protection to bank oversight, the rule book has steadily thickened in recent years. Republican critics of Barack Obama think this explains America’s economic malaise. Scrap the rules, they claim, and the economy will spring to life. Nonsense, responds the Treasury. In a recent article, Jan Eberly, an assistant secretary for economic policy, scrutinised the behaviour of corporate-bond yields, corporate profits and other indicators. She found no evidence that regulatory uncertainty is holding businesses back from hiring or investment; weak demand is the big culprit. Read the rest of this entry »
Could the Federal Reserve lower unemployment by revamping its goals?
Sep 17th 2011 | from the print edition
The entire article is linked here.
Monetary and fiscal stimulus make a potent, if uneasy, combination
The nature of the recession, not government schemes, may explain why some countries lost so few jobs
Jul 8th 2010
[Greg Ip] GERMANY’S gross domestic product fell by 4% in the two years to the end of 2009, twice as much as in America. Yet its employment rose by 0.7% while America’s plunged by 5.5% (see left-hand chart). When German politicians contemplate why a gruelling recession produced almost no increase in unemployment, they usually have a one-word answer: Kurzarbeit. “It is only thanks to Kurzarbeit that more jobs were not lost,” Angela Merkel, the chancellor, told Germany’s parliament in November. Read the rest of this entry »
Even if governments could create inflation, they may not want to
Jun 3rd 2010
[Greg Ip] IN THE short run inflation is an economic phenomenon. In the long run it is a political one. This week The Economist asked a group of leading economists whether they reckoned inflation or deflation was the greater threat; this was our inaugural question in “Economics by invitation”, an online forum of more than 50 eminent economists. The rough consensus was that in the near term, as Western economies struggle to recover, the bigger worry there is deflation. But as the time horizon lengthened, more experts cited inflation, because it seems the most plausible exit strategy for governments trying to deal with crushing debts. “Deflation is not a lasting threat,” wrote Arminio Fraga, a former president of Brazil’s central bank. “The more interesting question is whether they can manage to keep inflation down over time under the regime of fiscal irresponsibility now prevailing almost everywhere.”
The original article is linked here.
From The Economist print edition
If Lehman had not failed, would the crisis have happened anyway?
[Greg Ip] IN AUGUST 2008 Kenneth Rogoff, a Harvard University economist, briefly rocked world stockmarkets when he warned a conference in Singapore: “We’re not just going to see midsized banks go under in the next few months, we’re going to see a whopper, we’re going to see a big one—one of the big investment banks or big banks.” A month later, in the early hours of September 15th, Lehman Brothers filed for bankruptcy. Read the rest of this entry »