Some interesting articles about economics, helping us understand our changing world.
- “Fighting Downturns with Fiscal Policy“, Economic Letter of the Federal Reserve Bank of San Francisco, 19 June 2009
- “The Science of Economic Bubbles and Busts“, Scientific American, Juy 2009 — “The worst economic crisis since the Great Depression has prompted a reassessment of how financial markets work and how people make decisions about money.”
These 2 articles show the vital role of economic theory, necessary to manage our complex global economy.
4. “Japan on verge of sub-prime mortgage crisis as summer bonuses plunge“, The Times, 26 June 2009
5. “No Recovery in Sight“, Bob Herbert, op-ed in the New York Times, 27 June 2009
(1) “Fighting Downturns with Fiscal Policy“, Economic Letter of the Federal Reserve Bank of San Francisco, 19 June 2009 — Excerpt:
- A simple theory of the effects of fiscal policy
- Challenging the model
- Recent empirical work
- The stimulus package: Will it work?
Because of the severity of the recession and the uncertain effects of unconventional monetary policy tools, Congress and the Obama Administration have also enacted a fiscal stimulus package. The $787 billion program approved by Congress in February includes a mix of tax and spending measures aimed at creating jobs and boosting output.
Yet, economists and political leaders heatedly debate whether tax cuts or increased spending are more effective, a dispute that’s hard to resolve because of the difficulty of determining the precise magnitude of fiscal policy’s impact on real GDP. This Economic Letter examines some recent empirical studies analyzing data on the relative effects of higher spending and lower taxes on output.
(2) “The Science of Economic Bubbles and Busts“, Scientific American, Juy 2009 — “The worst economic crisis since the Great Depression has prompted a reassessment of how financial markets work and how people make decisions about money.” Excerpt, from Andrew Lo, a professor of finance at the Massachusetts Institute of Technology and an official at a hedge fund:
“Economists suffer from a deep psychological disorder that I call ‘physics envy. We wish that 99% of economic behavior could be captured by three simple laws of nature. In fact, economists have 99 laws that capture 3% of behavior. Economics is a uniquely human endeavor and, as such, should be understood in the broader context of competition, mutation and natural selection—in other words, evolution.”
(3) “Japan on verge of sub-prime mortgage crisis as summer bonuses plunge“, The Times, 26 June 2009 — Japan fights the long war against itself, the long defeat. Excerpt:
Anaemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned.
A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay. According to the think-tank, those loans were made on the assumption that the traditional staples of Japanese corporate life — seniority-based pay increases, constantly rising bonuses and lifetime employment — would remain as fixtures.
The impending meltdown, which the Tokyo Foundation believes could affect some hundreds of thousands of households, will be focused initially on the country’s industrial heartlands, where corporate bankruptcy rates are rising. The residential zones around Toyota’s home territory of Nagoya could become ghost towns, Kazuo Ishikawa, the think-tank’s senior research fellow, said.
(5) “No Recovery in Sight“, Bob Herbert, op-ed in the New York Times, 27 June 2009 — Excerpt:
There are now more than five unemployed workers for every job opening in the United States. The ranks of the poor are growing, welfare rolls are rising and young American men on a broad front are falling into an abyss of joblessness.
… There were roughly 7 million people officially counted as unemployed in November 2007, a month before the recession began. Now there are about 14 million. If you add to these unemployed individuals those who are working part time but would like to work full time, and those who want jobs but have become discouraged and stopped looking, you get an underutilization rate that is truly alarming.
“By May 2009,” according to the Center for Labor Market Studies at Northeastern University in Boston, “the total number of underutilized workers had increased dramatically from 15.63 million to 29.37 million — a rise of 13.7 million, or 88 percent. Nearly 30 million working-age individuals were underutilized in May 2009, the largest number in our nation’s history. The overall labor underutilization rate in May 2009 had risen to 18.2 percent, its highest value in 26 years.”
… Three-quarters of the workers let go over the past year were permanently displaced, as opposed to temporarily laid off. They won’t be going back to their jobs when economic conditions improve. And many of those who were permanently displaced were in fields like construction and manufacturing in which the odds of finding work, even after a recovery takes hold, are not good
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