The Broader Market

The Wall Street Journal outlines why it is that our most recent economic downturn has produced such a severe level of unemployment.

Enjoy.

Niall Ferguson of Harvard University argues against former Treasury Secretary Larry Summers’ point that the United States needs more stimulus. I clearly don’t agree with Ferguson on the need to enact immediate deficit reduction, nor his beliefs about what caused the Great Depression and the lost decade in Japan.

Yet, he does make a compelling - and clearly controversial - case for Greece to default, abandon the Euro, and adopt the drachma. On this point, he is correct that Greece stands to gain little from meeting its debt obligations, but a lot from failing to do so. Today, Greek monetary policy is explicitly outsourced to the European Central Bank, while fiscal policy decisions have been implicitly outsourced to the IMF, Germany, France and other EU members that have bailed the country out. Defaulting and starting anew, says Ferguson, will give Greece the ability to take control of economic policy decision making once again.

This is all good and well, but what about the rest of us? A Greek default will most likely cause a global financial crisis that will hurt economies worldwide. Clearly, there is a misalignment of incentives between the Greek people and the rest of the world.

Greg Ip, Economics Editor, gives a pretty good lay of the land regarding the debt ceiling.

Smart fellow.

An interesting discussion on the role of financial myths in the recent financial crisis.

Professor Mark Blyth on austerity measures and why they are not nearly as straightforward as some would have you believe.

Joseph Stiglitz debates Vincent Reinhart over the issue of stimulus versus deficit reduction. 

The elephant in the room is that high unemployment is not likely to go away until we address the large gap in consumer demand.  Stimulus fills that gap and creates a market for business output, which creates a demand for new employees.