Nouriel Roubini, NYU economist and founder of Roubini Global Economics, talks about the general state of the global financial system, the US economy, and economic theory.
“Marx said it right that at some point, capitalism can self-destroy itself” and “that markets are not working,” says Roubini, who is by no means an orthodox Marxist.
This is a very interesting interview for those wanting an overview of the central economic issues facing today’s policymakers.
Enjoy.
by Jordan Eizenga (from themarknews.com)
One thing undeniably in abundance in the United States is a fear of inflation.
And with food and energy prices on the rise, American consumers do not seem to trust U.S. central bankers‘ inflation forecasts very much. A March 2011 Conference Board survey showed that consumers expect inflation to rise to a whopping 6.7 per cent despite the official Federal Reserve view that inflation will rise only modestly over the next year….
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.
by Jordan Eizenga
A (British) friend of mine tried to convince me that, unlike the US (whose currency is a global reserve currency), the UK has to implement austerity measures to save its currency from devaluation (Nick Clegg repeated this during an appearance on MSNBC). As a precedent for such currency devaluation, my friend pointed to the events of “Black Wednesday” (September 16, 1992) in which there was a massive sell-off of the pound sterling. My friend’s point was that investors will sell the pound sterling out of concern for the UK’s debt position - unless the government implements austerity measures now.
The predicament our policymakers find themselves in.
By Jordan Eizenga
I have recently had (intelligent) commentators disagree with me on such economic facts as “deflation is bad for economic growth.” Rather than support their position with empirical evidence, they refer to a theory that I thought had been put to rest long ago – the Austrian theory of economics. This is one of those theories in which its supporters claim its opponents have been proselytized by economics professors on well-to-do liberal campuses.
Rather than muddle an explanation of the theory myself, I thought it would be best to have an economist describe its problems.
by Jordan Eizenga
TBM has received commentary advocating for higher interest rates, spending cuts and generally contractionary economic policy. Their arguments are based on a logic that seems to confuse the right policies to prevent a crisis for the right policies to respond to one. Their logic is as follows:
1. Interest rates were kept very low through the 2000s, which allowed households and businesses to borrow very cheaply throughout that period.
By Jordan Eizenga
The Federal Reserve announced today that it will resume purchases of US Treasury bonds. This activity is referred to as Quantitative Easing and it is designed to maintain demand for Treasuries, which keeps their prices elevated. Given that interest rates and Treasury prices move in opposite directions, QE pushes interest rates down. This, in turn, stimulates the macro economy, particularly in a recession, by allowing businesses and households to borrow more cheaply in order to make purchases.
QE also increases the money supply by effectively creating money to make the bond purchases. Given the risk in the current economic environment of deflation, an increase in the money supply at this point in time is an important step in ensuring that price levels do not drop.
By Jordan Eizenga
As mentioned last week, Mark Zandi and Alan Blinder have produced the most comprehensive assessment of the government’s response to the financial crisis in a piece entitled “How the Great Recession Was Brought to an End.” The government was far from perfect in its response (particularly with respect to the size of its stimulus program). That being said, the conclusions from the Zandi and Blinder research make clear that the government’s response did much to improve our economic situation. In particular, they conclude that:
In the words of Zandi and Blinder themselves (neither of whom are liberal economists), “that’s what adverting a depression means.”
By Jordan Eizenga
Alan Blinder, Princeton economist and former fed vice-chairman, and Mark Zandi, chief economist at Moody’s Analytics, will release a report today that evaluates the federal government’s response to the financial crisis. Advanced excerpts of the report illustrate that the report assesses both fiscal and monetary policy and notes that the both the stimulus and the Fed’s quantitative easing activities have had substantial impacts. A preview posted by the New York Times Economix blog reads:
We find that the effects on real GDP, jobs, and inflation are huge, probably averting what would have been called Great Depression 2.0. For example, we estimate that, without the policy responses, GDP in 2010 would be about 6½% lower, payroll employment would be about 8½ million jobs lower, and the nation would now be experiencing deflation.
When we divide these effects into two components, one attributable to the various rounds of fiscal stimulus and the other attributable to the panoply of financial-market policies (including the TARP, the bank stress tests, and the Fed’s quantitative easing), we estimate that the latter are substantially more powerful than the former. Nonetheless, our estimated effects of the fiscal stimulus policies alone are very substantial: In 2010, real GDP that is about 2% higher, an unemployment rate that is about 1½ points lower, and almost 2.7 million more jobs….
None of this is to suggest that the initial stimulus was of sufficient size. It does, however, invalidate the notion that stimulus spending is in any way a cause of high rates of unemployment or crowding out of private investment. The federal government’s fiscal and monetary policy responses have clearly averted disaster.
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