Economic Commentary Roundup
By BRUCE BARTLETT,
Posted: June 11, 2010
In a June 8 commentary, University of Chicago economist Raghuram Rajan noted that our public policies for dealing with the unemployed have been premised on the assumption that durations of involuntary unemployment were relatively brief. However, job growth in economic recoveries has slowed dramatically over the last 20 years. This would seem to suggest that our public policies, such as unemployment insurance, need to be reformed to better accommodate long-term unemployment.
On June 1, the International Monetary Fund published a highly technical paper looking at statistical methods for detecting asset bubbles. It concludes that stock price bubbles are easier to detect than housing bubbles.
On May 30, NYU economist Bill Easterly noted that it costs $3,000 to start a new business in Haiti—an astronomical sum in such a poverty-stricken nation desperately in need of job-creating new businesses.
● According to the World Bank’s 2010 report on doing business around the world, Haiti ranks dead last in ease of starting a business in its region and ranked 180 out of 183 countries worldwide. Only Eritrea, Chad and Guinea-Bissau have worse business climates for new startups.
Also on May 30, economist Mike Mandel pointed to a new National Science Foundation study on the location of research and development by U.S. companies. About 20% is done overseas and varies considerably from industry to industry.
A May 28 study from the Urban Institute criticizes the gross domestic product as a measure of well-being and suggested improvements. (Note: While no economist denies that GDP has many flaws, it’s important to remember that we have 80 years of economic analyses correlating it to a variety of factors such as the money supply. It would be impossible to create a new time series equal to the one we now have for GDP.)
On May 27, the Baseline Scenario blog posted a detailed critique of the Heritage Foundation’s widely read Index of Economic Freedom. Echoing an April 8 critique by University of Wisconsin political scientist Dave Armstrong, it argues that the statistical methodology of the index is deeply flawed and does not prove what it purports to show: that economic freedom is the principal determinant of economic growth. (I have also been critical of Heritage’s methodology.)
Also on May 27, economist Donald Marron complained about the common misperception that consumption accounts for 70% of GDP when it’s actually closer to 60%. Economist Mike Mandel echoed his concerns on May 28. The misperception results from a failure to properly account for imports.
● See also this September 2009 paper by Bureau of Labor Statistics economists Carl Chentrens and Art Andreassen at the Federal Forecasters Conference.
The Commerce Department’s latest data on real GDP growth broken down by industry, released on May 25, show that the greatest impact of the recession has been on goods-producing industries.
In the Federal Reserve Bank of Richmond’s 2009 annual report, released on May 21, economist Kartik Athreya has an essay on systemic risk. This results from linkages between financial institutions that can create spillover effects when one institution fails. In such cases, government intervention is unambiguously justified.
A World Bank paper published in May strongly supports the conservative argument that deregulation had nothing to do with fostering the economic crisis and lays primary blame on Congress’s failure to control Fannie Mae and Freddie Mac, and government efforts to encourage lending to increase homeownership, which led to a decline in lending standards.
● TFT’s Edmund L. Andrews posted a critical comment on this paper on June 4.
Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006)
Previous posts from this week:
Focus on Carried Interest and Foreign Tax Credit 6/10/2010
Focus on Health Reform 6/9/2010
Focus on Fiscal Stimulus 6/8/2010
The Looming Necessity of Fiscal Consolidation 6/7/2010