StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Economic Roundup

13 Jun 2010
Posted by Bruce Bartlett

Following are a list of economic commentaries from the past week or so that didn't fit into a topical category.BB 


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 OECD 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.
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.

Cross-posted from The Fiscal Times on Friday.


Asset Bubble paper

Surely the asset bubble paper was produced by the OECD?


Will fix. 

Social Security shortfall

Am interested in your view of the current shortfall in Social Security taxes (sorry about not knowing all the correct terminology). We are now sending out more in SS payments than we are taking in in SS taxes, something that was not supposed to occur for five years or so.

What does this mean for the government, which as been steadily borrowing from the SS trust fund? How much of the SS trust fund has already been borrowed?

Dear Mr. Bartlett, Thanks

Dear Mr. Bartlett,

Thanks very much for mentioning my essay on your Roundup webpage; I
appreciate it very much. I'd like to make one clarification to the
description given in your Roundup that I think is vital to the message of

I do argue, as you note, that in the wake of shocks, there will be
whereby outcomes can be improved via policy intervention. However, the
of the essay is that such opportunities should actually *not* be viewed as
carte blanche to intervene. And this is for two reasons: (1) the spillovers

that exist often arise from the use of debt, but that debt has important
properties that make it a socially desirable constractual form to use in
settings where borrowers know more than lenders about the projects being
financed, and (2) because the promise of such intervention distorts
incentives to enter contracts that create spillovers after bad shocks hit

I thank you again for the visibility you have given my work, and hope that
you'll be able to provide your readers with this additional message.


Kartik Athreya
Senior Economist
Federal Reserve Bank of Richmond
Richmond, VA.

Recent comments


Order from Amazon


Creative Commons LicenseThe content of is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. Need permissions beyond the scope of this license? Please submit a request here.