The Macroecnomics War

  Simon Wren Lewis made an effort to reduce the tensions within the profession, and to defend the macro models that are used by many central banks.  Paul Krugman is not ready for peacemaking.  In this article, he sharpens his attack on economists who have not supported the use of monetary policy or fiscal policy to increase employment.  The war is far from over. 

Should We Worry About The Fall Of The Rupiha In Indonesia?

The currencies in Indonesia and India have fallen dramatically against the dollar.  Paul Krugman explains why we should not be worried about another collapse in Asia.  His real purpose, however, is to expose the underlying problem of unregulated capital markets.  He also took this opportunity to contrast the rapid recovery in Indonesia from the last crisis with the of slow recovery in the eurozone.

The first crisis in Indonesia, and the current crisis in the eurozone, were both fueled by unregulated financial markets.  The crisis in Indonesia was fueled by a rapid flow of capital which created a temporary boom.  The debt was denominated in dollars.  Consequently, the fall in the value of the rupiah increased the burden of their dollar denominated debt. The economy crashed but the decline in the value of the rupiah led to an export based recovery.  Moreover, the IMF relented on its initial imposition of austerity which had been harming the recovery.

The problems in the eurozone were also caused by a flow of capital to private investors which triggered a boom primarily in real estate markets.  The bubble eventually burst but the recovery has been more difficult than the recovery from the crisis in Asia.  The affected countries do not have their own currency to devalue;  they have weakened domestic banks, and they have been required to accept contractionary fiscal policies.  There is no end in sight for the economic problems in Greece and Spain.

Krugman also takes a poke at the legacies of Alan Greenspan, Robert Rubin and Larry Summers who were given credit for engineering the original recovery in Asia.  He thinks that the Asia crisis should have taught them something about the problems of unregulated financial markets.  Instead they led the effort in the US to accelerate the deregulation of the financial markets in the US.  Larry Summers is currently one of the leading contenders for the Chairmanship of the US Federal Reserve.  My guess is that Krugman is not one his supporters.

How European Employers Think About Downsizing In Tough Economic Times

European employers responded to a survey that asked them to choose between several downsizing options in a bad economy.  The results of the survey show how employers in different countries, with different employment laws,  would deal with the difficult decisions offered to them by the survey.

The State Of Black America 50 Years After The March On Washington

Joe Stiglitz describes his experience 50 years ago when he participated in the march on Washington.  He also reminds us that the social injustices that stimulated the protest have not been addressed.  He attended the protest with the son of a Supreme Court Justice who worked hard to deal with the inequalities that existed 50 years ago.  He would be saddened to observe the changes that have taken place in the Supreme Court and in America.  We have gone backwards instead of forward. The economics profession has also been part of the problem.  Some of its Nobel Prize winners have used economic theory to explain away the problems of inequality and social injustice.  Many of their economic ideals have been embedded in our legal system.

The Real Trouble With Economics

Economists did a poor job of predicting the financial crisis.  Many have also done a poor job of providing economic advice to policy makers during the crisis.  Paul Krugman argues that the crisis was not predicted because many of the models used by central banks assume them away.  He also provides his own views on how the sociology of the profession might steer research in the wrong directions. 

Why We Won't Be Able To Avoid The Next Banking Crisis

Most businesses prefer to raise capital by issuing equity.  During a downturn they do not have to worry about servicing debt.  This makes them less vulnerable to failure.  Banks do the opposite.  They would rather borrow money to finance their operations than issue equity.  The executives are rewarded for increasing the return on equity.  Therefore, the decision is simple for them.  That leads them to take on risks, however, that cannot be absorbed.  This will result in a future banking crisis that economists will not be able to predict.  Governments in the US and UK have been willing to accept this risk.  They do so because the banking lobby has excessive influence on government policy.  Efforts made by academicians to increase the use of bank equity have been futile.

Peak Water In The US West

We are familiar with the problem of peak oil.  This article illustrates the problems that we are witnessing with peak water in the western states.  The demand for water exceeds the supply and the problem will only worsen since it will be difficult to increase the supply of water. Some of the proposals for increasing the supply of water are described but little has been done to alter the demand for water in the west.