US Economy Is Bright Spot In Global Economy

This article highlights the modest growth in the US economy and the slow growth in the rest of the world, with the exception of Germany.  The US has a mature economy that is more dependent upon internal consumption than faster growing economies in Asia which depend upon exports.  It can't grow much faster due to slow population growth and slow growth in productivity.  China has been the engine of growth but its recent slow down has affected nations that depend upon exporting commodities to China.

Cornell President Offers Defense Of Higher Education

The newly elected president of Cornell argues that we need to look at higher education through a new lens.  She then extols the virtues of a liberal arts education, which focuses on citizenship for the common good, as well as the critical role that research universities play in the development of knowledge.  This is not a new lens.  It is distinct, however, from the new lens that has gained credibility in recent years.  Scott Walker, the Governor of Wisconsin, and a leading candidate for the GOP presidential nomination,  has made large cuts in the state budget for higher education, and he claims that the mission of the state university system is to provide the skills required by the business community.  In other words, the state university system is simply the last step in a vocational  education system. It does not exist to promote active citizenship and the common good. 

Scott Walker is only one of many conservative governors who look at higher education through a similar lens.  They leap on the bandwagon when one of the state universities excel in popular sport but they have been cutting university budgets and they are doing what they can to limit academic freedom.  The President of Cornell University should not have to defend the university system by proposing a new lens.  It is the new lens that should worry us.

Why There May Be No Need For Fed To Raise Interest Rates

Larry Summers is concerned about secular stagnation.  He does not believe that the US economy is being stalled by temporary headwinds, or that interest rates should be increased to promote financial stability.  He argues that the Fed should be more concerned about market forces that are operating to increase the risk of financial instability.  There is no need for the Fed to increase the risk of financial instability by raising interest rates during a market sell off.  He expects low interest rates to be the new normal for the next decade.

The Cost Of a Low Neutral Rate Of Interest

The retiring president of the Minneapolis Federal Reserve provides an excellent analysis of the effects of a low neutral interest rate, and the pros and cons of raising the neutral rate.  The neutral rate is defined as the rate of interest consistent with the Fed's mandated goals of full employment and its 2% inflation target.  The neutral has been falling in recent years and it creates two kinds of problems.  In the first place, it reduces the effectiveness of traditional monetary policy when nominal interest rates are close to the zero lower bound.  The Fed has resorted to the use of extraordinary policies which have their own strengths and weaknesses which are well described in this article.  Secondarily, low interest rates on safe assets, issued by the Treasury, encourage investors to seek higher yields on riskier assets.  This increases the risk of financial instability.  Our recent financial crisis provides a good example of what can happen when investors seek higher returns on riskier assets.

The government can increase the neutral rate of interest by issuing more securities and increasing its level of debt.  If we are agnostic about the effectiveness  to which the new debt is used by government, we have to consider the welfare effects of a higher debt burden.  That issue is well described in this article.  There will be winners and losers from this policy.  Elected officials who are responsible for fiscal policy must make those decisions. Paul Krugman provides many examples of how our politicians think about government debt. He is not very hopeful.  Krugman is not agnostic about how government might use the new debt that it creates.  He suggests lots of good investments might be made at very low cost.  Most of our politicians have more expertise, and concern, about running for office than they have about the development of effective fiscal policy.  They feed the public what it likes to hear. 

Why Google Reorganized

Bill George understands the problems faced by many large corporations.  In this article he argues that Google's management understands these problems, and that it has addressed the problems by creating a new organization structure that fosters innovation.  Each of the new organizations, within Google's holding company, is headed by successful innovators.  They will be able to take the risks, that are associated with innovation, that most large corporations avoid.  They will not be managed to satisfy shareholders who seek short term growth in the stock price or large dividend payouts.  Their mission is to innovate for long term growth that will enable Google to continue to grow its enterprise.  Google is attempting to avoid the mistakes made by Microsoft and Hewlett Packard which managed for the short term and lost their ability to innovate.

Scott Walker Proposes A New Healthcare Plan

Walker offers a new plan to replace the Affordable Care Act.  It will help him in the primaries because anything that is opposed to Obama's plan appeals to the GOP base.  There are two problems with his plan.  The first problem is that Republicans do not have enough votes to repeal the ACA.  The second problem is that his numbers on funding the plan don't add up.  Moreover, his substitution of a new conservative plan for the ACA, which follows the outlines of a proposal made by the conservative Heritage Foundation,  is short on a rationale for moving to his plan that goes beyond electioneering.

Why Are Most of The GOP Candidates Proposing Cuts In Social Security?

Social Security has often been called the third rail of politics because of its popularity with most voters.  Krugman tries to explain why all of the candidates, with the exception of Trump, are taking the electoral risk by cutting SS benefits.  He argues that 50% of the campaign funds available to GOP candidates come from 130 families, and that cutting SS is part of their plutocratic agenda.  Its hard to understand why they want to cut SS because they do not pay for it through SS taxes.  There is no SS tax on income from capital, and no taxes are paid on incomes above a ceiling which is a bit above $100,000.  The explanation must have something to do with the plutocratic agenda which he does not discuss.  Moreover, they probably realize that other taxes will have to be raised in order to pay future benefits since the SS trust fund only contains IOU's from the Treasury which has "borrowed" money from the trust fund to finance general government spending.  The government must raise taxes or sell more treasuries to other sources in order to fund future payouts.