A roundup of economic news from around the Web.
- Taxis and the Fed: Writing for Forbes, John Tamny makes a connection between Washington’s fixed-price taxis in the snow and the Fed’s low rates. “What happens when government attempts to shield markets from reality is much the same as what revealed itself with the cab example. Those lucky enough to borrow at low rates (usually the largest, least risky companies) are not forced to be circumspect in their accession of a scarce good. As such, they borrow more than they otherwise would due to central bank market distortions that obscure the true value of what they’re borrowing. As for the riskier, often smaller firms that really need capital in order to simply get by, they’re to some degree shut out of the capital markets due to the scarcity of capital wrought by the Fed’s price controls. But just as cabdrivers need extra room for profit in snowy, treacherous conditions, speculative investors require high rates of interest during stormy periods so that they can be paid for taking risks at a time when no one else will. Ultimately, prices are what organize a market-based economy. And happily for the consumer in unregulated markets, high prices ensure lower prices in the future as new entrants seek profits. The problem is that as long as governments and central banks attempt to shield us from market-clearing prices, there will be no incentive for the bold to relieve the scarcity reflected in higher prices.”
- More on Jobs: On the Atlanta Fed’s macroblog, David Altig looks at the employment report. “The outsized negative employment effect in the United States relative to most other developed countries is a striking feature of the labor market data of the past two years The outsized drop in employment in the United States is the mirror image of another crucial feature of the last several years: outsized productivity growth in the United States. What are we to make of the productivity gains in the United States relative to other countries? Does this difference merely reflect labor hoarding in other countries, implying that the productivity levels will become more consistent among advanced economies as employment recovers in the United States? Or is there something more fundamental at play, as Professor Becker seems to imply? Have businesses in the United States found ways to permanently enhance efficiency, locking relatively high productivity growthand perhaps a slower recovery in employment levelsinto the future?” Separately, Jeff Frankel says the lag in job growth isn’t worse in this recession. “Although the [recession-dating] Committee looks at many indicators in reaching its decisions, the most important overall are measures of output, particularly quarterly GDP. GDP shows growth turning from negative in the first half of 2009 to positive in the 3rd quarter of the year, and now strongly positive in the 4th quarter. That suggests that the trough will probably turn out to have been in the middle of last year.” Econbrowser adds four key charts.
- Economist Malpractice: Maxine Udall wonders whether economists should be sued for malpractice. “How did it come to pass that many people cannot tell the difference between cynical posturing and serious economic argument? I lay much of the blame at the feet of my own discipline, but how did the discipline of economics manage to accomplish this potentially tragic result? Economics provided the theory and language that supported the drive to the ditch we find ourselves in. We did it by allowing economics to become divorced from moral philosophy. Now the economy is on life support and most people in this democracy cant tell the difference between cynical posturing and serious economic argument, but they can and will vote. If economists were physicians, we would be sued for malpractice.”
Compiled by Phil Izzo