A roundup of economic news from around the Web.
Rising Oil Prices: Jim Hamilton looks at whether rising oil prices threaten the recovery. “Americans buy a little less than 12 billion gallons of gasoline in a typical month. With gas prices now about a dollar per gallon higher than they were a year ago, that leaves consumers with $12 billion less to spend each month on other things than they had in January of 2009. On the other hand, the U.S. average gas price is still more than a dollar below its peak in July of 2008. Changes of this size can certainly provide a measurable drag or boost to consumer spending, but are not enough by themselves to cause a recession.” Separately, Econompic makes some interesting charts that follow the same idea.
Recovery Risks: Kevin Drum looks at some of the downside risks facing the recovery. “1. This is a balance sheet recession, not a Fed-induced recession. Paul Volcker caused the 1981 recession by jacking up interest rates and he ended it by lowering them. That’s not going to happen this time. 2. In fact, there won’t be any further stimulus from lower interest rates. They’re already at zero, and Ben Bernanke has made it clear that he doesn’t plan to effectively lower them further by setting a higher inflation target. 3. Consumer debt is still way too high. There’s more deleveraging on the horizon, and that’s going to make consumer-led growth difficult. 4. The financial sector remains fragile and there could still be another serious shock somewhere in the world. 5. There are strong political pressures to reduce the budget deficit. That makes further fiscal stimulus unlikely. 6. Housing prices are still too high. They’re bound to fall further, especially given rising interest rates combined with the end of government support programs. 7. Our current account balance remains pretty far out of whack. Fixing this in the short term will hinder growth, while leaving it to the long term just kicks the can down the road. 8. The Fed still has to unwind its balance sheet. That has the potential to stall growth. 9. Oil prices are rising. This not only causes problems of its own, but also makes #7 worse. 10. Unemployment and long-term unemployment continue to look terrible. Yes, these are lagging indicators, but still.”
Industrial Policy: Dani Rodrik looks at the return of industrial policy. “The shift toward embracing industrial policy is therefore a welcome acknowledgement of what sensible analysts of economic growth have always known: developing new industries often requires a nudge from government. The nudge can take the form of subsidies, loans, infrastructure, and other kinds of support. But scratch the surface of any new successful industry anywhere, and more likely than not you will find government assistance lurking beneath. The real question about industrial policy is not whether it should be practiced, but how.”
Compiled by Phil Izzo