Voodoo economics revisited

"Bush was competing with Ronald Reagan for the Republican nomination in 1980. Reagan suggested that tax cuts would pay for themselves, i.e., actually raise revenue – a notion that became known as “supply side” economics. There’s nothing wrong with worrying about the disincentive effect of higher taxes, but the extreme version put forward by Reagan did not really apply to the United States. When you cut taxes, you get lower revenue, which means a bigger budget deficit." Read Simon Johnson's column on Project Syndicate here.

Libertarian Paternalism Is Not an Oxymoron

Long-term unemployment: In the bleak midwinter

Fifteen million Americans are now unemployed, according to the most recent jobs report. The unemployment rate for November inched up to 9.8%. The grimmest numbers, however, are for the long-term unemployed: 6.3m people, 42% of those unemployed, have been jobless for more than 26 weeks. That number does not include 2.5m people who want a job but who have not looked for a month or more, or the 9m who want full-time work but can only find part-time openings. Read the complete article in The Economist here.

Interpreting the Great Depression: Hayek versus Keynes.

Robert Skidelsky: "This is not intended to be a purely historical paper. I am interested in the light the Keynesian and Hayekian interpretations of the Great Depression throw on the causes of the Great Recession of 2007-9 and in the policy relevance of the two positions to the management of today’s globalizing economy. In my recent book, Keynes-The Return of the Master, I committed myself to the view that the present crisis was at root not a failure of character or competence but a failure of ideas, and quoted Keynes to the effect that ‘the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly supposed. Indeed, the world is ruled by little else’. So any enquiry into policy failures –assuming that these were at least partly responsible for the two crisis –inevitably turns into an enquiry into the ideas in the policy-makers’ minds, which are in turn, at least partly, the product of the economic models in the economists’ heads." Read the complete paper here.

I found it on the website of the Institute for New Economic Thinking. Founded in October 2009 with a $50 million pledge by George Soros, the New York City-based Institute for New Economic Thinking is a nonprofit organization providing fresh insight and thinking to promote changes in economic theory and practice through conferences, grants and education initiatives.The Institute recognizes problems and inadequacies within our current economic system and the modes of thought used to comprehend recent and past catastrophic developments in the world economy. The Institute embraces the professional responsibility to think beyond these inadequate methods and models and will support the emergence of new paradigms in the understanding of economic processes. Have a look at their website, an impressive and interesting bunch of people!

The bipartisan compromise on taxes, unemployment benefits and jobs

President Obama thinks there are 5 things you should know about the bipartisan compromise. Read it here.

Political Competition, Policy and Growth: Theory and Evidence from the United States

This LSE paper develops a simple model to analyze how a lack of political competition may leadto policies that hinder economic growth. We test the predictions of the model on panel datafor the US states. In these data, we find robust evidence that lack of political competition in astate is associated with anti-growth policies: higher taxes, lower capital spending and areduced likelihood of using right-to-work laws. We also document a strong link between lowpolitical competition and low income growth.

Fairness and Tax Policy: a response to Mankiw's proposed Just Deserts

Read Jonathan Weinstein's short paper here. The author is a professor at the Kellogg School of Management, Northwestern University.

White House White Board: Goolsbee on Tax Cuts, Unemployment Insurance & Jobs

How much do upper-income tax cuts reduce unemployment?

Read the complete article in The Economist here

The Bowles-Simpson plan

Read the co-chair draft plan here.

Alternatives to Austerity

Rapid recession-fueled growth in public debt has led many governments to adopt austerity measures. But, for the US – and perhaps for some other countries – there is a better way to boost efficiency and promote growth, based on greater public investment and deep cuts in defense spending and corporate welfare. Read the opinion article by Columbia professor and Nobel price laureate Joseph Stiglitz on Project Syndicate here.

A Tax Reform Vision

"I have a vision. Sometime over the next couple of weeks, President Obama issues a statement that reads: “Over the past several months, Republicans and Democrats have been fighting over what to do with the Bush tax cuts. I have my own views, but it’s not worth having a big fight over a tax code we all hate. Therefore, I’m suspending this debate. We will extend the Bush rates for everybody for one year, along with unemployment benefits. But during that year we will enact a comprehensive tax reform plan." Read David Brooks' column in The New York Times here.

My Agnosticism about Unemployment Insurance - Gregory Mankiw

Here is what Gregory Mankiw says about extending unemployment insurance benefits on his blog:
"A few readers have asked me to opine on the current debate over the extension of unemployment insurance benefits. I have avoided commenting on the topic because I am ambivalent on the issue, largely because I am agnostic about what economists know about optimal UI. But perhaps it would be useful to explain my agnosticism.

UI has pros and cons. The pros are that it reduces households' income uncertainty and that it props up aggregate demand when the economy goes into a downturn. The cons are that it has a budgetary cost (and thus, other things equal, means higher tax rates now or later) and that it reduces the job search efforts of the unemployed. To me, all these pros and cons seem significant. I have yet to see a compelling quantitative analysis of the pros and cons that informs me about how generous the optimal system would be.

So when I hear economists advocate the extension of UI to 99 weeks, I am tempted to ask, would you also favor a further extension to 199 weeks, or 299 weeks, or 1099 weeks? If 99 weeks is better than 26 weeks, but 199 is too much, how do you know?

It is plausible to me that UI benefits should last longer when the economy is weak. The need for increased aggregate demand is greater, and the impact on job search may be weaker. But this conclusion is hardly enough to tell us whether 99 weeks is too much, too little, or about right. It is also conceivable that the amount of UI offered in normal times is higher than optimal and that a further extension would move us farther from what is desirable.

I should note, by the way, that economists who strongly favor the extension of UI benefits, such as those who signed this letter, also tend to favor more income redistribution in general. I suspect, therefore, that the foundation of their support comes not from having weighed the specific pros and cons of UI per se, but rather from a more general desire to "spread the wealth around." That issue is, as I tell my students, more a matter of political philosophy than it is of economics."

The joyless or the jobless

This article has been suggested to me by Karien. Should governments pursue happiness rather than economic growth? Read the answer in The Economist here.

Tea Party Economics

Here is an interesting article I found on Forbes about the Tea Party protests approached from an economic perspective. It tackles such issues as public choice, private interests and rational ignorance and predicts further populist protests as Obamaspending continues. Read the complete article here.

Hedonism and the experience machine - Robert Nozick in "Anarchy, State, and Utopia"

I. The Machine!
Remember that Bentham claimed the following: "Pleasure and only pleasure is good."

Now, consider the following thought experiment:
Suppose there was an experience machine that would give you any experience you desired. Super-duper neuropsychologists could stimulate your brain so that you would think and feel you were writing a great novel, or making a friend, or reading an interesting book. All the time you would be floating in a tank, with electrodes attached to your brain. Should you plug into this machine for life, preprogramming your life experiences? [...] Of course, while in the tank you won't know that you're there; you'll think that it's all actually happening [...] Would you plug in? (44-45)

Do you want to plug in? As Nozick puts it, “What else can matter to us, other than how our lives feel from the inside?” (613).
Nozick provides the following suggestions:
1. We want to do certain things and not just have the experience of having done them.
2. We want to be certain people – to plug in is to commit a form of “suicide” (613).
3. We are limited to a human-created reality.

We thus learn according to Nozick that there are things which matter to us more than simply having certain experiences. Nozick concludes, “Perhaps what we desire is to live (an active web) ourselves, in contact with reality.” (614)

II. What Does Nozick’s Argument Show?
Presumably, Nozick’s argument is as follows:

1. If all that mattered to us was pleasure, then we would want to plug into the experience machine.
2. However, we would not want plug-in.
3. Hence, there are things which matter to us besides pleasure.

The problem with Bentham’s view is that it does not make sense of our considered moral beliefs. (A considered moral belief is a moral belief you have after having reflected upon it or would have if you had reflected upon it). Any good normative theory of value should make sense of the views we hold. However, Bentham’s views don’t appear to do that. We can see this in the following way; consider the following two possible worlds:
In world 1, you are in love with a person A, and A loves you back. You have a variety of experiences with A, and these experiences make you extremely pleased.
In world 2, you are in love with A, but A only pretends to love you back. In this world; however, A hates you. A puts up with you only because you buy A things. A cheats on you on a regular basis, but you never catch on to this. In fact, the experiences you have in this world are identical to the experiences you have in world1.

According to Hedonism, you have no reason to pick world 1 as opposed to world 2 since the amount of pleasure experienced with be the by hypothesis. But clearly, world 1 is better than world 2. This only makes sense if Hedonism is false. Thus, Hedonism is incoherent with respect to our considered moral judgments.

Writing Assignment due 01/20/2011

The writing assignment is due by Thursday the 20th of January 2011 at 2 pm. Please write a minimum of 500 words and a maximum of a 1000 words on ONE of the following subjects:

1. You're the new columnist of the New York Times economic pages. You have posters of Paul Krugman and David Leonhardt above your bed, and you're a vegetarian the whole year, except during the summer. Janet L. Robinson, your big boss, asks you to write a piece on the economic consequences of the midterm elections for America.

2. You're a member of staff of Hilda Solis, President Obama's Secretary of Labor. Fox News has given your boss 5 uninterupted minutes on "The O'Reilly Factor" to defend the administration's undertakings to save and boost American jobs. Write her speech.

3. You're a junior analist at The Heritage Foundation. You want to write a note for your think-tank's website on extending the Bush tax cuts while keeping the budget deficit under control. Don't forget that your job is to promote "the principles of free entreprise, limited government, traditional American values and a strong national defence" AND to advance relatively concrete policy proposals in order to achieve just that.

You can send me your papers by email or hand them to me during class. Please try to put yourself as much as possible in the situations described above. The paper will account for 25% of the final mark. Don't forget to mention the sources you used at the very end of your article. Good luck!

Where we and Democrats can work together

By John Boehner (incoming House speaker) and Mitch McConnell (the Senate minority leader). Read the complete article in The Washington Post here.

The Blur Between Spending and Taxes

Should the government cut spending or raise taxes to deal with its long-term fiscal imbalance? As President Obama’s deficit commission rolls out its final report in the coming weeks, this issue will most likely divide the political right and left. But, in many ways, the question is the wrong one. The distinction between spending and taxation is often murky and sometimes meaningless. Read Mankiw's opinion article in The New York Times here.

What the Fed did and why: supporting the recovery and sustaining price stability

Read Ben Bernanke's opinion article in the Washington Post here.

Fed under fire

RARELY has a central bank been lambasted so loudly by so many. The Federal Reserve’s decision on November 3rd to start a second round of quantitative easing, or QE—printing money to buy government bonds—gave rise at first to loud protest abroad. A chorus of finance ministers accused America of wilfully pushing the dollar down. Now the Fed is under attack at home, as Republicans accuse it of fuelling asset bubbles and inflation (see article). Several want to narrow the Fed’s dual mandate to curb inflation and maintain full employment to a single goal of price stability. Read the complete article in The Economist here.

Think this economy is bad? Wait for 2012.

We're barely two years past the banking crisis, still weathering the mortgage crisis and nervously watching Europe struggle with its sovereign debt crisis. Yet every economic seer has a favorite prediction about what part of the economy the next crisis will come from: Municipal bonds? Hedge funds? Read the complete opinion piece in The Washington Post here.

The Economic Consequences of America’s Elections

America’s lurch toward a European-style social-welfare state in Obama’s first two years appears to have been delayed, if not permanently ended or reversed. That is good news for the US – and for the global economy... Read Stanford economics professor Michael Boskin's column on Project Syndicate here.

ECONOMIC DOWNTURN WIDESPREAD AMONG STATES IN 2009

Real GDP declined in 38 states in 2009, led by national downturns in durable–goods manufacturing and construction, according to new statistics that breakdown GDP by state released today by the U.S. Bureau of Economic Analysis. U.S. real GDP by state declined 2.1 percent in 2009 after increasing 0.1 percent in 2008.

The full text of the release of the Bureau of Economic Analysis' Web site can be found here.

Is the American political system broken?

Is the American political system broken? Join the discussion on The Economist here.

The Fed's policy explained

Why Have Lending Programs Targeting Disadvantaged Small-Business Borrowers Achieved So Little Success in the United States?

Small business lending programs designed to move disadvantaged low-income people into business ownership have been difficult to implement successfully in the U.S. context. Based in part on the premise that financing requirements are an entry barrier limiting the ability of aspiring entrepreneurs to create small businesses, these programs are designed to alleviate such barriers for low net-worth individuals with limited borrowing opportunities. Our analysis tracks through time nationally representative samples of adults to investigate the role of financial constraints and other factors delineating self-employment entrants from nonentrants. Paying particular attention to lines of business most accessible to adults lacking college credentials and substantial personal net worth, our analysis yields no evidence that financial capital constraints are a significant barrier to small-firm creation. If you're interested in reading more, you'll find the complete IZA working paper here.

Obamanomics Meets Incentives

AEI visiting scholar and Robert J. Barro (Harvard) evaluates how the Obama administration makes decisions about economic and fiscal policy. He argues that the current administration should shift away from programs based on Keynesian reasoning and toward policies that emphasize favorable economic incentives. Read the complete article on the American Entreprise Institute website here.

"Supercapitalism" by Robert Reich

I'm reading this very interesting book "Supercapitalism". In this compelling and important analysis of the triumph of capitalism and the decline of democracy, former labor secretary Reich urges us to rebalance the roles of business and government. Power, he writes, has shifted away from us in our capacities as citizens and toward us as consumers and investors. While praising the spread of global capitalism, he laments that supercapitalism has brought with it alienation from politics and community. The solution: to separate capitalism from democracy, and guard the border between them.

Plainspoken and forceful, if somewhat repetitious, the book urges new and strengthened laws and regulations to restore authority to the citizens of the US. Reich's proposals are anything but knee-jerk liberal: he calls for abolishing the corporate income tax and labels the corporate social responsibility movement distracting and even counterproductive. As in 2004's Reason, Reich exhibits perhaps too much confidence in Americans' ability to think and act in their own best interests. But he refuses to shift blame for corporations' dominance to the usual suspects, instead pointing a finger at consumers like you and me who want better deals, and from investors like us who want better returns, he writes. Provocatively argued, this book could help begin a necessary national conversation.

Watch an interview with Reich on his latest book here.

The Dionysian trap for young black men

SEVERAL recent studies have garnered wide attention for reconfirming the tragic disconnection of millions of black youths from the American mainstream. But they also highlighted another crisis: the failure of social scientists to adequately explain the problem, and their inability to come up with any effective strategy to deal with it. The main cause for this shortcoming is a deep-seated dogma that has prevailed in social science and policy circles since the mid-1960's: the rejection of any explanation that invokes a group's cultural attributes — its distinctive attitudes, values and predispositions, and the resulting behavior of its members — and the relentless preference for relying on structural factors like low incomes, joblessness, poor schools and bad housing. Read Harvard Sociologist Orlando Patterson's article in The New York Times here.

As in every country, the level of the political debate can really be pathetic in the US. This interview will exceed all your expectations.

To extend, or not to extend the Bush tax cuts?

Josheph Stiglitz, economics professor at Columbia and 2001 Nobel Prize Laureat says no:

Will GOP Win Impact Financial and Healthcare Reform?

Jerry Seib and Neal Lipschutz discuss whether the GOP's House victory will impact the implementation of financial reform and health care.

Beware of wounded lions

"According to a recent joint report by the International Monetary Fund and the International Labor Organization, fully 25% of the rise in unemployment since 2007, totaling 30 million people worldwide, has occurred in the US. If this situation persists, as I have long warned it might, it will lay the foundations for huge global trade frictions. The voter anger expressed in the US mid-term elections could prove to be only the tip of the iceberg." Read Harvard economist Kenneth Rogoff's column for project syndicate here.

The good, the bad, and the tea parties - A partial defence of the movement that has transformed the mid-term elections

In how many other countries would a powerful populist movement demand less of government, rather than endlessly and expensively more? Much of what is exceptional about America is its ideology of small government, free enterprise and self reliance. If that is what the tea-party movement is for, more power to its elbow. Read the complete article in The Economist here.

Political Economics: Why The Economy Is Doing Much Better Than It Seems

"But a surge in imports suggests U.S. consumers and businesses are spending. Subtracting these trade flows provides us with a measure of Gross Domestic Purchases--how much stuff we buy, not how much we produce. These purchases grew at a 3.9% annual rate in Q3 after a 5.1% growth rate in Q2. In the past year domestic purchases rose 4% at an annual rate vs. a 3.6% annual rate during the same time period in 1992. That's right: The spending side of the economy is even stronger today than it was when the Democrats were berating the economy in 1992."

Read the complete article on Forbes here.

It’s Not Just the Economy

When it comes to voter attitudes in this week’s congressional elections, it isn’t only about the economy. There are more competitive races in districts that have fared better during the recession. Read the complete article on the Wall Street Journal here.

This article from The Economist seems to go in the same direction:

Testing the rule: The link between jobs and seats is less clear than many suppose

1930, het jaar dat Obama een lesje kan leren

De economische crisis van 1930 betekende de voorbode voor een socialer Amerika, de huidige crisis dreigt te voeren naar een antisociaal Amerika. Dat schrijft Brieuc Van Damme aan de vooravond van halftijdse verkiezingen in de VS. Van Damme is gastdocent Amerikaanse Economie aan het Centre for American Studies - Universiteit Antwerpen. Lees mijn volledige opiniestuk in De Morgen hier.

Can religion spur economic growth?

Last week we had a discussion on how culture, and therefore religion, could have an effect on an economy's performance. Brendan Nevin and I continued the discussion we started in class by email. Here is was we wrote:

"Mr. Vandamme

You may be interested in the article below. R H (Richard Henry) Tawney 1880-1962 was a Christian socialist economic historian who for 30 years until his retirement in 1949 lectured at the LSE. His classic work is 'Religion and the Rise of Capitalism' (1926) which supports and builds upon Weber's thesis. Tawney's work was, however, criticised by the Oxford historian Hugh Trevor-Roper (1914-2003) who was personally militantly anti-clerical and rabidly anti-Catholic. He nonetheless attacked - sometimes vitriolically - the whole Religion and the Rise of Capitalism orthodoxy of Weber and Tawney and pointed out (as also did Weber's contemporary, the economist Joseph Schumpeter 1883-1950), that capitalism did not begin with the Industrial Revolution but in fourteenth century Italy and that Antwerp in the sixteenth century was a major commercial centre of Europe. In addition, predominantly Calvinist Scotland did not enjoy any significant economic growth in the Reformation period and predominantly Catholic Belgium industrialised much earlier in the nineteenth century than did heavily Calvinist Holland, and was indeed one of the centres of the Industrial Revolution in continental Europe.

Weber a Prussian - is known to have been strongly prejudiced against Catholicism whereas Schumpeter was born to Catholic parents and the American philosopher Michael Novak is still a practicing Catholic of Slovak antecedents.

The foregoing encapsulates, I hope, what I was attempting to say on Thursday last but I accept I might have expressed myself better. In any case, I find the cultural aspect surrounding capitalism and industrialisation of particular interest and would venture the opinion that Weber's thesis is perhaps a gross oversimplification of a very complex reality.

With best regards.

Brendan Nevin"

My response:
"I agree with the fact that a country's economic performance cannot depend on a variable as abstract as religion and that this thesis would be a gross oversimplification. However, from what I can recall that's not exactly what Weber says. I his famous book I think he argues that the protestant ethic is at the origin of a particular work ethos which in turn may have been one of the factors leading to economic success, but definetely not the only one. Therefore a different cultural framework in a different time in a different place may of course also have contributed to a country's economic performance. Also, the Belgian example you give is only partly true. Southern Belgium's early industrialisation, and hence impressive economic performance, had more to do with the presence of raw materials than with religion. The fact that Flanders did not have these commodities to exploit and given that it were a catholic region as opposed to protestant Holland (and therefore being the victim of some sort of economic discrimination - the House of Orange indeed refused to invest in infrastructure in most parts of Northern Belgium) probably offer a better explantion why until WWII it has always economically limped behind its Northern and Southern neighbours.

Also, I never said capitalism is a protestant invention, but merely that the protestant work ethos may have been a better match to the incentives a capitalist society gives.

Another interesting author that has widely published on the subject is the controversial Deirdre McCloskey (formerly known as Donald McCloskey). I had the chance meeting her a couple of years ago when she presented her new book "The bourgeois virtues: ethics for an age of commerce" and she is a very interesting lady: http://www.deirdremccloskey.com/

Looking forward to continue this little discussion on Wednesday afternoon!
Kind regards,

Brieuc Van Damme"

Jon Stewart from the daily show interviews Obama's new economic adviser Austan Goolsbee

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
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www.thedailyshow.com
Daily Show Full Episodes Political Humor Rally to Restore Sanity

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
style='padding:2px 1px 0px 5px;' colspan='2'Exclusive - Austan Goolsbee Extended Interview
www.thedailyshow.com
Daily Show Full Episodes Political Humor Rally to Restore Sanity

Are tea partiers racist?

"A new study shows that the movement's supporters are more likely to be racially resentful." This Newsweek article seems to say they are more than average.

"Few signs at tea party rally expressed racially charged anti-Obama themes." This article from the Washington Post is more reserved.

This article from Salon will give you a very interesting overview of the history of populist movements like the Tea Party in the United States.

The Effect of Prayer on God's Attitude Toward Mankind

Believe it or not, but professor James Heckman from the University of Chicago, the author, wan the Nobel prize in economics. This paper, which shouldn't be taken too seriously though, (I suspect him trying to provocatively make a statistical argument rather than truly investigating the effects of prayer) Heckman uses data available from the National Opinion Research Center's (NORC) survey on religious attitudes and powerful statistical methods to evaluate the effect of prayer on the attitude of God toward human beings. The empirical conclusion from this analysis is "important" to the author: A little prayer does no good and may make things worse; much prayer helps a lot. The complete IZA paper, which is only three pages long, can be found here.

The tea party warns of a New Elite. They're right.

"On one side, we have the elites," Fox News host Glenn Beck explained last month, "and the other side, we have the regular people." The elites are "no longer in touch with what the country is really thinking," Nevada Senate candidate Sharron Angle complained this summer. And when Delaware Senate candidate Christine O'Donnell recently began a campaign ad by saying, "I didn't go to Yale," she could be confident that her supporters would approve.
[...]
"But the politics of the New Elite are not the main point. When it comes to the schools where they were educated, the degrees they hold, the Zip codes where they reside and the television shows they watch, I doubt if there is much to differentiate the staff of the conservative Weekly Standard from that of the liberal New Republic, or the scholars at the American Enterprise Institute from those of the Brookings Institution, or Republican senators from Democratic ones. "
Read the complete column in The Washington Post here.

Why Has America’s Economic Recovery Stalled?

Fifteen months after the US economy returned to growth, the level of real GDP is still lower than it was when the recession started, in part because households have tripled their rate of saving. That alone, if sustained, implies little prospect of robust GDP growth in the coming years... Read Harvard Professor Feldstein's column for Project Syndicate here.

Obama Underappreciation Syndrome

"Faced with this truly puzzling conundrum, Dr. Obama diagnoses a heretofore undiscovered psychological derangement: anxiety-induced Obama Underappreciation Syndrome, wherein an entire population is so addled by its economic anxieties as to be neurologically incapable of appreciating the "facts and science" undergirding Obamacare and the other blessings their president has bestowed upon them from on high. ". Read Krauthammer's provocative column in The Washington Post here.

For Blacks, Progress in Happiness

A new study has found that there is one big realm in which black Americans have made major progress: happiness. Read the complete article in The New York Times here.

Big Ideas from Small Countries

Where should countries look now, in 2010, for models of economic success to emulate? Read the answer of Harvard Professor Jeffrey Frankel on Project Syndicate here.

Colbert making fun of Mankiw

Stephen Colbert makes fun of Gregory Mankiw in this video:

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
style='padding:2px 1px 0px 5px;' colspan='2'Tax Shelter Skelter
www.colbertnation.com
Colbert Report Full Episodes 2010 Election March to Keep Fear Alive

British fashion victims

In the spring of 2010, fiscal austerity became fashionable. I use the term advisedly: the sudden consensus among Very Serious People that everyone must balance budgets now now now wasn’t based on any kind of careful analysis. It was more like a fad, something everyone professed to believe because that was what the in-crowd was saying... Paul Krugman's article in The New York Times here.

Taxing Times for Americans

Why taxes should not be raised on the wealthy, with Gregory Mankiw, former White House Council of Economic Advisers chairman and professor of economics at Harvard University.

Surprisingly, economist Greg Mankiw from Harvard - often considered as a rather liberal university - is pleading for an extension of the Bush tax cuts in this The New York Times op-ed, while Thaler, an economist from the free-market oriented University of Chicago, is making an argument against it, also in The New York Times. Economists are full of surprises and contradictions, and here is the reason why.

Healthcare reform tutorial

Everything you've always wanted to know about the US healthcare reform summarised in a Kaiser tutorial.

A “one dollar, one vote” explanation of the welfare state

Why do Europe and the US, both affluent regions, differ so much in the size of their welfare state? To answer this question, this column examines OECD countries between 1975 and 2001, finding that countries with wealthier rich- and middle-classes are associated with a smaller welfare state while those with a richer poor class are associated with a larger one – supporting the “one dollar, one vote” explanation. Read the complete article on EUVOX here.

From Obama, the Tax Cut Nobody Heard Of

What if a president cut Americans’ income taxes by $116 billion and nobody noticed? Read the complete article in The New York Times here.

Drugs and security in North America: Mexican waves, Californian cool

I tried to have a little class debate on this topic, but I felt my class wasn't overwhelmingly enthusiastic about it. Perhaps because they are scared to express their opinion, or perhaps because they don't have one (something I have a hard time believing). I'm trying to provoke them one last time with this article from The Economist:
Three things to stop the gangs: better police in Mexico, stricter gun laws in America and legal pot in California.

The Diamond, Mortensen and Pissarides Nobel: Search and market frictions

This week the last Nobel prize, the one for economics, has been awarded to Peter Diamond, (MIT) Dale Mortensen (Northwestern University), and Christopher Pissarides (London School of Economics) "for their analysis of markets with search frictions". This column by Barbara Petrongolo on EUVOX explains how their research relates to fundamental economic issues that are both at the core of the wellbeing of society at large and now near the top of many policymakers’ agendas.

U.S. Trade Deficit With China Widens

The trade deficit in August increased 8.8 percent, to $46.3 billion, while the Producer Price Index rose 0.4 percent in September. Read the complete article in The New York Times here.

Currency chaos

The controversy over China’s exchange-rate policy has morphed into a global macroeconomic clash between advanced and emerging countries, owing to a lack of global coordination. This suggests that the solution to currency wars is not to declare a truce, but to recognize the nature of the issue and overcome the problems that block an adjustment that is in everyone's interest. Read Jean Pisani-Ferry's opinion article on Project Syndicate here.

Who caused the currency wars?

The world is on the brink of a nasty confrontation over exchange rates – now spilling over to affect trade policy (America’s flirtation with protectionism), attitudes towards capital flows (new restrictions in Brazil, Thailand, and South Korea), and public support for economic globalization (rising anti-foreigner sentiment almost everywhere). Who is to blame for this situation getting so out of control, and what is likely to happen next? Read MIT Professor Johnson's opinion article on Project Syndicate here.

New Deficit-Reduction Plan Would Jeopardize Health Reform

We talked about how difficult it is for government spending to actually decrease because voters very easily get addicted to the entitlements they recieved, even the temporary ones. This article from the Center on Budget and Policy Priorities warns for reducing the budget deficits because future healthcare entitlements could be jeopardized.

Reducing Drug Trafficking Revenues and Violence in Mexico - Would Legalizing Marijuana in California Help?

This is a publication of one of the biggest and most influential think-tanks in the US: the RAND Corporation. Because California is facing huge budget deficits (some commentators speak of the Broke State) and the war on drugs leading to an increasing amount of casualties, Californian policymakers are seriously considering legalizing marijuana. There's no doubt conservatives will do everything to prevent this from happening. On the state level first, but if necessary they'll go to the Supreme Court. If the debate interests you, this is probably one of the better publications. It may also give you an idea of how think-tanks in the US (try to) influence policymaking. You'll find the abstract as well as the complete study here.

I'll try to find equivalent papers from libertarian and conservative think-tanks as well.

Conservative think-tanks don't seem to like the subject but it didn't take long to find the libertarian point of view. This short article from Harvard scholar and Cato fellow Jeffrey Mirron is really worth reading. Here the same author makes an economic case for legalizing drugs. And this is a 62 page long study on its budgetary impact.

The rise of the 'ordinary' elite - and why many Americans hate them

This article from the Washington Post has much more to do with sociology than with economics, but it is really worth reading. For those of you who are too lasy to read it completely, this passage summarizes its content quite well:
"I suspect the "anti-elite-educationism" that Bell predicted is growing now not despite the rise of meritocracy but because of it. The old Establishment was resented, but only because its wealth and power were perceived as undeserved. Those outside could at least feel they were cleverer and savvier, and they could blame their failures on "the system." Nowadays, successful Americans, however ridiculously lucky they have been, often smugly see themselves as "deserving." Meanwhile, the less successful are more likely to feel it's their own fault -- or to feel that others feel it's their fault -- even if they have simply been unlucky."

Ill fares the US

You may have heard something about a recession ending AND jobles growth.

There's some hope things may get better as small business optimism ticks up according to the Wall Street Journal.

The age of austerity

The same spending cuts and tax increases that we need also threaten economic growth. Read Robert J. Samuelson's column in The Washington Post here.

The Beat Generation and the Tea Party

It's not an easy comparison to make, but like the Beats, the Tea Partiers are driven by that principle at the heart of protest movements: individual freedom. Read what Lee Siegel made of it in this weekends edition of The New York Times here.

The best Congress money can buy?

For all the money sloshing around in American politics, you still cannot buy the results of elections. It is fair to say that the Supreme Court of Chief Justice John Roberts is not extravagantly admired by Democrats. Of all its conservative rulings, the one they find most enraging as November’s mid-term elections approach is undoubtedly its 5-4 decision in January in the case of Citizens United. This held that since the first amendment tells Congress to make no law abridging the freedom of speech, previous legislation that barred companies, unions and other groups from paying directly for political advertisements during election campaigns was unconstitutional. Read the complete article in The Economist here.

Watch a related video on The New York Times website here.

Two Fed Officials Speak Out Against Stimulative Action

Additional asset purchases by the Federal Reserve to stimulate a sluggish U.S. economy aren't "a foregone conclusion" and the topic will be subjected to vigorous debate and discussion by central-bank officials, some Fed officials indicated Thursday. Dallas Fed President Richard Fisher said news reports suggesting that the Fed is likely to launch a new round of buying medium- and longer-term fixed-income securities to push down yields and cheapen borrowing costs for households and companies are inaccurate. Read the complete article in the Wall Street Journal here.

Fed's $2 trillion may buy little improvement in jobs

Oct. 7 (Bloomberg) -- For $2 trillion, Federal Reserve Chairman Ben S. Bernanke may buy little improvement in growth, employment or inflation over the next two years. Read the complete article in the Washington Post here.

Judge Rules Health Law Is Constitutional

A federal judge in Michigan on Thursday dismissed one of more than 15 legal challenges to the new health care law, becoming the first to rule that the law is constitutional. Read the complete article in the NYTimes here.

Class of 10/14/2010

Next week we'll talk about the origins of American growth. By then, please read:

• Gordon (2002). Two centuries of economic growth (50 p.)
• Rogoff (2010). An age of diminished expectations (1p.)
• Sachs (2010). Sow the seeds of long-term growth (2 p.)

All three authors are very famous American economists.

I'll be updating the blog on a regular basis. Feel free to react on the posts or suggest additional readings yourself.

Scruton's Liberalism vs. Conservatism: the questions we discussed in class

What are the two basic principles of liberalism and why do they lead to a dichotomy?

What are the advantages of utilitarianism compared to liberalism? Explain with an example.

What are the three steps of the Kantian theory according to Scruton? Why are liberalism and socialism alike? Do you agree that the transcendental self is not an agent of change? Why?

What advantage does conservatism offer?
Answer: it reconciles the demands of love (for freedom and equality) and the imperfect object of love. How? By offering a long term perspective based on local values. Why? Because those local values nurture the first person perspective.

Can you give concrete examples in the light of which these concepts can be applied? Explain.
Examples:
Should human rights be universal?
Are conservatives truthful to their own, original beliefs in the immigration debate?
Most tea partiers are from the working class. Why then would they so ferociously oppose healthcare reform and be in favor of keeping the Bush tax cuts?

Liberalism vs. Conservatism: additional readings

Why are liberals so condescending? By Gerard Alexander, The Washington Post.
America's deepening moral crisis. By Jeffrey Sachs, Project Syndicate.
The seduction of the Tea Partiers. By Ross Douthat, The New York Times.
US politics is angry, polarised and gridlocked. Can it be reformed? By Timothy Garton Ash, The Guardian.

The IMF’s New Growth Projections look gloomy for the US

Principles of economics, translated

Phd economist and stand-up comedian Yoram Bauman translates the 10 economic principles of Mankiw's bestselling textbook. Watch the video here. Find everything about the world's first and only stand-up economist here.

What to monitor?

Here are a couple of (economic) websites I like to monitor - other suggestions will be appreciated!:

Newspaper and magazines
www.economist.com - Probably the best magazine in the world (and all its content can be found online free of charge!)
www.nytimes.com - Probably the most important liberal newspaper in the US
www.wsj.com - Probably the most important free-market newspaper in the US
http://www.project-syndicate.org/ - the world's pre-eminent source of original op-ed commentaries.

Websites and blogs
http://gregmankiw.blogspot.com/
http://www.becker-posner-blog.com/
http://www.huffingtonpost.com/
http://freakonomics.blogs.nytimes.com/
http://www.rtable.net/index/rt/economics/recent/
http://www.economist.com/blogs/freeexchange/
http://blogs.wsj.com/economics/
http://mjperry.blogspot.com/
http://www.thedailyshow.com/

Welcome!

This blog has been designed for the students of "The Contemporary American Economy" class of the M.A. Program in American Studies at the University of Antwerp.

General content of the class:
After the Second World War it seemed that Western societies were growing more equal. Thanks to the unprecedented economic growth of the 50’s and 60’s Welfare states were gradually being established and in the U.S., Roosevelt’s New Deal of the 30's would guarantee prosperity for all. However, this optimism slowly eroded along the way and had to make place for new economic preoccupations. What happened to government spending, the dollar and the trade deficit? What will happen, if anything, to the predominance of the US economy and its ideological model? Why do some people so badly want healthcare and financial reform? Does America need new economic recipes, or does it need to fall back on the old ones? This course explores the internal and external dynamics of the American market economy in the post-WW II era. We will develop on some core aspects of the contemporary American economy, primarily in a theoretical framework, but always illustrated with current events by using the American economic and financial press as important references. The ideological divide between the so called liberal or left-wing economists and their conservative or right-wing counterparts will guide most of the class discussions.

The purpose of this blog is threefold:
1. It will be updated on a weekly basis with interesting (opinion) articles, reports, figures, video's, etc. about the ongoing socioeconomic debates in the US. This will allow students to gain more practical insights into some of the key economic concepts and reasonings seen in class. It will also provide students with additional arguments and points of view which they will be able to use during the - graded - class discussions and the final exam.
2. I will be communicating the practical issues regarding the CAE class through this blog: readings, presentations, possible exam-type questions, etc.
3. This blog should also be seen as a forum for students. They'll be able to start debates on topics discussed during the lectures, exchange report summaries, post additional materials they find interesting, ask questions, and so on.

However realistic, and despite the limited number of students, I hope we'll all be sufficiently active on this blog for it to generate - and here comes the first important economic concept - network effects. In economics and business, a network effect (also called network externality) is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service increases as more people use it.

The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner. This creates a positive externality because a user may purchase their phone without intending to create value for other users, but does so in any case. Online social networks work in the same way, with sites like Twitter and Facebook being more useful the more users join.

The expression "network effect" is applied most commonly to positive network externalities as in the case of the telephone. Negative network externalities can also occur, where more users make a product less valuable, but are more commonly referred to as "congestion" (as in traffic congestion or network congestion).

Over time, positive network effects can create a bandwagon effect as the network becomes more valuable and more people join, in a positive feedback loop.