Tag: Free exchange
Lessons from a fight between economists and historians
IN A fascinating new piece at the Chronicle of Higher Education, Marc Parry examines an intense, ongoing debate between historians and economists on the role American slavery played in the industrial revolution. A number of recent books by historians (including Edward Baptist’s The Half Has Never Been Told, with which The Economist has an unfortunate history) argue that growth in output in American cotton, made possible by America’s slave economy (and rising brutality within it), was crucial in fostering the nascent industrial revolution, which had its beginnings in the mechanisation of textile industries. The conclusions of these historians stand in stark contrast to the general view among economists and economic historians, that in the absence of slavery, industrialisation would have occurred more or less as it actually…Continue reading
Why Donald Trump can’t create 25m jobs
DONALD TRUMP promises to deliver 25m jobs over the next decade, 18m more than is forecast today. In our print edition, we have consistently argued that this is infeasible, because America is ageing rapidly:
Arithmetic suggests this pledge is fanciful: even if the labour-force participation of 25- to 54-year-olds returns to its record high, only 4.3m new workers will appear by 2024.
But at Free Lunch, a blog at the Financial Times, the excellent Martin Sandbu disagrees:
The US is seriously underperforming relative to its own record on employment. The employment-to-population ratio for 25 to 54-year-olds (which should not be affected by ageing or college attendance) is 78.1 per cent, almost four points below the record set in the last year of the Bill Clinton presidency. The ratio for 16 to 24-year-olds is 10 points down. Restoring those ratios should add about 8m-9m jobs or 6 per cent of the…Continue reading
Europe’s central bank extends its quantitative-easing programme
MARIO DRAGHI has shown a remarkable ability to find a way out of tight spots since he became boss of the European Central Bank (ECB) in 2011. Has he done so again? At its regular monetary-policy meeting, on December 8th, the ECB’s governing council decided to extend its programme of quantitative easing, or QE, by a further nine months to December 2017. It also said it would reduce the monthly pace of bond-buying from €80bn to €60bn from April. But the ECB has given itself the option of stepping up the pace of bond-buying again, should markets become choppy. As the ECB’s prepared statement puts it: “if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation.”
The ECB has attempted a difficult trick. On the one hand, a firm signal that the bank would start to “taper” its bond purchases ran the risk of unsettling financial markets, which had been largely unmoved by the No vote in Italy’s referendum, on December 4th. On the other hand, if the ECB were to keep buying bonds at a rate of €80bn a month, it would eventually run up against some self-imposed limits—namely, that it should not buy more than…Continue reading
Economists cannot stop Trump, but perhaps they can understand him
ECONOMISTS seem to be warming to the idea that regional inequality is a problem, if only because it leads to political movements that threaten broader prosperity. While that is a useful development, it brings economics to a very difficult question, which is: what can usefully be done about that inequality? In a post generating quite a lot of discussion, Tim Duy says that economists need to get busy thinking about the problem:
The dry statistics on trade aren’t working to counter Trump. They make for good policy at one level and terrible policy (and politics) at another. The aggregate gains are irrelevant to someone suffering a personal loss. Critics need to find an effective response to Trump. I don’t think we have it yet. And here is the hardest part: My sense is that Democrats will respond by offering a bigger safety net. But people don’t want a welfare check. They want a job. And this is what Trump, wrongly or rightly, offers.
How the weakest bank in Europe just got weaker
We examine Monte dei Paschi di Siena, the bank at the epicentre of the crisis in Italy. Last week OPEC moved to rescue oil prices. Will companies now rush back into exploration? And how the birth of a new motorbike in downtown New York could revitalise inner-city manufacturing
If Matteo Renzi’s proposals lose, insufficient economic reform could be to blame
ITALIANS take to the polls this weekend to vote on reforming their political system. Reform of many sorts would certainly be welcome; the IMF recently declared that it would take some two decades for Italy to regain the economic footing lost since 2007. Whether the referendum set for December 4th by Matteo Renzi, the prime minister, authorising a constitutional reform to which attempts to loosen up a sclerotic legislative system, is the right medicine remains to be seen. Yet many Italians will be basing their votes not on the content of the referendum question, but on how they feel about Mr Renzi and a course of labour-market reforms adopted last year.
Those changes were meant to make it easier to hire and fire workers. They apply only to new hires, however, and thus disproportionately target young people who now look set to vote “no” amid a rate of youth unemployment of 37%. Perhaps more importantly, they have been insufficiently ambitious in their scope.
Philippe Aghion, an economist at Harvard University, reckons that rich economies (and Italy qualifies, despite recent stagnation) cannot grow in a rapid and sustained fashion if they do…Continue reading
Regional inequality is a hard problem to solve
THE political shock of Brexit and of the election of Donald Trump have led to new interest in the problem posed by regional inequality. Both shocks drew support from places to which recent economic trends have not been especially kind, and both were reactions, at least in part, against the economic success enjoyed by elites concentrated in a relatively small number of rich metropolitan areas. Even economists, whose «nihilism…about what we can do to help struggling places in the U.S. is, quite frankly, strange» (in the words of Adam Ozimek) have taken to reconsidering their priors on the issue. Myself included; as I noted recently:
The economic literature is pretty clear that moving people from low productivity places to high productivity places is very good for both the people that move and the economy as a whole. It’s also pretty clear that place-based policies designed to rejuvenate regions which have lost their economic reason for being tend not to work very well. And one logical…Continue reading
The hole at the heart of economics
AMERICA has a debt ceiling. It’s a statutory limit on how much debt the federal government can issue. For most of its existence (the ceiling will turn 100 next year) Congress has simply voted to raise the limit when borrowing threatens to hit it. In 2011 and 2013, however, Republicans in Congress chose a different approach. They threatened not to vote to raise the ceiling unless various budget demands were met. It was a dangerous course of action; had the ceiling not been raised the government would have found itself forced to choose between default—potentially triggering a massive financial crisis—or large, sudden cuts to spending of all sorts, triggering a deep recession.
In both 2011 and 2013 the brinkmanship concluded with a deal. Before those deals were cut, as the moment of doom loomed, some economics writers argued that the Treasury should make use of an obscure loophole in a law designed to allow the government to create platinum commemorative coins to issue a $1tn coin, which could then be used to fund government operations without violating the debt ceiling. The measure seemed legal but sounded completely barmy. At one point…Continue reading