(p. 14) For scholars and popular writers alike, the Great Depression has long been a kind of economic Rorschach test. Free marketers look at the economic disaster and blame the Smoot-Hawley tariff, which inaugurated a global trade war; monetarists attack the Federal Reserve for its tight-money policies; Keynesians berate Herbert Hoover for his attempts to balance the budget as the crisis worsened.
. . .
Generally, . . . , Morris is remarkably evenhanded, giving both sides of scholarly debates in deep detail. This is particularly the case in his coverage of the New Deal, where he weighs the practical effects of the dizzying array of policies begun by Roosevelt, from his devaluation of the dollar to the creation of the Civilian Conservation Corps. And Morris explains in accessible prose how economists have used modeling to study the New Deal (he wryly notes that this “is still a work in progress — if only because results are often suspiciously consistent with the political dispositions of the modeler”).
Source of graph: online version of the WSJ article quoted and cited below.
(p. B5) Many economists were puzzled by the slow pace of pay increases because it looked as if a fundamental relationship had broken down.
Decades ago, economists observed that when unemployment falls, wages tend to rise, as companies are forced to offer higher pay to attract workers. Yet even as the unemployment rate fell from 10 percent in 2009 to less than 5 percent in 2016, wages rose slowly. Even now, with the unemployment rate near multidecade lows, wages are not rising as quickly as standard models suggest they should be.
Economists proposed all sorts of theories to explain the mystery: Globalization and automation meant that Americans were competing against lower-paid workers overseas and against robots at home. The rising power of the biggest corporations, paired with falling rates of unionization, made it harder for workers to negotiate for higher pay. Sluggish productivity growth meant that companies couldn’t raise pay without eating into profits.
The recent uptick in wage growth suggests a simpler explanation: Perhaps the job market wasn’t as good as the unemployment rate made it look.
The government’s official definition of unemployment is relatively narrow. It counts only people actively looking for work, which means it leaves out many students, stay-at-home parents or others who might like jobs if they were available. If employers have been tapping into that broader pool of potential labor, it could help explain why they haven’t been forced to raise wages faster.
It appears as if that is exactly what is happening. In recent months, more than 70 percent of people getting jobs had not been counted as unemployed the previous month. That is well above historical levels, and a sign that the strong labor market is drawing people off the sidelines.
For the full story, see:
(Note: the online version of the story has the date May 2, 2019, and has the title “Why Wages Are Finally Rising, 10 Years After the Recession.”)
(p. A2) Australia is experiencing an amazing economic run—a 27-year expansion that survived a regional economic crisis in the 1990s, a global economic crisis in the 2000s, and a boom-boost cycle in its core commodity sector in the 2010s.
Its experience offers lessons for the U.S. and the rest of the world. Among them, the laws of economics don’t dictate that expansions run on preset timetables. Wise policy-making, and some good luck, carried Australia’s expansion into the record books.
For the full commentary, see:
(Note: the online version of the commentary has the date July 15, 2018, and has the title “THE OUTLOOK; How an Economic Boom Can Run Out the Clock.”)
(p. 6) I had flown 16,000 miles . . . to study . . . the remarkable resilience of the Australian economy, which has gone nearly 28 years without a recession.
. . .
America is on the verge of its own economic milestone: The current expansion is on track to reach its 10th birthday this summer, which would also put it on record as the nation’s longest streak without a recession.
During the decade I’ve spent chronicling that growth as an economics writer, a persistent whisper has been: How long can it go? The run has been uneven, underwhelming and repeatedly on the verge of unraveling, including scary moments in 2010, 2015 and this past December. Seemingly every commentator without a good cliché blocker has referred to it as “long in the tooth.” Continue reading “Australia’s 28 Years With No Recession Challenge Business Cycle Cliches”
(p. A17) As the economist Joseph Schumpeter observed: “The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”
For Schumpeter, entrepreneurs and the companies they found are the engines of wealth creation. This is what distinguishes capitalism from all previous forms of economic society and turned Marxism on its head, the parasitic capitalist becoming the innovative and beneficent entrepreneur. Since the 2008 crash, Schumpeter’s lessons have been overshadowed by Keynesian macroeconomics, in which the entrepreneurial function is reduced to a ghostly presence. As Schumpeter commented on John Maynard Keynes’s “General Theory” (1936), change–the outstanding feature of capitalism–was, in Keynes’s analysis, “assumed away.”
Progressive, ameliorative change is what poor people in poor countries need most of all. In “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty,” Harvard Business School’s Clayton Christensen and co-authors Efosa Ojomo and Karen Dillon return the entrepreneur and innovation to the center stage of economic development and prosperity. The authors overturn the current foreign-aid development paradigm of externally imposed, predominantly government funded capital- and institution-building programs and replace it with a model of entrepreneur-led innovation. “It may sound counterintuitive,” the authors write, but “enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This is the paradox of the book’s title.
(p. A17) . . . is there evidence that stimulus was behind America’s recovery–or, for that matter, the recoveries in Germany, Switzerland, Sweden, Britain and Ireland? And is there evidence that the absence of stimulus–a tight rein on public spending known as “fiscal austerity”–is to blame for the lack of a full recovery in Portugal, Italy, France and Spain?
A simple test occurred to me: The stimulus story suggests that, in the years after they hit bottom, the countries that adopted relatively large fiscal deficits–measured by the average increase in public debt from 2011-17 as a percentage of gross domestic product–would have a relatively speedy recovery to show for it. Did they?
As the accompanying chart shows, the evidence does not support the stimulus story. Big deficits did not speed up recoveries. In fact, the relationship is negative, suggesting fiscal profligacy led to contraction and fiscal responsibility would have been better.
For the full commentary, see:
Phelps, Edmund. “The Fantasy of Fiscal Stimulus; It turns out Keynesian policies are correlated with slower, not faster, economic growth.” The Wall Street Journal (Tuesday, Oct. 30, 2018): A17.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Oct. 29, 2018.)
(p. A15) In August 1979, when Paul Volcker began what would prove to be an eight-year stint as chairman of the Federal Reserve, inflation was running at a rate of more than 11% a year.
. . .
Before Jay Powell and Janet Yellen, before Ben Bernanke and Alan Greenspan, there was “tall Paul,” the thrifty, 6-foot-7 career civil servant who smoked cheap cigars and fished for trout with a fly rod. His policy, announced in an extraordinary Saturday press conference just two months after he took office, was the polar opposite of the radical “stimulus” imposed after the downfall of Lehman Brothers in 2008.
. . .
“Good government” and “sound” money are Mr. Volcker’s themes, in life as in print.
. . .
Washington in the early 1960s was a “comfortable, convenient medium-sized city,” he writes; its law firms were “entirely local and small, occupying maybe a floor or two in a K Street office building.” Today the capital is “a very different, unpleasant, place, dominated by wealth and lobbyists who are joined at the hip with the Congress and too many officials. I stay away.”
Humility is one of the charms of both the man and his book (written with Christine Harper, editor in chief of Bloomberg Markets). Though his kindergarten teacher, Miss Palmer, saw in young Paul a worrying lack of self-confidence, the grown man stuck to his anti-inflationary guns, let joblessness mount, bankruptcies climb and brickbats rain down. Refusing to flinch, he made the paper dollar, if not actually sound, then respectable. Tall Paul, indeed.
For the full review, see:
James Grant. “BOOKSHELF; The Last Monetary Hero; The Fed under Ben Bernanke opened the monetary spigots; the Fed under Paul Volcker shut them off–and ended an inflation crisis.” The Wall Street Journal (Monday, Nov. 26, 2018): A15.
(Note: ellipses added.)
(Note: the online version of the review has the date Nov. 25, 2018, and has the title “BOOKSHELF; ‘Keeping At It’ Review: The Last Monetary Hero; The Fed under Ben Bernanke opened the monetary spigots; the Fed under Paul Volcker shut them off–and ended an inflation crisis.”)
The book under review, is:
Volcker, Paul. Keeping at It: The Quest for Sound Money and Good Government. New York: PublicAffairs, 2018.