Maurice Obstfeld, Kenneth Rogoff, UCLA/Harvard: Global Imbalances and the Financial Crisis: Products of Common Causes: Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies through U.S. and ultimately through global financial markets. In the U.S., the interaction among the Fed’s monetary stance, global real interest rates, credit market distortions, and financial innovation created the toxic mix of conditions making the U.S. the epicenter of the global financial crisis. Outside the U.S., exchange rate and other economic policies followed by emerging markets such as China contributed to the United States’ ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble. The global imbalances did not cause the leverage and housing bubbles, but they were a critically important codeterminant.
Ravi Jagannathan et al, NBER: Why are we in a recession? The financial crisis is the symptom not the disease! We argue that the large increase in the developed world’s labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. The inability of existing institutions in the US and the rest of the world to cope with this shock set the stage for the great recession: The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives; and the inability of the US economy to adjust to the perverse incentives caused by huge money inflows leading to a breakdown of checks and balances at various financial institutions. A sustainable recovery will only occur when the natural flow of capital from developed to developing nations is restored.
Christian Broda et al, VoxEU: The new global balance – Part II: Higher rates rather than weaker dollar in 2010. Many expect the dollar to continue to depreciate over the foreseeable future. But it may strengthen in 2010 if the Federal Reserve exits quantitative easing sooner than its counterparts and the US economy enjoys a strong rebound.
C. Fred Bergsten, Forein Affairs: The Dollar and the Deficits. The global economic crisis has revealed the folly of large U.S. budget and trade deficits, as well as of the strong dollar that makes them possible. If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar. Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United States -- and the world economy at large.
Larry Summers, White House Blog: Despite the extraordinary depth of this most recent crisis, the pattern it followed – a pattern in which instability emanating from the financial sector ultimately resulted in hundreds of thousands of middle class families who had nothing to do with the financial sector losing their jobs or much of the their savings – is disturbingly familiar.
Richard Kilbride, ING: A Long Slog to Fix Unemployment. As things recover, companies are likely to extend the work week of part-timers. Raising the average work week from 33 hours, which it is now, to 33.8 hours, where it was at the start of the recession, would be equivalent to hiring 3 million workers. However, this would only be adding hours, not adding new jobs. This is not good news for the new entrants to the labor market, or for the 4 million out of work from retail, construction, manufacturing or finance. As Bruce Springsteen said “These jobs are gone and they ain’t comin’ back.”
George J. Borjas, Rachel M. Friedberg, NBER: Recent trends in the earnings of new immigrants to the United States. While there was a continuous decline in the earnings of new immigrants 1960-1990, the trend reversed in the 1990s, with newcomers doing as well in 2000, relative to natives, as they had 20 years earlier. This improvement in immigrant performance is not explained by changes in origin-country composition, educational attainment or state of residence. Changes in labor market conditions, including changes in the wage structure which could differentially impact recent arrivals, can account for only a small portion of it. The upturn appears to have been caused in part by a shift in immigration policy toward high-skill workers matched with jobs, an increase in the earnings of immigrants from Mexico, and a decline in the earnings of native high school dropouts. However, most of the increase remains a puzzle.
Douglas Elmendorf, CBO: The Economic Effects of Policies to Reduce Greenhouse-Gas Emissions. Cap-and-trade would reduce US GDP below what it would otherwise have been—by roughly ¼ to ¾ percent in 2020 and by between 1 and 3½ percent in 2050.
Anthony B. Atkinson, Thomas Piketty, Emmanuel Saez, NBER: Top incomes in the long run of history. Most countries experience a dramatic drop in top income shares in the first part of the 20th century in general due to shocks to top capital incomes during the wars and depression shocks. Top income shares do not recover in the immediate post war decades. However, over the last 30 years, top income shares have increased substantially in English speaking countries and in India and China but not in continental Europe countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past.
David Runciman, LRB: How messy it all is. Among rich countries, the more unequal ones do worse according to almost every quality of life indicator you can imagine (The Spirit Level). They do worse even if they are richer overall, so that per capita GDP turns out to be much less significant for general wellbeing than the size of the gap between the richest and poorest 20 per cent of the population
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