Will the Boom in U.S. Energy Production Bring Back Manufacturing Jobs?

Introduction The United States has experienced unprecedented increases in energy production recently, and political leaders from both parties have promised that greater energy abundance would bring back manufacturing jobs to the U.S. A study by PwC (2011) claimed that a high-level of shale gas recovery could lead to approximately one million more manufacturing jobs by […]

Another Look at Ricardian Equivalence: The Case of the European Union

The so-called Ricardian equivalence suggests that a government will have the same effect on private spending whether it raises taxes or takes on additional debt to finance higher government spending. The logic behind it is that as the government gets more indebted, people would put aside more money in expectation of higher taxes in the […]

Does US Fiscal Policy Stabilize or Destabilize the Economy?

Textbook discussions of fiscal policy describe it as a stabilizing force for the private economy. Fiscal policy can stabilize aggregate demand by adding to demand during recessions and subtracting from demand during business expansions. However, actual fiscal policy of the United States has deviated from this textbook description, especially in the last decade. In the […]

Is this Time Different for the US?

In a new review of Reinhart and Rogoff’s book, This Time is Different, economic historian Alan Taylor points out that ignoring the historical relationship between government debt and financial crises can be costly.  It can lead to a kind of wishful thinking that governments can borrow any amount of money without producing any adverse economic […]

This Time Might Indeed Be Different For World Trade

Since World War II, successive rounds of GATT/WTO negotiations have contributed to freer trade and prosperity globally, but the WTO has become too large and unwieldy to proceed, as shown by the impasse after 11 years of the Doha round of negotiations. A key trend in international trade during last decades has been regionalization. However, […]

A Hippocratic Oath for Bank Regulators: Do No Harm

Reform of banking regulation has been an active topic in the U.S. and Europe since the outbreak of the recent financial crisis. There is now broad agreement that, among other things, banks should improve their capital ratios by holding more and higher quality capital, but the practice of treating sovereign bonds and mortgages as higher […]

Can The Fed Kill Two Birds With One Stone?

Diaz-Bonilla, in his recent EconoMonitor post, reminds us that “policy intervention must point directly to the problem, because the further away and more indirect the policy intervention, the more likely that other distortions and unwanted effects will occur”, something that he calls the Bhagwati Rule. He then builds on it and suggests the Fed to […]

The Evolving Euro

In a previous post we argued that the current fiscal relationships in the euro zone are not sustainable as the members have moved away from the „no bailout” system by implicitly accepting collective liability for a part of the debts while strict conditionality has not always followed. We also claimed that there are only two […]