EconoMonitor

Ed Dolan's Econ Blog

Archive for May, 2011

  • Failure of Austerity in Europe? What Does the Latvian Exception Prove?

    Writing in The New York Times this week, Paul Krugman argues that austerity has failed in Europe. Budget cuts and tax increases were supposed to provide the confidence needed to get troubled EU economies back on track, but the “confidence fairy” hasn’t shown up. Austerity has not just failed to work, says Krugman—it has made […]

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  • Will Shifting Political Winds Finally Kill Ethanol Subsidies?

    As recently as last December, the coalition backing U.S. ethanol subsidies appeared to be alive and well, despite the fact that everyone knew they were bad for the environment, bad for energy efficiency, and bad for the budget. The largest subsidy, a tax credit for blending ethanol into gasoline, was set to expire at the […]

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  • Are Financial Regulators Flying Blind? Would Better “Risk Topography” Help?

    Data on the capital and liquidity of banks are the navigation aids that regulators depend on to avoid another financial crash. Improvements to these indicators, adopted last year by the Basel Committee on Bank Supervision, are among the most heralded regulatory reforms since the 2008 crisis. But what if the instruments are faulty, even in their upgraded form? If so, regulators are flying blind, and our chances of avoiding another crash are slim. What can be done?

    A recent paper by three prominent financial economists suggests one possible answer: a sort of Manhattan project that would map out a “risk topography” of the financial system. The authors are Markus K. Brunnermeier of Princeton, Gary Gorton of Yale, and Arvind Krishnamurthy of Northwestern. All three are also affiliated with the National Bureau of Economics Research. (I will refer to the team in what follows as BG&K.)

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