- Paul Krugman: Putin’s Bubble Bursts
- Links for 12-19-14
- About Those Cost Push Inflation Fears...
- 'Maybe There's No Such Thing as a Business Cycle'
- 'What’s the Matter with Economics?': An Exchange
Posted: 19 Dec 2014 12:24 AM PST
The Russian economy is in trouble:
Putin's Bubble Bursts, by Paul Krugman, Commentary, NY Times: If you're the type who finds macho posturing impressive, Vladimir Putin is your kind of guy. Sure enough, many American conservatives seem to have an embarrassing crush on the swaggering strongman. "That is what you call a leader," enthused Rudy Giuliani, the former New York mayor, after Mr. Putin invaded Ukraine without debate or deliberation.
But Mr. Putin never had the resources to back his swagger. Russia has an economy roughly the same size as Brazil's. And, as we're now seeing, it's highly vulnerable to financial crisis...
For those who haven't been keeping track: The ruble has been sliding gradually since August, when Mr. Putin openly committed Russian troops to the conflict in Ukraine. A few weeks ago, however, the slide turned into a plunge. Extreme measures ... have done no more than stabilize the ruble far below its previous level. And all indications are that the Russian economy is heading for a nasty recession.
The proximate cause of Russia's difficulties is, of course, the global plunge in oil prices... And this was bound to inflict serious damage on an economy that ... doesn't have much besides oil that the rest of the world wants; the sanctions imposed on Russia over the Ukraine conflict have added to the damage. ...
Putin's Russia is an extreme version of crony capitalism, indeed, a kleptocracy in which loyalists get to skim off vast sums for their personal use. It all looked sustainable as long as oil prices stayed high. But now the bubble has burst, and the very corruption that sustained the Putin regime has left Russia in dire straits.
How does it end? The standard response ... is an International Monetary Fund program that includes emergency loans and forbearance from creditors in return for reform. Obviously that's not going to happen here, and Russia will try to muddle through on its own, among other things with rules to prevent capital from fleeing the country — a classic case of locking the barn door after the oligarch is gone.
It's quite a comedown for Mr. Putin. And his swaggering strongman act helped set the stage for the disaster. A more open, accountable regime — one that wouldn't have impressed Mr. Giuliani so much — would have been less corrupt, would probably have run up less debt, and would have been better placed to ride out falling oil prices. Macho posturing, it turns out, makes for bad economies.
Posted: 19 Dec 2014 12:06 AM PST
Posted: 18 Dec 2014 10:27 AM PST
Via Real Time Economics at the WSJ:
No Sign Yet of Labor Cost Inflation in U.S. or U.K., by Paul Hannon: Despite falling unemployment rates, there are few signs that rising wages will soon start to push inflation higher in either the U.S. or the U.K., where central banks are expected to raise their benchmark rates next year and in early 2016 respectively.
In both countries, policy makers expect tightening labor markets to result in a pickup in wages that will translate into higher consumer prices, as businesses act to protect their profit margins...
But an internationally comparable measure of labor costs released Thursday by the Organization for Economic Cooperation and Development showed no sign of a buildup in inflationary pressures from that source in either country.
Indeed, the Paris-based research body recorded a 0.1% drop in unit labor costs in the U.S. during the third quarter, which followed a 0.6% decline in the second quarter. ...
Posted: 18 Dec 2014 10:02 AM PST
Maybe There's No Such Thing as a Business Cycle: ...The word "cycle" conjures up images of waves and seasons, but the business cycle isn't a regular cycle like that (if it were, it would be easy to predict the next recession). Economists actually think that recessions and booms are random temporary disturbances of a smooth trend of long-term growth. ...
In other words, modern macroeconomic theories all assume that recessions are temporary -- that they don't permanently damage the economy's productive potential. If that assumption is wrong, then most modern macroeconomic theories are barking up the wrong tree. ...
In fact, the evidence is now piling up that the 2008 recession did have lasting effects. ... It may simply be time to stop thinking of the business cycle as a cycle.
For more on this issue, I encourage you to read "You've Got Potential" at the Growth Economics Blog.
Posted: 18 Dec 2014 09:49 AM PST
Arnold Packer and Jeff Madrick respond to Alan Blinder in the NYRB, and he replies:
'What's the Matter with Economics?': An Exchange: In response to: What's the Matter with Economics? from the December 18, 2014 issue ...
To the Editors:
Alan Blinder is one of the finest mainstream economists around. But to read his review of my book, you'd think that nothing was wrong with economics in recent decades except as it is practiced by a few right-wingers.
This is of course not the case. ...
Alan S. Blinder replies:
According to both Jeff Madrick and Arnie Packer, I claim "that except for some right-wingers outside the 'mainstream'…little is the matter" with economics. (These are Packer's words; Madrick's are similar.) But it's not true. I think there is lots wrong with mainstream economics.
For starters, my review explicitly agreed with Madrick that (a) ideological predispositions infect economists' conclusions far too much; (b) economics has drifted to the right (along with the American body politic); and (c) some economists got carried away by the allure of the efficient markets hypothesis. I also added a few indictments of my own: that we economists have failed to convey even the most basic economic principles to the public; and that some of our students turned Adam Smith's invisible hand into Gordon Gekko's "greed is good." ...
Yet Madrick still insists that "economists rely on a fairly pure version of the invisible hand most of the time." Not us mainstreamers. I'm a member of the tribe, I live among these people every day, and—trust me—we really don't apply the "pure version" to the real world. For example, many of us see reasons for a minimum wage, mandatory Social Security, progressive taxation, carbon taxes, and a whole variety of financial regulations—to name just a few. ...
[Hard to summarize this one with a few excerpts -- I left a lot out...]
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