Some more assorted musings.
- This Economist article on the state of marcoeconomics has attracted a lot of attention. Paul Krugman and Brad DeLong both note that the article is not entirely accurate in that some economists, including themselves, did see problems emerging. However, the problems they focused on were the wrong ones:
The prevailing view was that the truly dangerous financial crisis would be one produced by the unwinding of "global imbalances"--a collapse in the dollar and a panicked flight not toward but away from dollar-denominated cash--that could not be handled by the Federal Reserve because in such a crisis the assets that it would create would be assets that nobody wanted to hold. So I think--surprise, surprise--that Paul Krugman is right here: Pragmatists weren't ignoring the risks of crisis, but they were watching out for the wrong crisis because we had no clue how bad the state of risk management in America's investment banks had become...Even this assessment, however, is not completely fair. As I noted previously, the folks at the BIS (1) saw the problems emerging and (2) saw the correct ones. See here for more.
- The New York Times has a great article explaining the various ways of rationing health care. It shows that no matter how we ration health care--through price, quantity, or quality--tough choices have to be made.
- NPR did an interesting story on research by Ben Olken and Benjamin Jones that shows temperature negatively affects economic activity:
They found that for poor countries, an increase in annual average temperature by 1 degree centigrade corresponded to a 1.1 percent drop in per-capita gross domestic product...It's unclear exactly why temperature would have this effect. It might be that crop yields go down, or that disease is more of a problem. Or it might just be what you could call the "sloth" theory — it's hard to work when it's hot out. Who wants to mow the lawn in August?I will vouch for sloth theory when it comes to running. When I moved to Michigan I found it relatively easy to acclimate to running in very low temperatures. After moving to Texas, though, I found adjusting to running here to be far more challenging. ( I still marvel at those folks who go for runs in early afternoon here in Texas when temperatures are 100+; my runs are always early in the morning when it is cooler.) I am only one data point, but from my experience I am open to notion that economic geography and climate can influence economic activity. Here is their paper.
- Finally a U.S. monetary policy official admits the Fed contributed to the housing boom. Bloomberg is reporting that the president of the Atlanta Federal Reserve , Deninis Lockart, said the following:
“Among the causes of the financial crisis was a long period of low interest rates,” he said. It is clear low rates “had something to do with the housing bubble.”Lockhart was not around when this happened, so it is easier for him to make theis statement--there is no blood on his hands. It is worth nothing that back in 2003 that Gary Stern, Minneapolis Fed president and voting member of the FOMC did raise questions about the deflation scare of the time. He was not convinced they were truly a threat to macroeconomic stability. Had his views been more widely shared at the Fed maybe the federal funds rate would not have been held so low for so long. [Update: Here is a Stern speech where he questions the conventional wisdom on deflation in 2003.]