In fact, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.
Chris Turnerexplores Cuba's current economic situation through the lens of a Canadian tourist:
Canada is probably the second most important economic ally Cuba has after Venezuela, which supplies more than 60 percent of the island’s oil. (China exports more stuff to Cuba, but the Chinese don’t show up daily by the multiple charter-flight-loads to hand out gifts and pour hundreds of millions of dollars into the Cuban economy.) Cuba is our largest trading partner in the whole of Central America and the Caribbean. We export a range of commodities to Cuba — sulphur, wheat, copper wire — and we are the second-largest buyer of Cuban exports, particularly sugar, nickel, fish, citrus fruits, and tobacco. That’s over $1 billion in total trade.
Here’s something you don’t often hear an economist admit: We have very little idea where the economy will be next year.
Truth be told, our best guesses just aren’t very good. Government forecasts regularly go awry. Private-sector economists and cutting-edge macroeconomic models do even worse.
Our objective isn’t to beat up economists. Rather, we want to make the point that when we recognize our shortcomings, we’re forced to confront the enormous uncertainty that lies ahead. And appropriate humility about the economy changes how we think about policy.
We recently solicited your questions for Alan Krueger, chairman of the President's Council of Economic Advisers. Below are Krueger's answers, in which he talks about the Bush tax cuts, the American Jobs Act, and why NFL coaches should go for it on fourth down. Thanks to everyone for participating.
Q. The recovery from the recent recession has been great for corporate profits, but not so great for employment. I think that this is a natural result of the fact that when demand is insufficient, corporations focus on improving productivity rather than on producing more goods and services.
The Fed is now engaged in the game of “forward guidance”—they’ve announced that they anticipate keeping interest rates at zero, until late 2014—and hope that it will shape the recovery. But what effects will this announcement have? To figure this out, let’s visit two of the greatest ever Fed Chairmen: Eeyore and Tigger.
The Council of Economic Advisers last week released its annual Economic Report of the President. The CEA's report, which dates back to 1947, aims to provide "an overview of the nation's economic progress" while presenting "the Administration’s domestic and international economic policies." This year's report lays out the "defining issue of our time":
One of the fundamental tenets of the American economy has been that if you work hard, you can do well enough to raise a family, own a home, send your kids to college, and put a little money away for retirement. That’s the promise of America.
The defining issue of our time is how to keep that promise alive. We can either settle for a country where a shrinking number of people do very well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.
The Austin City Council is about to outlaw the paper and plastic bags you get at the grocery store. Retailers don’t like the ban. One particularly clever argument by liquor retailers is that it will encourage people to buy less — not a good thing, so they argue, when unemployment is high.
This is a bad argument for so many reasons: 1) Booze demand and bag provision are at most only a tiny bit complementary — one can always carry the six-pack out by hand; 2) To argue that high unemployment is a reason for anything other than macro stimuli is totally self-serving. I think all universities should hire more economists to reduce unemployment (although others may differ). The best argument against the ban is that it is not efficient—the environmental improvements don’t justify the extra resource cost of schlepping reusable bags into stores. I don’t find even that argument to be very persuasive.
Our latest Freakonomics Radio on Marketplace podcast is called “It’s Not the President, Stupid.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) The gist: it's time to admit that the U.S. economy doesn’t have a commander-in-chief.
In this Marketplace segment, you'll hear from Austan Goolsbee, the University of Chicago economist who has served President Obama as both campaign adviser and chairman of the Council of Economic Advisers:
GOOLSBEE:I think the world vests too much power, certainly in the president, probably in Washington in general for its influence on the economy, because most all of the economy has nothing to do with the government.
In 2009, the OECD concluded that half the world's workers (almost 1.8 billion people) were employed in the shadow economy. By 2020, the OECD predicts the shadow economy will employ two-thirds of the world's workers.
This new economy even has a name: "System D."
In a new article (accompanying photoessay here) for Foreign Policy, Robert Neuwirth explains:
System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise." Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.