Why did the Federal Reserve’s Open Market Committee raise interest rates when it appears the economy may be slowing? That good question has no definitive answer, but a couple of possible responses. The first is that the Fed must weigh…
Category: Other
Greenspan drank the Kool-Aid
As I was preparing to teach a macroeconomics course recently, I scanned the Web for late economic news, and reviewed the chapter I’d assigned. A bold-text assertion in the textbook jumped out at me. “Belief in fine-tuning the economy died…
Nobel laureate lecturer marks a turn in the discipline
When Amartya Sen won the 1998 Nobel Prize in economics, I congratulated an Indian-born co-worker on his compatriot’s achievement. He snorted dismissively and made it clear he did not consider Sen’s recent scholarly work to be economics. Many other academic…
Growth projections are tricky at best
Be cautious in accepting long-term projections of compound growth. The “miracle of compounding” can transform even small deviations from assumptions into large differences between predictions and actual outcomes. Unfortunately, in much current debate about Social Security, both sides assert as…
Which argument holds water?
Perhaps Coon Rapids should invite Ronald Coase to visit. The 1991 Nobel laureate might be able to help resolve a dispute about the Mississippi River dam there. Coase’s insights on the importance of property rights could illuminate an evolving argument…
Let’s rethink accounting regulations
Economists who talk of Gresham’s law, Okun’s law and “the law of one price” might ignore the most important law in economics – that of unintended consequences. New legislation, in particular, often affects the economy in unforeseen ways. The Sarbanes-Oxley…
Energy taxes better than standards
The ideas that economists accept most widely are the ones the public most resists. I was reminded of this by recent calls from politicians for energy standards on items from autos to home ceiling fans. Such proposals rub economists’ noses…
U.S. needs to learn to trust the markets
If a household — or country — spends more on gasoline because prices rise, then it usually must spend less on something else. That is a hard fact of life. It is better to face the tradeoff squarely, however, than…
What became of “full faith and credit?”
Can we trust the latest arguments regarding the Social Security trust funds? People on all sides of the debate are making statements that simply are false or misleading. Often, one can only assume people are playing fast and loose with…
Numbers, nuance both guide FOMC
The Federal Reserve’s structure is complicated, but that contributes to good policy making. Here’s why. In late March, the Federal Open Market Committee decided to increase short-term interest rates by 0.25 percent to restrict money growth. Later that week, while…