Don't tighten policy yet!

There is an interesting article in this week's Economist by Christina Romer (chair of the Council of Economic Advisors in the US) in which she explains that errors were made late on during the Great Depression when policy was inadvertently tightened (by cutting back various items of government spending and the ending of some tax reductions) and unemployment shot up again (from 15% to 19%). Her point is: We shouldn't repeat the same mistake now.

Lord Stern on Climate Change

Anthropogenic climate change is one of the major problems facing the planet. It also raises a host of interesting and challenging economic issues, from the selection of policy instruments (command and control regulation, carbon taxes, cap-and-trade, and hybrid schemes), through the analysis of risk, uncertainty and irreversabilities, to the global political economy of reaching an effective international environmental agreement which adequately addresses equity and development issues. The scale and potential impact of climate change on global well-being puts the current, but temporary in nature, financial crisis in perspective. Lord Nick Stern, whose 2007 Review of the Economics of Climate Change (link) did much to raise awareness of the urgency of the problem, has recently published a new book updating his views - A Blueprint for a Safer Planet. An audio file of the informative and very accessible LSE lecture by Nick Stern, to launch his book, can be downloaded at: link). It is well worth listening to both as an economist and as a responsible citizen.

Miscellany from Krugman

A couple of quite interesting columns by Paul Krugman in the New York Times this week. In "Reagan did it" he argues that it is all Reagan's fault: the financial deregulation during the Reagan era set the stage for people in the States to run up very high levels of debt (with the savings ratio--the fraction people save out of their disposable income--falling from around 10% to around zero) and financial institutions to likewise have high borrowing relative to capital. In "The big inflation scare" he argues that fears of inflation are grossly exaggerated - there is no reason to believe that the monetary policy being pursued (including quantitative easing), which is pumping large amounts of money into the economy, will lead to rising prices. The time to be careful, he argues, is once we are coming out of recession.