Wednesday, November 13, 2013

Where we are

Media and others have coined the term Abenomics to describe the economic policies of Japanese PM Shinzo Abe.  There are seemingly three prongs:  more fiscal stimulus, more monetary stimulus and "reform".  We hear of late that the third one has stalled.

But this is true almost everywhere.  It is easiest for politicians to turn on the fiscal and the monetary stimulus -- and less easy to somehow turn them off.  "Austerity" is widely disparaged.  Reform means taking on the special interests and that's much harder than spending money.

I mention all this because Kevin Warsh does a fine job of summarizing U.S. policy challenges in his "Finding Out Where Janet Yellen Stands."

I had previously posted some reactions to Edmund Phelps' fine new book, Mass Flourishing. But now, listening to Phelps discuss it with Russ Roberts at econtalk, I get the impression that he is more pessimistic than I had thought when I read the book. Phelps worries about a decline in U.S. productivity growth and is seemingly perplexed about where we go from here.

If we adopt the shorthand of three possible policy prongs, it seems clear that politicians rely on the ones that are easy (spend more money, print more money) but these have almost nothing to do with the problems that they are addressing.  Structural problems are bigger.  The schooling establishment, for example, has a lock on political support and also produces product that badly fits the requirements of the labor market. In that case, all of the monetary and fiscal stimulus will not do much for unemployment rates.  That is where we are and where we have been for some years.


Lindsey on Phelps