The New York Times reported on Saturday that China's central bank is adopting a more contractionary monetary policy in order to slow its economy and reduce inflation. If China's central bank is concerned that inflation is getting out of control, then it would be an ideal time for the country to begin to raise the value of its currency against the dollar. This would have two beneficial effects from the bank's standpoint. First, a more valuable Chinese currency will make Chinese exports more expensive. This will slow China's export growth, and thereby help to slow its economy. The other effect is that a higher valued currency will make imports cheaper. Lower priced imports will help to alleviate domestic inflation by making cheap goods available as inputs into production, and also by allowing workers to consume more without pay increases. A higher valued Chinese currency will be a mixed story for the United States. On the one hand, it will make U.S. goods more competitive, both in the...

Laurent Guerby made a post on the prior topic about European-U.S. unemployment comparisons, I was just at a conference sponsored by the OECD where exactly this issue came up. The basic point is that proponents of the U.S. model want to add people in employment training programs and disability roles in Europe to their official unemployment rates for purposes of international comparisons. This seems bogus on several grounds. First, the employment training programs are obviously heavily subsidized by the government (often 100 percent), but there are many situations in the U.S. where jobs enjoys substantial government subsidies. The EITC peaks at more than 35 percent of wages, throwing in work related child care benefits can easily push the subsidy to more than half of the wage. At what point do we say that the job is simply concealing unemployment, a 60 percent subsidy?, an 80 percent subsidy?, or does it have to be 100 percent? Furthermore, what if the government paid the full wage, and...

In his New York Times column today, "Changing Bedfellows", David Brooks did a far better job describing the nanny state conservatives' framing of economics than I could ever hope to do in my book. Of course, he ostensibly was saying how the world actually is, rather than how the nanny state conservatives want us to see it. According to Brooks, we have the populist nationalists who argue against immigration and trade, and want to ensure workers' security through Social Security and national health care insurance. This group includes Pat Buchanan, Lou Dobbs, Al Sharpton and Kevin Phillips. On the other side, we have the progressive globalists, who want to expand trade and allow immigration in order to promote economic growth. This group includes Hillary Clinton, Mark Warner, John McCain and Rudy Giuliani. It's great caricature, a perfect example of the framing that I criticized in my book, The Conservative Nanny State : How the Wealthy Use the Government to Stay Rich and Get Richer [...

"Experts" get away with saying almost any nonsense they like when it comes to talking about the stock market and the economy, but I think that we may have hit a new high today. A Times article today quotes Mark Cliffe, global head of financial markets research at ING Group in London, saying that the U.S. stock market has fallen 5-6 percent this year. The expert adds that if it falls another 5 percent, it could affect consumer spending and "‘Joe-Six' could start to cut back his stock portfolio." Okay, there could be a wealth effect from lower stock prices on consumption, but this usually takes some period of time. Furthermore, wasn't the purpose of supply-side tax cuts (as in President Bush's tax cuts) to increase saving? In other words, we are supposed to believe that less consumption is bad when it happens because the stock market falls, but good when it is due to a tax cut. (More savings MEANS less consumption.) But part 2 of this quote is the real fun -- Joe Six-Pack's stock...

Nothing like some comments on the trust fund to get the blogging juices flowing. It is amazing how metaphysical these discussions on the trust fund get. I don't really see anything very complicated here. I am simply referring to the law as it stands. Under the law, Social Security can only pay benefits out of the money that it has in its trust fund. Yes, that means it has a separate account from the rest of the budget. If the budget has an enormous surplus, but the trust fund is empty, then no benefits get paid, that's the law. On the other side, if the government has an enormous deficit, but the trust fund still holds bonds, then Social Security benefits still get paid, that's the law. I have not commented on whether I like the law or not, I am simply describing the law. (By the way, Medicare is currently being financed in part by the bonds held in its trust fund, and I have not heard a single politician make an issue of this.) Under the law, there is absolutely nothing that would...

Gretchen Morgenson had a good piece in the Times documenting some of the ways in which corporate boards manage to dish out bonuses to CEOs even when they miss performance targets. With all the scandals in CEO pay over the last decade, it is remarkable that this sort of nonsense persists unchecked. Clearly there is a structural imbalance, with top executives being able to pilfer corporate coffers to enrich themselves at the expense of shareholders. It would be a simple matter (legally, if not politically) to change some of the rules of corporate governance to redress this imbalance. For example, how about requiring that the compensation of packages get sent out for shareholder approval at regular intervals? Suppose the rules also require that shareholder proxies that don't get returned don't count? (The standard practice now is that unreturned proxies are counted as supporting management.) How about also making corporate directors personally liable for not using proper care in setting...