Welcome. I started this blog for my economics students, but any other fans of economics (and science or history) are welcome. My goal for this blog is to provide background on current events. Hopefully, the links to interesting newspaper articles, videos, data, books, web sites, and research will convince you this stuff really is fascinating and relevant.
I can't resist sharing this article about Robert Lucas, one of the most influential economists of the last 50 years. In an interview, Lucas is asked how his findings relate to the current economic slowdown. Lucas suggests that while a stimulus might have been the right idea in 2008, its time has past. He now supports structural reforms that realign incentives towards growth. This dovetails nicely with his research on the importance of people's expectations and incentives.
In this WSJ article, Ellen Byron proves to sceptical economics students that businesses actually do use Gini coefficients. Gini coefficients are a handy measure of how evenly income is distributed in a country. A Gini coefficient of 0 would indicate everyone in the country has exactly the same income. A Gini coefficient of 1 would indicate one person collects all income. The U.S. is in the middle of the global rankings. Almost all countries in Central and South America and Sub-Saharan Africa have more income inequality. China also has more income inequality - primarily due to its rural/urban divide. European countries and Canada have had less income inequality than the U.S., but that may change as many governments are forced to cut back on spending.
The article points out that the U.S. Gini coefficient has been growing in the current recession, and suggests that it is likely to stay higher. This shrinking of the middle class is forcing many companies like Proctor and Gamble to change strategies.
Questions for students:
1. Have you observed this phenomenon in your company's industry?
2. If so, has your company changed its target consumer or altered its marketing/production strategies in response to these changes?
3. Do you think this a problem? Should policy makers address this shift? If so, how?
For the curious, here is a nice graph demonstrating the Gini coefficient (thanks to Wikimedia Commons).
Cowen raises an interesting point; this recession exposed structural problems that have been brewing in the U.S. for decades. In particular he thinks the U.S needs to improve its education system in order to sustain growth and innovation.
Economics as a profession is also open for reform. Cowen suggests that academic economists have become too specialized and don't have much to say - without devolving to partisan politics. This has created a niche for bloggers without pedigrees to weigh in with important ideas.
Despite a libertarian bent, Cowen supports more Fed action to help the U.S. economy recover.
For a good overview of the current state of the U.S. economy see: