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The Economic Case for Biden

September 21, 2020

US President Donald Trump has seeded the investment environment with uncertainty, trashed America’s trade relationships, blown up the fiscal deficit, and left American workers worse off than they were when he took office. He is the polar opposite of Joe Biden, a politician who understands precisely what the US economy needs.

NEW YORK – Commentators have offered many reasons why one should vote in November for Joe Biden, the Democratic nominee for US president. Yet the economic dimension of the election has been of little interest to pundits, and few, if any, economists speaking on the subject have bothered to highlight how the outcome bears directly on people’s welfare. But the economy is the stage on which people

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Poverty as Injustice

August 28, 2020

Across Western advanced economies, a widespread sense of malaise has given rise to a debate about what the state can and should do to ensure economic justice, particularly for those at the bottom of the income ladder. As always, the fundamental question is whether public policies would help or hamper growth and dynamism.

NEW YORK – In much of the world, there is concern over abysmal wages for the less advantaged and the many victims of racial and gender discrimination. Though tax credits for low-income single mothers provide support and contribute to the development of their children, there are still signs of poverty among working people: malnourishment, poor health, and substance abuse.

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The Robot Question

August 6, 2020

Although robots that can perform human labor will put downward pressure on wages in the short term, they also will increase the rate of profit, encouraging more investment and a recovery in the wage rate. It is not so much the economics of new technologies that should worry us, but rather the politics and ethics.

NEW YORK – The robots are no longer coming; they are here. The COVID-19 pandemic is hastening the spread of artificial intelligence (AI), but few have fully considered the short- and long-run consequences.

How to Prevent the Looming Sovereign-Debt Crisis

Teradat Santivivut/Getty Images

From American to

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What’s the Matter with South America?

July 17, 2020

Though it is unclear which caused which, there is no doubt that South America’s embrace of traditional values and corporatism has prevented it from reaching its economic potential. Whether the region can achieve prosperity in the future will depend on its willingness to stop worrying and learn to love free enterprise.

NEW YORK – South America continues to lag behind most of the world in social and economic performance. At bottom, South America’s problems reflect widespread governance failures, owing to the institutions that emerged in the region and the values that underpin them.The presence of some powerful values inimical to individual success and innovative pursuits has given rise to corporatism, a system that

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Dynamism, Innovation, and Germany’s Future

November 22, 2019

Three decades after the fall of the Berlin Wall, Germany has become a "trading nation" with a debilitating aversion to the capitalist spirit of dynamism. Unless it can rediscover its tradition of innovation and groundbreaking contributions to the arts and sciences, it could end up falling ever further behind in the twenty-first century.

BERLIN – Germany has been celebrating the 30th anniversary of the fall of the Berlin Wall – and rightly so. Yet those celebrations come at a time when the country is also wondering what to do in the years ahead. I could not be at the Wall to experience the thrilling escape of East Germans from Soviet communism. Yet, like many people around the world, I was swept away by that

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The Three Revolutions Economics Needs

January 23, 2019

The silence of most economists on the underlying causes of the political ructions erupting throughout the West – and on what, if anything, can be done to restore economic vigor – has been deafening. And it provides further evidence of the profession’s refusal to acknowledge the need for change.

PARIS – The West is in crisis – and so is economics. Rates of return on investment are meager. Wages – and incomes generally – are stagnating for most people. Job satisfaction is down, especially among the young, and more working-age people are unwilling or unable to participate in the labor force. Many in France decided to give President Emmanuel Macron a try and now are protesting his policies. Many Americans decided to give Donald

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The Need for a Global Patent Market

August 6, 2018

Productivity growth, typically driven by technological progress, has been sluggish for more than 50 years. But a rules-based global trade system for intellectual property could go a long way toward reinvigorating it, by driving more specialization and cross-border cooperation among the world’s inventors.

NEW YORK – If developed and developing countries’ national patent systems were integrated into the trade system, the result would be greater specialization among inventors and, with it, faster technological invention and productivity growth. Yet under current arrangements, World Trade Organization (WTO) member states do not honor foreign inventors’ claims to their own inventions. More than ever, the world needs a new

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Will China Out-Innovate the West?

March 5, 2018

For decades, Western governments have offered protections for incumbent firms at the expense of new market entrants, and of productivity growth generally. With China quickly realizing the value of fair and free competition, the West urgently needs to change course, or risk being left behind.
NEW YORK – From the early nineteenth century to the early twentieth century, Western countries attributed their economic growth to the discoveries of “scientists and navigators.” A country needed only the “zeal” to develop “obvious” commercial applications, and build the facilities to meet demand for new products.

The Year Ahead 2018

The world’s leading thinkers and policymakers examine what’s come apart in the past year,

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Economic Policymaking in the Age of Trump

January 26, 2018

For decades, America has suffered from a long-run productivity slowdown that has sapped the economy of its former dynamism, and left median wages stagnant. Will the tax legislation recently enacted by congressional Republicans and the Trump administration finally reverse this trend, or will it make a bad situation worse?
PHILADELPHIA – We are living in worrisome economic times. One year ago, I observed that US President Donald Trump’s bullying of companies and individuals who get in his way is reminiscent of Benito Mussolini in the 1920s. Like Mussolini, Trump poses a clear danger to the rule of law.My subject here, however, is the tax legislation that Trump signed into law in December, on the promise that reducing the rate at which corporate profits are taxed will help an

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Saving the Environment and the Economy

December 21, 2017

The biggest obstacle to combating climate change is the naiveté of the public. Too many citizens assume that policymakers will simply do what the experts say, and they neglect the fact that shifting to a “green” economy will introduce countless new opportunities to pursue more fulfilling work, in keeping with a traditional idea of the “good life.”
NEW YORK – Every country has national problems, such as a dangerous loss of inclusion or a costly loss of growth. We learn that a solution does not happen without society’s understanding of the problem and a wide desire for action.But with climate change, all countries have a shared problem, too. And although experts have gained understanding and reached a consensus on the objectives to be sought, these goals require wider

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Nothing Natural About the Natural Rate of Unemployment

November 2, 2017

With unemployment reaching very low levels in major economies, despite low – and slowly rising – inflation, it’s time for central banks to rethink their reliance on the so-called natural rate. No numerical target for this rate can serve as an anchor for monetary policy.
NEW YORK – Why is unemployment so low in countries where inflation remains subdued? For economists, this is a fundamental question. And when economists confront a fundamental question, fundamental disagreement often follows.


Matt Cards/Getty Images

Chip Somodevilla/Getty Images


I was one of the rebel economists of the 1960s who rejected the macroeconomics we were taught in the 1950s –

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This Thing Called the American Dream

August 28, 2017

NEW YORK – In 1968, gonzo journalist Hunter S. Thompson mused about “this Death of the American Dream thing.” But what was this thing called the American Dream? What made it uniquely American?

For some, the Dream was Americans’ belief that their economy was a cornucopia of goods sure to bring a standard of living unimaginable in other economies: the dream of unrivaled plenty and comfort. But, while America had a superior wage level in the 1700s, Britain nearly closed the wage gap with America by the 1880s, and Germany came almost as close by 1913. Germany and France caught up with America by the 1970s.

For some economists, the Dream was the hope of an improving standard of living: the dream of progress. The economist Raj Chetty has been gauging the improvement people

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Trump, Corporatism, and the Dearth of Innovation

January 17, 2017

CHICAGO – In the United States, a domestic political shift from cosmopolitanism to nationalism, and from left-leaning metropolitan “elites” to right-leaning rural “populists,” seems, to many, to be underway. The prevailing economic ideology is also shifting, from a redistributive, regulatory corporatism to something like the old interventionist corporatism.

Disaffected voters are behind both changes. For decades, Americans believed that they were riding a magic carpet of economic growth, owing to advances in science and, later, to the rise of Silicon Valley. In fact, growth in total factor productivity has been slow since the early 1970s. The 1996-2004 Internet boom was only a fleeting departure from the trend.

Over time, as businesses have cut back on investment in response to diminishing returns, growth in labor productivity and hourly wages has slowed, and workers in many households have dropped out of the workforce.

In fact, since 1970, aggregate labor compensation (wages plus fringe benefits) has grown only a little more slowly than aggregate profits have, and average wage growth at the bottom of the income scale has not slowed relative to the “middle class.” But the average hourly compensation of private-sector workers (production and non-supervisory employees) has grown far more slowly than that of everyone else.

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A Good Economy for China

June 17, 2016

NEW YORK – Decades of plodding growth together with the 2008 financial crisis have prompted a seismic shift in economic thinking in much of the world. There is talk of moving resources from investment to consumption, from heavy industry to “services,” and from private sector to public sector. But what strikes me is that these arguments focus only on improving the mix of outputs within an economy, with no attention paid to labor.

This is obvious in the case of China, now the world’s biggest economy by some measures. No doubt, China must reject further investment in hulking steel mills and empty apartment buildings. At the same time, however, it must focus on workers and elevating the experience of their work, which economists from Adam Smith to Karl Marx and Alfred Marshall placed at the center of their concerns.
Not everyone agrees. When it comes to the experience of work, many – especially in continental Europe – believe that optimal allocation (entailing well-functioning institutions), if accompanied by investment in education, is all that is needed. After all, the Italians, Germans, and French work hard and well over a relatively small number of hours, resulting in high hourly productivity and wages – higher than in the United States and the United Kingdom.

Yet continental Europeans do not seem particularly happy with their work.

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Supply Side, Demand Side, or Innovation Side?

May 19, 2016

NEW YORK – It has become impossible to deny the so-called secular stagnation gripping the world’s most developed economies: Wealth is piling up, but real wages are barely rising and labor force participation has been on a downward trend. Worse yet, policymakers have no plausible idea about what can be done about it.
Behind this stagnation is the slowdown in productivity growth since 1970. The wellspring of such productivity gains – indigenous innovation – has been badly clogged since the late 1960s (mostly in established industries) and was even more so by 2005.
Ronald Reagan and Margaret Thatcher viewed the stagnation that was gripping economies by the 1970s from the supply side. They pushed through tax cuts on profits and wages to boost investment and growth, with debatable results.
But today, with tax rates much lower, cuts of that size would result in huge increases in fiscal deficits. And with debt levels already high and large deficits ahead, such supply-side measures would be reckless.
So now the best and brightest view things from the demand side, using the theory built by John Maynard Keynes in 1936. When “aggregate demand” – the level of real expenditure on final domestic goods that households, businesses, the government, and overseas buyers are willing to make – falls short of output at full employment, output is limited to the demand. And innovation won’t happen.

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The Foundations of Greece’s Failed Economy

September 4, 2015

NEW YORK – Too many politicians and economists blame austerity – urged by Greece’s creditors – for the collapse of the Greek economy. But the data show neither marked austerity by historical standards nor government cutbacks severe enough to explain the huge job losses. What the data do show are economic ills rooted in the values and beliefs of Greek society.
Greece’s public sector is rife with clientelism (to gain votes) and cronyism (to gain favors) – far more so than in other parts of Europe. Maximum pensions for public employees relative to wages are nearly twice as high as in Spain; the government favors business elites with tax-free status; and some state employees draw their salaries without actually turning up for work.

There are serious ills in the private sector, too – notably, the pervasive influence of vested interests and the country’s business and political elites. Profits as a share of business income in Greece are a whopping 46%, according to the latest available data. Italy came in second at 42%, with France third, at 41%. (Germany’s share is 39%; the United States’, 35%; and the United Kingdom’s, 32%.) Insiders receive subsidies and contracts, and outsiders find it hard to break in. Astoundingly, young Greek entrepreneurs reportedly fear to incorporate their firms in Greece, lest others use false documents to take away their companies.

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