“Why Did Economists Get it So Wrong?” — Eight who got parts of it right

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The Queen of England during the summer asked economists why no one had predicted the credit crunch and recession.   Paul Krugman points out that, inasmuch as economists can almost never predict the timing of recessions (and don’t claim to be able to), the real questions are worse.  The real questions are, rather how macroeconomists (most) could have gotten it so wrong as to believe that:
(i) a severe recession was not even looming ahead as a potential danger, and
(ii) a breakdown of many of the world’s most liquid financial markets, in New York and London, was impossible to imagine. read more

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Top UK regulator supports transactions tax to shrink financial sector

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A year ago, it occurred to me that if the popular blood lust against the financial sector was to be given vent, one could do worse than adopt a small (but global) tax on financial transactions.    On August 27 it was reported that Adair Turner, head of the UK Financial Services Authority, had come out in support of just such an idea, arguing that the financial sector is too large.   The Financial Times editorializes against the proposal, pointing out the importance of the sector to Britain, and arguing that “bonus-bashing is a distraction.”  Willem Buiter is with Turner in believing that the financial sector is too large, but views the transactions tax as the wrong policy tool for the job. read more

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Good News, Finally, in the “Hours Worked” Statistic

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In the July employment report released by the BLS this morning, August 7, the labor market shows its first encouraging signs. Most commentators will focus on the jobs numbers, which show a decline of less than half the rate that the economy experienced in the “freefall period” of late 2008 and early 2009.

Employment tends to lag behind production. For this reason, as readers of this blog will know, my preferred indicator is total hours worked. The latest numbers show that the length of the workweek has begun to rebound from its record low of two months ago. As a result, the BLS reports that total hours worked in the economy did not decline at all in July, for the first time since the financial meltdown of last September. read more

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