The latest spate of banking problems in Italy highlights the rather remarkable truth that governments have enormous difficulties dealing with banking crises. This situation prevails despite decades of experience on what not to do and what works in terms of bailouts. The Italian crisis has all the classic symptoms of poor banking practices, weak supervision and uncomfortable options when things go bad. Read More >>
Alan Blinder at a recent LEAD Conference at Georgetown University said that the U.S. report card should be marked, “needs improvement,” next to both “growth” and “sharing of income gains.” In what he calls “a horribly muddled debate,” Blinder reminds us that growth is demand-driven in the short run and supply-driven in the long run. This is an important dichotomy to keep in mind, although how government produces short-term inducement. Since the U.S.
The plight of the U.S. economy has been variously described as a consequence of prolonged over spending and under saving, poorly conducted monetary policy and abysmal regulation, or increasing entitlements combined with tax avoidance. There is truth in each of these criticisms, and yet, the economic challenges facing the world’s largest economy are eminently solvable. So what is preventing this?
State capitalism is capturing a great deal of attention as state-dominated East Asian economies outperform Western economies. A surprising number of the world’s largest corporations are now state-owned and many have strategic market objectives that are actively assisted by the power of the state. Of course, the strong points of East Asian development have long been recognized: high savings rates, hyper-investment in education and infrastructure, and a strong planning role for the state. Many commentators extol the virtues of Asian capitalism and predict the demise of alternatives.
One cannot help but wonder whether Europe’s policymakers have internalized any of the lessons from developing and emerging economies that have faced macro-financial difficulties in the past. If they had learned some of these valuable lessons, the cost of the current bailout of EU members and the likely duration of the associated economic and political pain could have been shortened.
Few doubt that the global economic order has shifted in the aftermath of the Great Recession. After all, the advanced economies are struggling as can be seen in their slow-growth recoveries and major challenges.