From The Editor
“If all the economists were laid end to end, they'd never reach a conclusion.” —George Bernard Shaw
Nowhere is the old Shaw saw more true than in the interpretation of macroeconomic data. Interpretations of the fiscal situation of U.S. federal entitlements programs range from, “Looming crisis!” to “No worries, mate!” The same is true of the U.S. international payments and debt situations and what they mean to business. Interpretations vary because the phenomena are complex; and if we are to converge on a common interpretation, we must improve our understanding of the phenomena. The first three articles of this issue help to illuminate the issues of the U.S. international position, but readers must decide whether anything is resolved and what it means to the businesses they serve. John Kitchen opens with an overview and presents several simulations of the possible future of the U.S. international position and what they imply for the U.S. economy. Matthew Higgins, Thomas Klitgaard, and Cedric Tille (HKT) explore the apparent paradoxes of the U.S. international position that are responsible for disparate interpretations of its importance and implications, concluding— on balance—that the favorable trends are likely to be overwhelmed by the unfavorable ones. One of the topics that HKT explore is the existence and importance of “dark matter”—intangible, hidden assets or services provided by the U.S. economy—a concept developed by Ricardo Hausmann and Federico Sturzenegger. In their paper, they elucidate the concept and take issue with HKT’s conclusion about the importance and sustainability of dark matter and the impact that it will have on the U.S. international position.
Annamaria Lusardi and Olivia S. Mitchell are concerned with the appalling financial illiteracy on the part of individuals. The likely consequences are serious mistakes in major programs and decisions such as retirement planning and mortgage financing. In their paper, they explore how this global problem has been and can be addressed, emphasizing that there are no easy solutions.
Prepayment is a risk faced by mortgage lenders. While they try to account for this risk by embedding it in mortgage terms, it is still likely to affect lenders’ profits. Ling He investigates this proposition and confirms that it does have a statistically significant effect, particularly in periods of widespread refinancing.
Although basic microeconomic theory and the common sense of Everyman implies that gasoline prices would have a significant effect on new vehicle choice, U.S. automakers have downplayed this connection. In his article, Walter McManus offers evidence that the effect of gasoline prices has indeed been significant, showing up most prominently in the erosion of prices for new vehicles.
In the Forum on Emerging Issues, Thomas A. Hemphill reviews the practice of cost-benefit analysis in the federal government and addresses the contention that it tends to favor business interests.In the Focus on Industries and Markets, Kenneth Long and Andrew Gross describe the $100 billion dollar global market for windows and doors and the industry that serves it.
Two books are reviewed. The first, Microeconomics for MBAs: The Economic Way of Thinking for Managers, by Richard B. McKenzie and Dwight R. Lee, is an innovative presentation of traditional subject matter that is likely to be stimulating to professionals as well as students. The second, Leaving Women Behind: Modern Families, Outdated Laws, by Kimberley A. Strassel, Celeste Colgan, and John C. Goodman, “is an eye-opening summary of the dramatic transformation of women and the United States economy,” that emphasizes the extent to which laws and regulations are lagging this transformation and the economic and social consequences of these lags. In this issue, there is no Focus on Statistics or Economics at Work features. I expect that they will return in the April issue.
Robert Thomas Crow
rtcrow@comcast.net