From the Editor
The articles in this issue can be viewed as addressing three broad themes: central bank practices, developments and outlook for Europe and Japan, and health-care policy. The first paper, by Randall S. Kroszner, a member of the Board of Governors of the U.S. Federal Reserve System, addresses the importance of expectations as a cause of inflation. Examining evidence and policy over the past 20 years, he finds that monetary policy exerts a powerful influence in creating an environment such that expectations of low and stable inflation become self-fulfilling.
The second paper, by Gertrude Tumpel-Gugerell, a member of the Executive Board of the European Central Bank (ECB), addresses both central bank practices and financial developments in Europe. She highlights significant recent and ongoing measures to increase the competitiveness and efficiency of European financial markets and the ECB’s role in bringing them about. In particular, she focuses on the importance of financial integration and draws lessons from U.S. experience.
Continuing with Europe, Jörg Decressin examines the causes of the abrupt deceleration of German growth after the 1970s. He finds that much of the problem is embedded in German political institutions, which allow for only slow and incremental adaptation to changing conditions. However, recognition of the need for change and mandates from the European Union are overcoming some of the obstacles to reform.
Japan is another country that experienced rapid post- WWII growth until it hit a wall in the 1990s. It regained its footing in the 2000s under the Koizumi administration. Jun Kurihara analyzes the problems that now face Prime Minister Shenzo Abe, problems that are in many ways more complex than those that deterred growth. These problems will require nuanced solutions to simultaneously maintain both a “beautiful Japan” and healthy economic growth.
Turning to health care issues, Katherine Baicker identifies characteristics of the U.S. federal personal income tax that bias health care insurance choices. These biases make health insurance less affordable for low-income households, essentially making the tax system more regressive than would otherwise be the case. While Baicker’s focus is on the tax system, she also identifies other areas in which reform is necessary to make health care insurance accessible to vulnerable populations and to enable patients and physicians to make informed choices.
It is no secret that Medicare spending is one of the United States’ most pressing public finance problems. It is possible, however, that reforms of some specific aspects of Medicare can generate large savings and provide better care. One such area is the compensation of physicians. Martey S. Dodoo, Robert Phillips, Jr., and Larry Green examine the statutory formulas for physician compensation, which are regularly overridden by Congress. They use simulation to identify the sources of problems with these formulas and recommend alternative payment mechanisms for physician compensation.
In Focus on Industries and Markets, Shawn G. DuBravac examines the U.S. market for television sets, which is over $25 billion and expected to grow at over 13 percent per year in nominal dollars over the next few years. Quality improvement due to digital technology is driving this growth, along with the rapid increase in the availability of functions in addition to traditional program viewing. The result is that sales volume and expenditure per unit are increasing, despite falling real prices.
There are two book reviews in this issue. The first is a review of The Price of Liberty: Paying for America’s Wars by Robert D. Hormats. The reviewer, Gerald D. Musgrave, finds it to be an accessible but thorough and evenhanded discussion and critique of how the United States has paid for past wars and how it is paying for the current conflicts in Iraq and Afghanistan. The second review is of Basic Economics: A Citizen’s Guide to the Economy by Thomas Sowell. The reviewer, Edmund A. Mennis, finds it to be a clear exposition of basic concepts that is free of jargon, formulas, and graphs. The concepts are often brought to life by familiar real-life examples.
Extenuating circumstances prevented contributions to Focus on Statistics and Economics at Work in this issue, but their return is expected for the October issue.
Robert Thomas Crow
rtcrow@comcast.net