Business Economics
July 2009, 44, doi:10.1057/be.2009.
ISSN: 0007-666X | EISSN: 1554-432X
Business Economics is a refereed journal that serves as an essential resource and provides practical information for people who apply economics in their jobs.
From the Editor
Robert Thomas Crow Editor
Business Economics (2009) 44, 129. doi:10.1057/be.2009.20
In Memoriam: Edmund A. Mennis
Gerald L. Musgrave
Business Economics (2009) 44, 130–131. doi:10.1057/be.2009.21
Ed was a friend of business economists and a staunch supporter of NABE. He was a member of our association from its inception in 1959. He was elected as a Fellow of NABE in 1961 and served on the Board of Directors from 1966 to 1969. He served as editor of Business Economics from 1985 to 1999 and became editor emeritus in 2000. In 1996, he was awarded the David L. Williams Lifetime Achievement award for his many contributions to the organization. Beginning in 1999, the Edmund A. Mennis Contributed Paper Award is presented in his honor.
Fiscal Policy and Economic Recovery
Presented at the National Association for Business Economics 25thCF1 Annual Washington Economic Policy Conference, March 3, 2009.
Christina D Romer
Business Economics (2009) 44, 132–135. doi:10.1057/be.2009.14
The American Recovery and Reinvestment Act of 2009 is the biggest, boldest countercyclical fiscal stimulus in American history. What is its likely impact? Current econometric models indicate that a tax cut is likely to have a multiplier of about 1.0 and that spending has a multiplier of about 1.6 after about 18 months. Even the most sophisticated econometric analysis, however, suffers from "omitted variable" bias. In trying to take account of this, David Romer and I have found that the tax multiplier is more likely to be around two to three; and we suspect that the spending multiplier is correspondingly higher than the conventional estimates. Of course, every recession is different. The unique factors of this recession are analyzed to determine whether the multipliers are likely to deviate from historical averages.
Keywords: fiscal policy, economic recovery, multiplier, financial crisis, budget deficits
Government Lending and Monetary Policy
Jeffrey M Lacker
Business Economics (2009) 44, 136–142. doi:10.1057/be.2009.12
The financial dimension of the current contraction has brought a historic expansion in government lending to financial market participants, mostly through an expanding array of Federal Reserve (Fed) initiatives. This contrasts with the Fed's typical response to recent recessions that has been limited to adjustments of the target Fed funds rate. Restrictions on credit supply and declines of creditworthiness have both contributed to the contraction in lending, although the latter cause has probably been underestimated relative to the former. Fed and other government lending programs have targeted particular sectors, altering the allocation of credit across markets. Also, targeted credit programs contribute to the moral hazard problem inherent in the provision of government-funded credit or guarantees. An alternative approach to monetary policy where the Fed funds target is essentially zero is purchasing Treasuries, which is likely to have little effect on the relative credit spreads on different financial instruments. However, given that targeted lending has taken place, it is critical that regulatory mechanisms be installed so that government regulation matches the scope of government support. Also, targeted lending by the Fed is in effect fiscal policy. Is this a legitimate role for a central bank, or should such lending be subject to legislative approval, with the Fed's role limited to monetary stability?
Keywords: government lending, monetary policy, financial regulation, credit allocation
Four Long-Term Fiscal Realities
Alan D Viard
The United States faces a long-run fiscal imbalance because of rapid projected growth in Social Security, Medicare, and Medicaid spending. The policy response to the imbalance will be shaped by four long-term fiscal realities. First, revenue will rise as a share of GDP. Second, entitlement spending will be reduced, relative to current policies. Third, the middle class, broadly defined, will bear much of the burden of addressing the fiscal imbalance. Fourth, consumption taxation is likely to become a significant part of the federal tax system, probably through the partial replacement of the income tax by a value added tax.
Keywords: fiscal imbalance, consumption taxation, entitlements, tax policy
Trade Policy and the Obama Administration
Presented at National Association for Business Economics 25th Annual Washington Economic Policy Conference. March 2, 2009.
Jeffrey J Schott
Business Economics (2009) 44, 150–153. doi:10.1057/be.2009.15
During his primary campaign, President Obama took an aggressive stance on trade, suggesting a protectionist drift in U.S. trade policy. However, it seems more likely that policy will focus more on enforcement of existing rights than on protectionist initiatives. The major influences on trade policy are likely to be multilateral approaches to trade problems, broad foreign policy concerns, the impact of trade policy on recovery from the current recession, and global climate change initiatives. Holdover initiatives on the World Trade Organization's Doha round and bilateral agreements will be joined by global climate change as the principal policy issues for the next few years.
Keywords: trade policy, protectionism, obama administration, world trade organization, bilateral agreements, global climate change
Globalization of the U.S. Food Supply: Reconciling Product Safety Regulation with Free Trade
Thomas A Hemphil
lBusiness Economics (2009) 44, 154–168 doi:10.1057/be.2009.18
The pet food recall in the spring of 2007, its aftermath, and other reports of contaminated food imports have had an adverse affect on the American shopper's confidence in the safety of the nation's food supply. This paper argues that the responsibility for ensuring that imported food entering the United States is safe must be shared by the public and private sectors. The limited resources of public regulation need to be focused on high-risk, imported food products from countries that have weak export food safety regimes. Furthermore, public regulation must emphasize private sector incentives encouraging implementation of state-of-the-art food safety management programs.
Keywords: globalization, food supply, regulation, trade, food safety
World Mining Machinery
Michael A Deneen and Andrew C Gross
Business Economics (2009) 44, 169–176. doi:10.1057/be.2009.2
This article is based on World Mining Equipment (#2308), a detailed study carried out at The Freedonia Group (2008).
Economics at Work
An Economist's Role in Disaster Mitigation at FEMA
Keith Burbank
Bus Econ 44: 177-181; doi:10.1057/be.2009.17
Book Reviews
Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis
By John Taylor
Reviewed by Jerry H Tempelman
Bus Econ 44: 182-183; doi:10.1057/be.2009.16
Capital Ideas Evolving
by Peter Bernstein
Reviewed by Robert A McLean
Bus Econ 44: 183-184; doi:10.1057/be.2009.19
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