Business Economics ®- January 2001

To download the entire January issue in one large file right click the link below, and choose Save to Disk. (Due to the large file size, you will have best results downloading the file and saving it, rather than trying to view it online.) Articles can also be viewed individually online or downloaded. All articles are in Adobe Acrobat format (pdf), and selected articles are in HTML, also. To get a free Adobe Acrobat reader, please see the Adobe site. Selected articles, as noted, are available to the public. January 2001 Issue (PDF, 2.3 Mb) (Note: To save the entire issue, or any of the individual articles, directly to disk so that you can view them later, right-click on its link. Then select "Save Target As" in Internet Explorer, and "Save Link As" in Netscape Navigator, in the pop-up menu.) Most articles are available for members only. Non-members can purchase articles at the NABE Document Store online.
	Front Matter -- Masthead, Board of Editors, Guidelines, From The Editor
Alice M. Rivlin	*The Challenges of Affluence* Over the past decade, effective monetary and fiscal policy— plus a long-term trend of deregulation and opening up the economy—has joined technological change in creating unprecedented prosperity. Continuation of prosperity requires continued diligence from policymakers, particularly in not spending the current federal budget surplus through tax reduction or new spending in an era of full employment. In addition to maintaining good macroeconomic performance, we must open up opportunities to those that are not now able to participate in the current affluence— in ways that will enhance rather than destroy the productivity growth that makes affluence possible. This will take a double agenda—a people agenda and a place agenda. The people agenda should focus on making work more rewarding for those struggling to make ends meet on low wages, without undermining either their incentive to work or employers’ ability to hire them. The place agenda involves building thriving communities in places that have been left behind and is even more crucial than the people agenda. (PDF, 390 K)
William T Gavin and Rachel J Mandal	*Forecasting Inflation and Growth: Do Private Forecasts Match Those of Policymakers?* This paper won the Edmund A. Mennis Contributed Paper Award for 2000 sponsored by Greenwood & Associates, Inc. FOMC projections are important because they provide information for evaluating current monetary policy intentions and because they indicate what FOMC members think will be the likely consequence of their policies. Knowing the Fed’s objectives, their forecasts, and recent deviations of the economy from the forecasts should be sufficient to understand how the Fed is making monetary policy. Results here show that the Blue Chip consensus forecasts are a good proxy for the FOMC views. For example, they match the policymakers’ views as closely as the Board staff forecasts presented at FOMC meetings. Using alternative forms of the Taylor Rule, we show that the Blue Chip consensus and the Fed policymakers’ forecasts have almost identical implications for the monetary policy process. (PDF, 415 K) Available to Public
David R. Payne	*Anticipating Monetary Policy with the Federal Reserve's Beige Book: Re-specifying the Taylor Rule* A re-specification of the popular Taylor Rule for monetary policy shows that both manufacturing capacity utilization and an index created from the Beige Book contribute significantly to predicting changes in the federal funds interest rate, more than traditional estimates of deviations from potential GDP. The Beige Book Index is also helpful in predicting revisions to the indexes of leading and coincident indicators, showing that it may initially be the more reliable broad-based indicator. (PDF, 412 K)
Estelle James	*Reforming Social Security in the U.S.: An International Perspective* Social security reform (or its absence) will have important impacts throughout the U.S. economy, including business. This paper describes the multi-pillar social security reform strategy that many countries have adopted in recent years. This strategy includes a public pillar that provides a social safety net; a privately managed, funded pillar that handles peoples’ mandatory retirement savings; and a voluntary pillar for people who want more consumption in old age. The basic rationale is that relying to some extent on pre-funding and defined contribution plans enhances system sustainability and has a positive impact on the broader economy by increasing long term national saving and labor market incentives. The paper contrasts three variations on the multi-pillar model—the Latin American model pioneered by Chile, in which individual workers choose the investment manager for their retirement funds; the OECD model, in which employers are required to provide a retirement plan and (sometimes together with union trustees) choose the investment manager; and the institutional model in which small individual accounts are aggregated into large blocs in order to keep administrative costs low and negotiate better fees. The paper explores the relevance of these experiments in other countries for the social security debate in the U.S. If a small proportion of the current contribution rate to social security were “carved out” and placed in individual accounts that earn a market return, this would help to keep overall benefits at their present level without a tax increase. It would increase the sustainability of the system and, under conditions specified in the paper, would also enhance economic growth. This transition could be financed in many different ways, but use of the budgetary surplus might have the most beneficial impact on growth, while partial reliance on borrowing, with scheduled repayment, would provide the greatest inter-generational equity. (PDF, 89 K)
Dennis W. Carlton	*The Lessons from Microsoft* This paper examines the lessons economists can draw from the Microsoft litigation. The paper explains that the most interesting economic lesson is how strategic behavior involving tie-in sales and exclusionary acts can be used in a dynamic network industry to allow an ini-tial monopolist to remain the monopolist even in the face of rapid technological change. The paper goes on to explore the complications for antitrust policy that Microsoft’s conduct and the proposed remedy in the antitrust case represent. (PDF, 136 K)
Ahmad Faruqui and Ken Seiden	*Tomorrow's Electric Distribution Companies* The electric industry has been dominated by vertically integrated utilities for most of its history. These utilities are being restructured as the electric industry is being deregulated and moves toward competition. Some vertically integrated utilities have sold off their generation assets and are becoming distribution companies that deliver electricity. Some observers contend that such companies will simply provide physical delivery service, that is, they will become “poles and wires” companies that will perform a few basic functions, such as line maintenance and tree trimming. This article shows that such a de minimus view of the future electric distribution company is myopic. Several alternative futures await the creative distribution company of tomorrow. The key to success is choosing that future, which best matches the company’s core competencies. Since electricity supply affects every aspect of the U.S. economy, these choices are likely to have ramifications far beyond the utilities and should be understood by all businesses for which electricity is important in their operations and planning. (PDF, 83 K)
Alan P. Murray	*Has Securitization Increased Risk to the Financial System?* The burgeoning volume of securitizations has generated concerns over risks to the financial system in the form of excessive credit creation, reduced incentives to closely monitor loan assets, enhanced danger from the illusion of liquidity, and handicaps to the efficient implementation of monetary policy. These concerns are misplaced. To the extent securitization increases risk, the problem lies in a failure to achieve in practice what is sought in theory, that is, in a failure to shift the burden of defaults on securitized assets from financial institutions to investors in the manner assumed in accounting and regulatory treatments. (PDF, 36 K)
	Results of the Reader's Survey on Business Economics (PDF, 40 K)
Book Reviews	Marq de Villiers, Water: The Fate of Our Most Precious Resource Joel Slemrod and Jon Bakija, Taxing Ourselves: A Citizen's Guide to the Great Debate over Tax Reform Alexandre Lamfalussy, Financial Crises in Emerging Markets: An Essay on Financial Globalization and Fragility Gerard Roland, Transition and Economics: Politics, Markets and Firms (PDF 46 K) Available to Public
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