Stop the Draft!

Gerald Epstein

It’s time to stop the draft.

I know: the military draft effectively ended in 1973.

But even if the government is no longer conscripting the youth into the Army, our young people are subject to a draft nonetheless: they are now being sent in droves into the “reserve army of the unemployed”.

And with the economic collapse, they are facing high odds that their number is going to come up.

According to the latest figures,  18.1 percent of young people between the ages of 16 and 24 are unemployed. But, as with the Vietnam War era draft, different groups face radically different chances of being drafted.  Black and Hispanic youth have an unemployment rate of 31% and 20% respectively, while white youth face a high rate of 16%.

Read the rest of this entry »

The sound (finance) and the fury

Matías Vernengo

The current policy consensus in the developed world (i.e. the United States and Europe) seems to be that fiscal austerity (the euphemism used these days is consolidation) is necessary.  Christine Lagarde, the new Managing Director of the International Monetary Fund (IMF), said recently in the Financial Times that: “fiscal adjustment must resolve the conundrum of being neither too fast nor too slow.”

That is what she refers to as “Goldilocks fiscal consolidation,” that is, cut spending and increase taxes, but slowly please!  She repeated this view in her talk at the Jackson Hole conference, arguing that in order to obtain “credible” consolidation governments must implement: “measures that change the rate of growth of entitlements, health or retirement.”  In other words, cut spending and increase taxes fundamentally on social programs that benefit overwhelmingly the poor.

Read the rest of this entry »

What if Equilibrium Never Existed? The Crisis in Economic Theory

Alejandro Nadal

When Arrow and Debreu published their famous proof of the existence of competitive equilibrium in 1954 their work was met with extraordinary praise. In fact, approbation was so intense that there was hardly any substantive criticism of the paper. Not a good omen. But then again, who needs to cast doubts when you want to have faith?

The existence question is not only a technical question (i.e., finding out if a system of equations has a solution). In the grand narrative of market theory, the issue of existence of equilibrium is relevant because it concerns the reference point towards which disequilibrium prices (and allocations) are supposed to converge. The idea of market forces leading an economy to a point of equilibrium would be meaningless without certitude about the existence of the promised land.[i] In macroeconomic theory, this is so important that in some extreme cases (i.e., dynamic general equilibrium models), it is assumed that the economy is always in an equilibrium position.[ii]

Read the rest of this entry »

Iceland has Stabilized, but Growth is Elusive

Robert Wade and Silla Sigurgeirsdottir, guest bloggers

Amid the swirling European crisis, there is some modest good news from one small corner. Iceland, having abruptly transmuted from “Nordic Tiger” to “National Bankrupt” in October 2008, when the collapse of the country’s three mega-banks put them into  Moody’s league of the eleven biggest financial collapses in history, is now seeing the beginnings of a recovery.

The economy (population 310,000) experienced the third biggest fall in output and the fourth biggest fall in employment among the 30 OECD countries. The contraction stopped in late 2010, at 11% below the peak in the first quarter of 2008. Real GDP is expected to grow by just over 2% in 2011 and a little higher in 2012.  Thanks to increases in welfare spending, only 14% of the population say they are finding it “very difficult” to make ends meet, well below the EU average.  The government reentered global capital markets in June 2011, when it sold $1bn worth of bonds at a spread of  3.2 percentage points above LIBOR,  which testifies to the credibility of the stabilization program  in the eyes of financial markets.

Read the rest of this entry »

The Colombia FTA: Only Corporations Win

Matías Vernengo

Trade has been a contentious issue in U.S. politics for a very long while. In recent times, free trade agreements have been promoted as essential by the cheerleaders of globalization, and as a threat to good jobs with decent wages and benefits by those who are skeptical about the advantages of the global economy. President Obama, a man of broad views, seems to represent both opinions. On February 12, 2008, candidate Obama made the following argument on this issue:

“It’s a game where trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart. That’s what happens when the American worker doesn’t have a voice at the negotiating table, when leaders change their positions on trade with the politics of the moment, and that’s why we need a President who will listen to Main Street—not just Wall Street; a President who will stand with workers not just when it’s easy, but when it’s hard.”1

Read the rest of this entry »