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631. What lessons from the 1930s?

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper explores three areas in which the experience of the Great Depression might be relevant today: monetary policy, fiscal policy and the systemic stability of the banking system. We confirm the consensus on monetary policy: deflation must be avoided. With regard to fiscal policy, the picture is less clear. We cannot confirm a widespread opinion according to which fiscal policy did not work because it was not tried. We find that fiscal policy went to the limit of what was possible within the confines of sustainability, as they existed then. Our investigation of the US banking system shows a surprising resilience of the sector: commercial banking operations (deposit-taking and lending) remained profitable even during the worst years. This suggests one policy conclusion: At present the authorities in both the US and Europe have little choice but to make up for the losses on 'legacy' assets and wait for banks to earn back their capital. But to prevent future crises of this type, one should make sure that losses from the investment banking arms cannot impair commercial banking operations. At least a partial separation of commercial and investment banking thus seems justified by the greater stability of commercial banking operations.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States and Europe

632. The Effect of Wage-Payment Reform on Workers' Labor Supply and Welfare

Author:
Esther Redmount, Arthur Snow, and Ronald S. Warren Jr.
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Department of Economics and Business, Colorado College
Abstract:
We analyze the effects of a largely ignored 1885 legislative reform in Massachusetts requiring that firms provide workers the option of receiving weekly wage payments. Using an inter-temporal model of deferred compensation, we derive conditions on elasticities of labor supply that determine the effects of the reform on workers' effective wage and utility. We then examine empirically the effects of the reform, using weekly data on mill workers in Lowell. Given the implications of our theoretical analysis, the empirical findings of positive wage and reform elasticities imply that the switch to weekly payment increased workers' effective wage and well-being.
Topic:
Economics, Markets, and Labor Issues
Political Geography:
United States

633. Determinants of Recent Online Purchasing and the Percentage of Income Spent Online

Author:
Kristina M. Lybecker and Brendan Hannah
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Department of Economics and Business, Colorado College
Abstract:
The recent stagnation of electronic commerce highlights the need to understand contemporary online consumer behavior. This study incorporates current user demographics and emerging Internet activities to dynamically model the determinants of two key measurements of recent online shopping, a purchase within the last year and the novel dependent variable, percentage of income spent online in the last three months. Logistic regression is applied to a nationally representative 2007 survey of the U.S. online population. Determinants of a recent online purchase include, ownership of a credit card, an online payment account (PayPalTM), listening to podcasts, participating in online auctions, and for the first time, female gender. In a second regression, positive determinants for the percentage of income spent online include male gender, educational attainment, online auctions, instant messenging and online dating. Online spending increases with time online and appears to compete with other forms of online entertainment and social networking.
Topic:
Economics, Gender Issues, Markets, and Science and Technology
Political Geography:
United States

634. Vanishing Third World Emigrants?

Author:
Jeffrey G. Williamson and Timothy J. Hatton
Publication Date:
02-2009
Content Type:
Working Paper
Institution:
Weatherhead Center for International Affairs, Harvard University
Abstract:
This paper documents a stylized fact not well appreciated in the literature. The Third World has been undergoing an emigration life cycle since the 1960s, and, except for Africa, emigration rates have been level or even declining since a peak in the late 1980s the early 1990s. The current economic crisis will serve only to accelerate those trends. The paper estimates the economic and demographic fundamentals driving these Third World emigration life cycles to the United States since 1970-the income gap between the US and the sending country, the education gap between the US and the sending country, the poverty trap, the size of the cohort at risk, and migrant stock dynamics. It then projects the life cycle up to 2024. The projections imply that pressure on Third World emigration over the next two decades will not increase. It also suggests that future US immigrants will be blacker and fewer will speak Spanish.
Topic:
Demographics, Economics, Migration, and Third World
Political Geography:
Africa and United States

635. The Political Economy of Heterogeneous Development: Quantile Effects of Income and Education

Author:
Marcus Alexander, Matthew Harding, and Carlos Lamarche
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Weatherhead Center for International Affairs, Harvard University
Abstract:
Does development lead to the establishment of more democratic institutions? The key to the puzzle, we argue, is the previously unrecognized fact that based on quantitative regime scores, countries over the past 50 years have clustered into two separate, very distinct, yet equally-common stages of political development—authoritarian states with low levels of freedom on one side an d democracies with liberal institutions on the other side of a bimodal distribution of political regimes. We develop a new empirical strategy—exploiting exogenous world economic factors and introducing new panel data estimators—that allows for the first time to estimate the effects of development as well as unobserved country effects in driving democracy at these different stages of political development. We find that income and education have the least effect on democracy when authoritarian regimes are consolidated and that only country effects, possibly accounting for institutional legacies, can lead to political development. Ironically, it is in highly democratic and wealthiest of nations that income and education start to play a role; however greater wealth and better educated citizenry can both help and hurt democracy depending again on what the country's institutional legacies are. Far from accepting the notion that much of the developing world is cursed by unchanging and poor long-run institutions, policy-makers should take note that with democratization we also see country-specific factors that in turn condition the difference income and education make for democracy.
Topic:
Democratization, Development, Economics, Political Economy, and Third World
Political Geography:
Africa, United States, China, Asia, and Germany

636. Reinforcing Treasury's Strategic Roles in International Affairs and National Security

Author:
Jeremiah S. Pam
Publication Date:
09-2009
Content Type:
Working Paper
Institution:
United States Institute of Peace
Abstract:
At this time of the U.S. Treasury's Department's extraordinary prominence in domestic affairs, it is possible to overlook the critical functions that the Treasury performs in U.S. international policy. This would be a significant oversight at any time, as Treasury has long made more international contributions, of greater importance to U.S. policy, than has often been widely understood. It is even more of an oversight in the post-9/11 international environment, which has presented new challenges that have sorely tested many of the United States' more well-known foreign policy and national security institutions.
Topic:
Security, Economics, International Affairs, and Financial Crisis
Political Geography:
United States

637. Harnessing the Financial Furies: Smart Financial Power and National Security

Author:
Juan C. Zarate
Publication Date:
10-2009
Content Type:
Journal Article
Journal:
The Washington Quarterly
Institution:
Center for Strategic and International Studies
Abstract:
Economic sanctions have long been the national security tool of choice when neither diplomacy nor military force proves effective or possible. This tool of statecraft has become even more important to coerce and constrain the behavior of non-state networks and recalcitrant, rogue regimes which often appear beyond the reach of classic U.S. power or influence. The challenge is often how to use power to affect the interests of regimes that are likely immune to broad effects of sanctions on their populations.
Topic:
Economics
Political Geography:
United States

638. The Gloomy Prospects for World Growth

Author:
Steven Dunaway
Publication Date:
09-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
The seeds of the current economic and financial crisis were sown by economic policies of the major countries that fostered the growth of global imbalances during the 2000s. Consequently, an essential element in any assessment of prospects for world economic recovery and the pace of future growth has to factor in exactly how these imbalances are likely to unwind—or fail to be resolved—in the period immediately ahead.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States

639. Economic Conditions and U.S. National Security in the 1930s and Today

Author:
Martin S. Feldstein
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
This paper comments on the experience of the U.S. economy in the 1930s, its lessons for managing the current economic downturn, and the relation of U.S. economic conditions to our future national security. Some of the conclusions are: (1) Although the current recession will be long and very damaging, it is not likely to deteriorate into conditions similar to the Depression of the 1930s. Policy makers now understand better than they did in the 1930s what needs to be done and what needs to be avoided. (2) The focus on domestic economic policies in the 1930s and the desire to remain militarily neutral delayed the major military buildup that eventually achieved the economic recovery. (3) A well-functioning system of bank lending is necessary for economic expansion. We have yet to achieve that in the current situation. (4) Raising taxes, even future taxes, can depress economic activity. The administration's budget proposes to raise tax rates on higher income individuals, on dividends and capital gains, on corporate profits and on all consumers through the cap and trade system of implicit CO2 taxes. (5) Inappropriate trade policies and domestic policies that affect the exchange rate can hurt our allies, leading to conflicts that spill over from economics to impair national security cooperation. Reducing long-term U.S. fiscal deficits would reduce the risk of inflation and thereby reduce the fear among foreign investors that their dollar investments will lose their purchasing power. (6) The possibilities for domestic terrorism and of cyber attacks creates risks that did not exist in the 1930s or even in more recent decades. The scale and funding of the FBI and the Department of Homeland Security is not consistent with these new risks.
Topic:
Economics, International Trade and Finance, Terrorism, and Financial Crisis
Political Geography:
United States

640. How Urban Planners Caused the Housing Bubble

Author:
Randal O'Toole
Publication Date:
10-2009
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Everyone agrees that the recent financial crisis started with the deflation of the housing bubble. But what caused the bubble? Answering this question is important both for identifying the best short-term policies and for fixing the credit crisis, as well as for developing long-term policies aimed at preventing another crisis in the future.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States, California, and Georgia