The Unassuming Economist

ILO says world heading for a new and deeper jobs recession, warns of more social unrest, in its annual World of Work Report.

In a seminar at the IMF, Tom Sargent said that when he was in graduate school at Harvard in the 1960s, low European unemployment rates “were viewed as a great success and envied” by Americans. John Kennedy’s May 1961 speech to the U.S. Congress, famous today for its rhetoric about the space race (“this nation should commit itself to . . . launching a man on the moon and returning him safely to earth”), was in fact concerned largely with matters much closer to home. First and foremost on the U.S. president’s mind was his country’s high unemployment: “Large-scale unemployment during a recession is bad enough, but large-scale unemployment during a period of prosperity would be intolerable.” The 1970’s and 1980’s, however, saw a reversal in fortunes as European unemployment rates shot up dramatically. Sargent’s seminar examined why this reversal in fortunes came about. Today, as fears are being expressed about America’s labor market becoming Euro-scelerotic, Sargent’s work on unemployment remains highly relevant. 

Featuring the authors: 
     
     Menzie Chinn (University of Wisconsin, Madison; Econbrowser blog)
     
     Jeffry Frieden (Harvard University)
 
Chinn and Frieden explore the origins and long-term effects of the financial crisis in historical and comparative perspective. By 2008 the United States had become the biggest international borrower in world history, with almost half of its 6.4 trillion dollar federal debt in foreign hands. The massive inflow of foreign funds financed the booms in housing prices and consumer spending that fueled the economy until the collapse of late 2008. The authors explore the political and economic roots of this crisis as well as its long-term effects. “The book is capable of dealing with some of the most complicated economic arguments about the crisis in a way that is straightforward and capable of being understood by its audience, says Mike Konczal of the Roosevelt Institute. “If you have time to read only one book on the crisis, read this,” says acclaimed economic historian Barry Eichengreen, University of California Berkeley. 

Discussants:

     Gail Cohen (Joint Economic Committee of the U.S. Congress)

     Diane Lim Rogers (Concord Coalition)

Closing Remarks:

     Simon Johnson (MIT and Peterson Institute; co-author of 13 Bankers)

Moderated by:

     George Akerlof (Senior Resident Scholar, Research Department, IMF; Winner of the 
     2001 Nobel Prize for Economics)

In Lost Decades, Jeffry Frieden and Menzie Chinn argue that fiscal consolidation is a necessary prerequisite for long term recovery; however, “fiscal consolidation too soon can derail the recovery, and plunge us further into debt. In contrast, some commentators have asserted that fiscal consolidation can be accomplished painlessly, or even with immediate benefits (e.g., JEC-Republicans, Rep. Paul Ryan/Heritage Foundation). Recent empirical work which carefully identifies the relevant episodes concludes that such instances of expansionary fiscal contraction are rare, and usually conducted near full employment.” Ball, Leigh and Loungani review the effects of fiscal contraction in “Painful Medicine“.

Read the rest of the story on Econbrowser.