Stephen Gordon, an economics professor at Universite Laval in Quebec City compares the path of consumer net worth, assets and liabilities in the U.S. versus Canada since 1991. I agree with his point that a very big part of the problem the U.S. is facing is the huge loss of wealth due to the implosion of the housing bubble. There are several very interesting graphs that are worth looking at closely just with respect to the U.S. and the differences in the trends north of the boarder are also interesting.
Paul Krugman, Nobel Laureate, New York Times columnist and Princeton Professor has a paper on the relevance of the writings of Keynes to today’s economic situation presented to a conference marking the 75th anniversary of the publication of Keynes’ seminal “General Theory.” While a bit on the long side, it is not overly technical and I highly recommend reading it. Policy makers seem to be making the exact same mistakes they made in the 1930’s and seem to have bought into the same economic fallacies that Keynes debunked 75 years ago.
"The Deficit, Real vs. Imagined"
David Leonhardt, New York Times business columnist, has an excellent article on Federal Spending and the deficit. I have one quibble with it. He mentions that the Social Security system was set up when people only lived to about 70. True enough, but most of the increase in life expectance at birth has come from declines in infant mortality, not from an increase in life expectancy at age 65, which is what really matters to Social Security.
"How to Become Virtuous and Save More"
Michael Pettis, Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University and China Financial Markets blog argues: “When entire counties have abnormally high or low savings rates, individual preferences are never the reason. Abnormally high or low savings rates are almost always caused by trade, industrial or tax policies at home and abroad that distort the relationship between consumption and production.” I tend to agree.
One of the most important imbalances in the World economy is the very high savings rates in China and a low U.S. savings rate, driving the persistent trade imbalance between the world’s two largest economies. Just raising the savings rate here though is not the answer as an increasing savings rate slows the pace of economic growth.
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