Monday, November 13, 2006

Global forces have taken control of the economy.


Mike Mandel who holds a Ph.D. in economics from NYU is one of my favorite macro mind writers. He has written a big think piece in the current issue of Business Week, called: Can Anyone Steer This Economy? The subtitle of the article says it all: “Global forces have taken control of the economy. And government, regardless of party, will have less influence than ever.” Mandel argues that the fiscal and monetary policy levers just don’t work the way they did in the past, and includes a nice chart to show why. U.S. policy makers become comparatively powerless as globalization expands. Washington just doesn’t have the economy under control anymore. I urge you to read the whole article or at least listen to the podcast. Along with the article Business Week Online includes a slide show on “Ten of the Biggest Blunders in U.S. Economic Policy.” Lots of good ideas here for a Discussion Board topic.

Let me share a few pithy quotes from Mandel’s article with you.

Excerpts from: Can Anyone Steer This Economy? By Michael Mandel:

“Sometime next year--perhaps around Christmas 2007, if current trends continue--the U.S. will hit a milestone. For the first time in recent memory, the cost of imported goods and services will exceed federal revenues. In other words, Americans will soon pay more to foreigners than they do to their national government…

No matter which party you belong to, or which Big Idea or school of economic policy you subscribe to, one thing is clear: Globalization has overwhelmed Washington's ability to control the economy. Whether you're a Republican supply-side tax-cutter, a Wall Street deficit hawk of either party, or a Silicon Valley techie type, your preferred levers of economic policy just don't work as well as they once did….
Clearly, education is key to competitiveness. "If an educated population is the engine of change, then we're doing a really, really lousy job," says Claudia Goldin, a Harvard economist who is co-authoring a book about education and technology. "We have been un-subsidizing higher education for some time."

…real wages for young Americans with a bachelor's degree have declined by almost 8% over the past three years. Nobody knows the reason for sure, but some economists suspect that global competition has something to do with it.

The idea of a national economic policy may be fundamentally out of date in a world of global markets. Washington is no longer the center of the economic universe.”

Extra Credit: Imports account for what percentage of U.S, GDP? Foreign money finances what percentage of U.S. domestic investment? The answers can be found in Can Anyone Steer This Economy? If you are the first student to send me an e-mail (kwoodward@saddleback.edu) with the answers, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions.

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