Economists tackle the challenges of a pandemic

Business Economics - The COVID-19 pandemic radically and rapidly changed the world, including the world of business economists. Eight NABE members employed in a wide variety of fields discuss how...     

Boom,slump, sudden stops,recovery, and policy options. Portugal and the Euro

Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low. Because of high debt and low growth, the recovery remains fragile. We review the history and the main mechanisms at work. We then review a number of policy options, from fiscal consolidation to fiscal expansion, cleaning up of non-performing loans, labor market reforms, product market reforms, and euro exit. We argue that at this point, the main focus of macroeconomic policy should be twofold. The first is the treatment of non-performing loans, the second is product market reforms and reforms aimed at increasing micro-flexibility in the labor market. Symmetrically, we also argue that at this point, some policies would be undesirable, among them faster fiscal consolidation, measures aimed at decreasing nominal wages and prices, and euro exit.     

Discovery and social learning in non-priced environments: An Austrian view of social network theory

Our purpose here is to engage in a cross-disciplinary discussion between Austrian economics and social network theory. In particular, we ask what role social networks play in the extended order in regard to both individual discovery and whether social networks can be the source of widespread unintended cooperation among individuals unknown to one another. Although Austrians have examined the function that market prices play in generating social cooperation, such discussions tend to steer clear of non-priced environments, such as interaction within social networks. We seek to explore this gap. While we acknowledge that non-price information feedback mechanisms such as status and reputation lack the calculability so crucial to market coordination, we argue that they can nonetheless mimic other important qualities of market prices and generate widespread unintended social cooperation among people unknown to one another. After a general discussion, we apply these ideas to online philanthropic communities.     

Current and anticipated deficits,interest rates and economic activity

There is a widespread feeling that current deficits, in Europe and the U.S., may hurt rather than help the recovery. This paper examines some of the issues involved, through a sequence of three models. The first model focuses on sustainability and characterizes its determinants. It suggests that the issue of sustainability may indeed be relevant in some countries. The second model focuses on the effects of fiscal policy on real interest rates, and in particular on the relative importance of the level of deficits and the level of debt in determining interest rates. The third model focuses on the effects of fiscal policy on the speed of the recovery. It shows how a sharply increasing fiscal expansion might be initially contractionary rather than expansionary.     

Speculative bubbles,crashes and rational expectations

Self ending speculative bubbles, i.e., speculative bubbles followed by market crashes, are consistent with the assumption of rational expectations. More generally, speculative bubbles may take all kinds of shapes. Detecting their presence or rejecting their existence is likely to prove very hard.     

Entrepreneurial Response to “Bottom-up” Development Strategies in Zimbabwe

Group lending and business training programs aimed at small-scale entrepreneurs have captured the interest of development scholars, practitioners, and donors since the 1980s. Yet these strategies have not had much impact in the context of urban Zimbabwe. Building upon ethnographic research conducted in Harare, Zimbabwe and insights drawn from the Austrian school of economics, the case is made that group lending and business training programs in urban Zimbabwe fail to meet the needs of most informal entrepreneurs because they offer a poor cultural fit with the target population, and because they are rarely able to cultivate entrepreneurial skills such as innovation and market discovery among their clients.     

“Trilemmas”: Characterising the Japanese Concept of “amae” with a Three-Way Forced-Ranking Technique

A ‘trilemma’ procedure is introduced for collecting ‘dominance data’ (i.e. rankings of a set of items along a scale of relevance, preference, etc.). Trilemmas are three-way forced choices where the three items comprising each trilemma are selected on the basis of a multidimensional scaling solution (MDS) for the item set, ensuring that each choice is as stark and informative as possible. A questionnaire designed on this principle is easily understood and rapidly administered. The data are convenient to record and show less fluctuation among informants than existing techniques. We demonstrate the procedure with a set of 45 short generalisations about behaviour, designed for assessing child attachment. A three-dimensional ‘map’ of these items was obtained by applying MDS to multiple sets of similarity data. The same structure emerged from English-language and Japanese translations of the items. Thirty trilemmas based on this map were used to rank the items by degree of association with the Japanese concept of amae, characterising the concept in terms of its behavioural correlates.     

How Well Does the Australian Aged Pension Provide Social Insurance?

Social security plays an essential role in an economy, but if designed incorrectly, it can distort individuals' labour supply and savings behaviour. We explore how well the Australian means‐tested pension system provides social insurance by changing the settings of the system and calculating the impact on welfare. In order to exclude trivial welfare gains, we keep the cost of the programmes constant. We find that the means‐tested pension system is welfare reducing, but does provide a better outcome than a PAYG system of equivalent cost. We also find that if the benefit amount is held constant, and hence the cost of the pension programme is allowed to vary, a taper rate of 1.0 is optimal. However, once we hold the cost of the programme constant, a universal benefit scheme provides the best welfare outcome.