The big ideas for macroeconomics in 2014 will be micro in nature. Changes in the economic structures will be the big drivers of change. Forget aggregate demand we want some "small ball" not the "long ball" for those that follow baseball.
We understand that when workers are unemployed for longer periods their skills decline. It is harder to find the next job. Unemployment insurance that extends for longer period actual hurt workers. There news to be retraining and a quick turn-around. hence, there needs to be incentives of companies to higher.
Small businesses are the largest creators of jobs, yet when regulator increases small business are squeezed. They do not have the scale to deal with more regulation. Higher more compliance officers is not going to get us to full employment.
Targeted subsidies do not work because the government cannot predict the next success. Temporary tax cuts do not work because businesses realize that they are temporary. How about some forward guidance on tax policy? This is supposed to be the savior of monetary policy; consequently, it should work for the fiscal side too. Unfortunately, providing forward guidance that your taxes will go up is not helpful. It is the uncertainty that is an issue.
Infrastructure matters. Pension benefits not as much. Without sounding hateful, Detroit needs new roads and infrastructure more than paying pensions. Is their a social contract to provide infrastructure like the contracts for pensions?
Banks will be less important to the global economy. Earnings will decline because more capital is needed. This will take a toll on the economy as delevering continues, so other financing avenues have to be developed.
Finance will be more important if banks are not going to provide it, but regulators and banks want to close the shadow banking system. Shouldn't we want to develop alternative financing mechanisms that match borrowers and creditors? Savings have to find a better more efficient home. This adds to productivity.
The fight against financial repression. The global economy is not going to improve with more capital controls and limits on rates. How is zero rates helping the process? What are the appropriate returns on capital relative risk when the risk free rate is negative?
The end of floating exchange rates is not a good thing. Rates are more controlled by central banks. How does this help the global economy. Yes, there is less volatility but prices do not reflect reality. How does controlling prices help?
I am a global macro guy but see the need to focus on micro issues.
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