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| Tom Sargent, Professor of Economics, New York University, Senior Fellow, Hoover Institution, Stanford, CA, and President of the American Economic Association, 2007 |
Current Issues in Economics
Economists study changes occurring in specific countries or individual sectors of an economy; some ask fundamental questions about the nature of economic decisions; some address proposals to change government policies.
Economists address most of the issues in the headlines of newspapers and magazines. In fact, they sometimes generate headlines. Other sources of headlines come from current political debates as well as the actions of entrepreneurs, trade groups, businesses, and labor unions as well as public officials. Leading economists develop issues in two lectures sponsored by the American Economic Association at its annual meeting. The address of the President of the Association and an invited lecture called the Ely Lecture, named for a founder of the Association, discuss issues of the speakers' choice. More economists define their own issues in symposia where they present their work. The symposia sometimes address more focused topics than the newspaper headlines and also develop deeper understanding of economic phenomena. Economists from all over the world present their latest research at the Annual Meetings of the American Economic Association and economic agencies publish annual reports that discuss significant issues for the nation and the world.
Headlines
Here are examples of continuing newspaper storylines with economic content.
What Will the Fed Do Now? Major newspapers track economic activity, unemployment and inflation rates, and report the actions of the Federal Reserve as well as the stock market. Is inflation at too high a level, justifying monetary restraint? Is economic activity ebbing, justifying an expansionary monetary policy? Economists are responsible for methods of measuring economic activity and designing and evaluating monetary policy. Monetary economists continue to study the policies of central banks and measurements of employment, production, and prices.
Do Hedge Funds Need Regulation? News from the financial pages sometimes make headlines. Will higher interest rates restrain increases in stock prices? Financial economists study developments in financial markets and recently exposed the problem of post-dating stock options by executives.
Is Saving and Investing More Important than Education and New Technology in Pushing Economic Growth? News stories often raise concerns about the fundamentals of economic growth. Is the standard of living rising? What causes productivity, that is, output per worker, to increase? Economists have increased our understanding of the sources of growth and provide careful measurement of the role of changes in technology, improved education, savings and investing, and effective government. These insights are relevant to the US and the other industrial countries as well as to the third world.
Why Has the Price of Gasoline Increased So Quickly? The recent rapid increase in the price of crude oil, gasoline, and other energy products generates continuing public attention. Are accelerating world demand and shrinking supplies causing the increase in prices? To what extent are suppliers artificially limiting supplies to increase profits as occurred in the 1970s? How has the occupation of Iraq affected supplies? Energy economists have developed measures of supply and demand that account for how consumers and producers respond to higher prices over time. A related issue is the failure of deregulation in the electricity industry in California and elsewhere.
Can We Afford to Reverse Global Warming? Dependence on fossil fuels has consequences for the environment and global warming. Economists have played a significant role in designing environmental policies to achieve cleaner air at lower cost. As concern about global warming increases, economists will focus their attention on the policy choices.
Why did the Doha Round Collapse? The latest round of diplomacy to lower tariffs, quotas, and other barriers to international trade has yielded little. The dramatic increase in the price of oil has put pressure on importing nations. A significant share of the merchandise sold by Wal-Mart is imported from China. Many firms operate customer service centers in India. Even in agricultural products, a historically strong source of US exports, the US exported only $3.7 billion more than it imported in fiscal 2005. The US ran a deficit of over $60 billion in trade in goods and services in 2006. Who benefits from trade and who loses? International economists have explored the causes and consequences of international trade and evaluate policy alternatives.
Can Microcredit Reduce Poverty? In 2006, Mohammed Yunus won the Nobel Peace Prize for his initiative in creating a bank that makes very small loans to very poor villagers with no collateral. Professor Yunus received his PhD in economics at Vanderbilt in 1971 and developed the Grameen Bank in Bangladesh in the 1970s. In 2006, the Bank had 6 million borrowers, had lent $6 billion (US) from its depositors, and enjoyed a high rate of repayment. Even beggars may borrow at the Grameen Bank. Access to credit even on a very small scale can improve the circumstances of millions of very poor people.
Large Airlines Restructure The continuing evolution of the airline industry is an example of many stories about specific industries. The deregulation of the airline industry in 1978 was the result of analysis by economists. Air travel is now much lower in cost and the airlines face continuing competitive pressures to control cost and modify service to maximize profit. New airlines enter the industry. Established airlines adjust their operations and cost structures. Other countries have moved to deregulate their airlines as well.
More Than One Child in Six Is Poor In 2003, 17.6 percent of the children under 18 years of age in the US lived in poverty. In 1970, 14.9 percent of children under 18 lived in poverty. Economists play a continuing role in exploring the sources and consequences of poverty and the effect of alternative public and private programs that are designed to aid the poor. Family formation, pre-K education, access to education and health care, the location of housing and employment, and the Earned Income Tax Credit are examples of issues that affect the poor.
Does Spending More on Health Care Make Us Healthier? Many headlines and a significant issue in many political campaigns is the high cost of medical services. As the large baby boom generation grows into old age, demand for health care will rise. The introduction of a prescription drug plan as part of Medicare was a significant expansion of government support for health care. Health care is much more expensive in the US than in other countries yet Americans are not healthier. Health economists look at incentives for physicians, patients, hospitals, and insurance companies created by various ways of organizing and financing medical services.
Whose Ox Will Be Gored by Tax Reform? The design of the tax system is a continuing issue for every level of government. Should the personal income tax carry a bigger share of government or should we shift to some form of sales tax? How much tax should be borne by owners of businesses and other wealth? Economists play a leading role in identifying the consequences of alternate forms of taxation and proposing changes.
Will Violent Crime Rates Increase? Stories about crime are a continuing fascination for the reading public. Economists ask about causes and consequences. Do criminals respond to incentives? (Yes.) Does the level of criminal activity fall when the government spends more on police, courts, and prisons? (Yes, but perhaps not as much as one might think.) Do other changes in the social context influence the level of crime. (Yes, perhaps more than one might think.)
Who Benefits from New Municipal Sports Palaces? Much of the discussion on the sports pages is about the rate of pay of athletes reflecting salary caps, free agency, and contract negotiations with occasional strikes. The subsidies governments provide to professional sports and assessments of who benefits and who loses are economic issues. Do teams that spend more, win more frequently? How can a professional team with a perennially poor win-loss record continue to attract fans?
Nearly Three Billion People Live on Less than $2 per Day (Fortunately, it’s not the same $2.) Of the 6.4 billion people on the planet in 2006, about 44 percent have less than $2 per day per person to sustain their lives. The movie, The Gods Must be Crazy, shows the Bushmen of the Kalahari who have no income; indeed they are hunter/gathers with no concept of money. Billions of people, however, live on the margins of modern societies who engage the modern world but benefit little from it. In fact, many seem to be exploited. The books by Sachs and Easterly mentioned on the popular books page, are the latest to explore the problem of global poverty and to weigh public policies that might improve matters.
What are the Economic Effects of Terror? Terror influences the development of third world countries, the market for insurance for people and buildings, expenditures on police and defense, and regulation that limits money laundering. There is a continuing concern for the varied economic effects of terrorism.
Lectures
Sir Nicholas Stern of HM Treasury, United Kingdom, gave the annual Richard T. Ely Lecture at the AEA Annual Meetings in New Orleans, January 4, 2008.
Sir Nicholas is the author of the Stern Report on global climate change. His talk discussed the importance of carefully devised economic policies to reduce the likelihood of significant economic decline worldwide due to the accumulation of greenhouse gases. The lecture will appear in the May 2008 issue of the American Economic Review.
Thomas J. Sargent, New York University, gave the Presidential Address at the AEA Annual Meetings in New Orleans, January 5, 2008.
The address will appear in the May 2008 issue of the American Economic Review. “Intelligent Design and Evolution” discusses the evolution of monetary policy over a millennium, providing context for the theory of rational expectations in the choice of monetary policy by central bankers.
Lars Hansen of the University of Chicago gave the annual Richard T. Ely Lecture at the AEA Meetings in Chicago, January 5, 2007.
"Beliefs, Doubts and Learning: The Valuation of Macroeconomic Risk" will appear in the May, 2007 issue of the American Economic Review. Professor Hansen presents a framework for identifying the role of statistical ambiguity in macroeconomic models. Statistical ambiguity affects both how decision makers understand the environment in which they make decisions and how econometricians measure macroeconomic behavior.
Professor George A. Akerlof of the University of California Berkeley gave the Presidential Address at the Chicago Association meetings, January 6, 2007.
"The Missing Motivation in Macroeconomics" will appear in the March, 2007 issue of the American Economic Review. Professor Akerlof identifies five theoretical regularities in macroeconomics that follow from standard assumptions about rational behavior in pursue of absolute levels of well-being. Each theoretical regularity, however, is inconsistent with available evidence. He suggests instead that consumers assess their own positions relative to social norms. This alternative view of consumers’ goals will allow well-defined theory to more accurately represent observed behavior.
Professor Claudia Golden of Harvard University gave the annual Ely Lecture at the American Economic Association Meeting in Boston, January 6, 2006
"The Quiet Revolution that Transformed Women's Employment, Education and Family" appears in the American Economic Review in 96 #2 (May 2006) pp. 1-21. The essay describes the dramatic change in the role of women in the U.S. economy over the last century.
Professor Daniel McFadden of the University of California Berkeley gave the Presidential Address at the Association Meeting in Boston, January 7, 2006
"Free Markets and Unfettered Consumers" American Economic Review, 96 #1 (March 2006) pp. 5-29. The essay discusses the launch of the prescription drug benefit under Medicare Part D.
Symposia
2008
JEP Symposia Winter 2008
Productivity
Productivity, the relationship of inputs to outputs, has important consequences for changing standards of living. What accounts for differences in productivity over time and across countries?
Regulatory Economics
How well does economic analysis developed by regulatory agencies inform the design and implementation of government regulatory processes? The symposium provides some ideas for improvements with specific analysis of the Food and Drug Administration and the Federal Communications Commission.
2007
JEP Symposia Fall 2007
Monetary Policy
How should central banks around the world manage the supply of money in each country? Should they follow rigid rules or exercise discretion, focus strictly on controlling the rate of inflation or weigh other goals as well, use specific numbers from a formal macroeconomic model or allow less formal evidence to be of influence?
Human Resource Management
What rates of pay and managerial practices promote job satisfaction and worker performance? When should rewards be tied to group performance and when to individual results? What is the interplay of monetary and non-monetary rewards?
JEP Symposia Summer 2007
Organ Transplants
With the increasing success of transplants of kidneys, livers, and other organs, the demand for organs has grown faster than supply. Many people who would like to receive organs stay in queues for several years before gaining access. Would more organs be available and the nation ’s health improved if cash payments to donors were allowed? The symposium gives varied points of view, particularly about the details of more direct solicitation of donations and the risks of abuse. Some otherwise plausible economic transactions are proscribed by cultural repugnance.
The Adequacy of Retirement Saving
Decisions about how much to save for retirement at each age involve forecasting rates of return on investments, desired levels of consumption after retirement, contingencies for dealing with rising costs of health care, and changes in family status. For most people, however, the decisions are made using simple rules of thumb, influenced by peers, and, surprisingly, filtered by the subtleties of the process for choosing participation in employer retirement plans.
JEP Symposia Spring 2007
Household Economics
How well do economic theories of marriage, cohabitation, child bearing, divorce, interracial marriage, and homosexual coupling explain the significant changes in families over the last century and across countries? How do standard economic ideas about individuals seeking to advance their own interests in families fit with sociological ideas about behavioral norms and biological imperatives?
Behavioral Finance
The core economic theory of the price of shares of corporate stocks looks at each corporation’s fundamentals, its average earnings and their variability. Behavioral finance asks whether different investors act on varied information or share a collective sentiment that drives market bubbles and busts?
JEP Symposia Winter 2007
U.S. Tax Policy in International Perspective
"The Tax Reform Act of 1986 has not proved a stable outcome: Congress has since narrowed the tax base and raised income tax rates... The challenge of tax reform is to create and maintain a tax system that produces adequate revenues in a simpler, fairer, and more economically efficient manner." from Michael Graetz, "Tax Reform Unraveling," in the symposium.
New Rules for Corporate Governance
In the last decade, major financial scandals in the United States--Enron, Worldcom, and Tyco--and in Europe--Parmalat and Vivendi--have led to changes in corporate governance on both continents.
2006
Symposia in The Journal of Economic Perspectives
Macroeconomic Lessons
Two schools of macroeconomic thought have evolved for over 50 years, from classical and Keynesian to neo-versions of each. The symposium summarizes the intellectual development of each school and assesses their role in shaping policy to promote stability and growth.
The Euro
Have the countries that formed the European Monetary Union (EMU) in 1999 benefited from abandoning their individual currencies in favor of the Euro currency? Will the Euro rival the dollar as an international reserve currency? The symposium evaluates the pros and cons in the on-going evolution of the Euro market.
American Employment
The character of employment in the U.S. has changed and important public programs that support workers may need to adjust as a result. There are new methods for measuring changes in labor markets that take better account of the significant flow of workers among jobs. The changing character of the labor market also has implications for unemployment insurance. The disability insurance component of the Social Security System has grown rapidly and poses financial challenges.
Disease and Development
Is rising income responsible for the dramatic reduction in mortality over the last three centuries and indeed over the last three decades? Do differences in income account for differences in mortality between high and low-income countries and between higher income and lower income people within the same country? Income differences alone do not explain many readily observed facts. Changing technology, increased education and knowledge, and the ability to create effective institutions to address health are also important and are not necessarily highly correlated with income.
HIV/AIDS threatens to shorten the lives of tens of millions of people, particularly in the poorest countries. To address the epidemic, these countries and those who wish to help them could provide treatment to infected persons and could follow well-understood methods to prevent the spread of the infection. Dollars spent on prevention are about 28 times more effective in reducing the spread of the disease as are dollars spent on treatment. Given the limited resources available to address the epidemic, tens of millions of more lives could be extended in low-income countries with emphasis on prevention.
The Market for Economists
The market for new PhDs show significant swings over time. Those who enter when markets are tight, are more likely to place at more research oriented universities. Initial placement appears to have a permanent effect on lifetime research productivity. New PhDs from highly regarded PhD programs are more likely to place at highly regarded research universities. Top students from middle-ranked PhD programs tend to place higher than middle students from top programs but, in time, produce fewer publications than the middle students from top programs.
Cultural Economics
How important are institutions, belief systems, and religions in determining economic outcomes? A critical issue may be the level of trust, tolerance of innovation, and openness to trade in creating an environment that allows economic development. How important is economic performance in shaping institutions, belief systems, and religion? Rising incomes may reduce participation in religious institutions. Because causality goes in both directions, estimating the independent effect of each requires careful analysis.
Red and Blue States
Have cultural motives come to dominate economic motives as determinants of votes in state and national elections? Evidence from 1840 to the present put recent changes in a wider context.
Happiness Economics
The essays describe new methods of measuring subjective well-being as an alternative or supplement to income and considers the use of happiness measures in evaluating public policies.
Poverty
How and why has the percentage of the population of the US who are poor changed over time and how does it compare with other countries?
2005
Symposia in The Journal of Economic Perspectives
Cognition, Brain Science and Economics
Annual Meetings and Reports
The American Economic Association publishes essays presented at its annual meetings. See the preliminary program of the meetings for topics that will be discussed at the next meetings.
Economic Report of the President 2008
Each year the President's Council of Economic Advisors
publishes a volume describing the progress of the economy of the United States
and discussing current economic issues.
World Development Report 2008 by the World Bank,
published September 2005.
World Development Report 2008 calls for greater investment in agriculture in developing countries.The report warns that the sector must be placed at the center of the development agenda if the goals of halving extreme poverty and hunger by 2015 are to be realized.
To learn what economists have written about any issue, consult the literature and search by subject or key word.
