Business Economics
Palgrave Macmillan will publish Business Economics, the official journal of the National Association for Business Economics, as of Volume 44, 2009.
“For more than four decades, Business Economics has provided NABE members, economists, and business people around the world with an important vehicle for their ideas, analysis, and information. We are very pleased to announce our partnership with Palgrave Macmillan, and we know that Business Economics can only benefit from its extensive publishing expertise.”
Ellen Hughes-Cromwick, President of NABE
January 2009
Adam Smith and the Political Economy of a Modern Financial Crisis
Michael Mussa
Financial crises have occurred periodically for hundreds of years, and Adam Smith had important insights into their causes. Although by no means all that we know about such crises has been derived from Smith, it is interesting and important to reflect on what he did know and how ignoring his warnings about the creation of excess liquidity has contributed to the current crisis. In addition to the complexity of contemporary finance and the role of central banks and other regulatory institutions, a major difference between Smith's day and ours is the emergence of "moral hazard" as an important policy issue and its corollary, "immoral results." It is important to realize that the risks of financial crisis, moral hazard, and immoral results cannot be avoided by financial and accounting gimmicks, and that there is no substitute for adequate capital in the creation of liquidity.
Keywords: financial crisis, Adam Smith, liquidity, moral hazard, immoral results, mortgage lending, derivatives
Bus Econ 44: 3-16; doi:10.1057/be.2008.9
Economic and Financial Climate Change: A Business Economist's Perspective
Ellen Hughes-Cromwick
Over the past 50 years, one of the key elements of the evolution of the world economy has been the increasing complexity of financial transactions. This complexity is manifested in financial layering and disintermediation that has increased risk in the real as well as the financial sectors. The consequences of an adverse outcome of this risk are obvious in the current economic situation. This paper analyzes the imbalances that have arisen between the real and financial sectors and the consequences of the ballooning of the financial sector without producing positive contributions to the real sector and increasing risk to both. It calls for restraint on excesses of financial innovation and risk taking that cannot be held in check by market forces alone.
Keywords: financial risk, imbalances, disequilibrium
Bus Econ 44: 17-22; doi:10.1057/be.2008.7
The Response of Small Business Owners to Changes in Monetary Policy
William C Dunkelberg and Jonathan A Scott
The small business sector of the economy accounts for half of private gross domestic product and well over half of private sector employment. Little is known about how these firms and the banks that serve them are affected by changes in monetary policy. Using data from the monthly surveys of the members of the National Federation of Independent Business, the impact of unexpected (between meeting) Federal Reserve announcements on owner expectations and hiring and spending plans are examined. Using interviews filled out during the month, "before" and "after" groups are analyzed to assess the impact of Federal Reserve announcements on firm behavior. Narrowing the analysis period to just days before and after Federal Reserve announcements permits the assessment of owner responses uncontaminated by other events. Changes in owner expectations and spending and hiring plans are shown to be translated into subsequent changes in actual spending and hiring that are often the opposite of what is suggested by conventional economic theory. Firms that do not use debt respond in the same way as those regularly active in credit markets. The results provide additional insight and richness to our understanding of the transmission channels through which monetary policy impacts the real economy.
Keywords: monetary policy, monetary policy transmission, small business, Federal Reserve announcements
Bus Econ 44: 23-37; doi:10.1057/be.2008.6
The Credit Crunch of 2007–08: Lessons Private and Public FREE
William Poole
The current financial crisis has much in common with past crises. Poor investment strategies with respect to risk as well as poor evaluation have contributed to the current crisis. This paper presents the lessons to be learned by the private and public sectors. Why do crises keep happening? Mismatch of assets—long-term liabilities offset by short-term assets—can be profitable but is risky, and robust strategies must be able to cope with the risk. A number of measures can and should be taken by private financial entities for their own sake as well as that of the entire financial system. With respect to the public sector, one should be wary of expanding the role of regulation. What should be done, however, is to make sure that public policies are pursued through on-budget spending and taxation rather than through off-budget initiatives, such as encouraging government-sponsored enterprises to accumulate subprime debt in order to further public policy objectives. It would also be useful to reduce overall levels of private debt by reducing tax incentives to borrow.
Keywords: credit crunch, financial crisis, credit, subprime
Bus Econ 44: 38-40; doi:10.1057/be.2008.1
Health Information Technology and Financing's Next Frontier: The Potential of Medical Banking
Stephen T Parente
Calls to action for widespread adoption of electronic health records have come from a broad spectrum of the private and public sectors. The problem, to date, is not that information does not exist, as much as that the data have not been organized around the patient. An integrated Personal Health Record is a patient- or family-centered technology designed to capture not only the contacts with health care providers, but also personal information on insurance, diet, and personal preferences that a physician's health record will not capture. Medical banking, based on a new technology platform called the Integrated Health Card, is emerging as a solution to the problem of collecting and combining information from the electronic health record with personal health information. It may also be the only way for fledging health savings accounts to enable the price and quality transparency of the medical market that has been called for repeatedly in this decade. In analyzing the political and patient applications of widespread adoption of this new innovation, the positive contributions to social welfare are very likely to outweigh the negative.
Keywords: health insurance, consumer information, information technology, consumer-driven health plans, health savings accounts
Bus Econ 44: 41-50; doi:10.1057/be.2008.2
Forum on Emerging Issues: American Business and the New Social Regulation
Thomas A Hemphill
Bus Econ 44: 51-56; doi:10.1057/be.2008.3
