Business Economics
Business Economics (2010) 45
ISSN: 0007-666X | EISSN: 1554-432X
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From the Editor
Robert Thomas Crow
Bus Econ 45: 77; doi:10.1057/be.2010.10
A Tale of Two Crises: One We Missed and One We Can’t Afford To
NABE Presidential Address, presented at NABE's Annual Meeting on October 12, 2009.
Chris Varvares
Business Economics (2010) 45, 78–82. doi:10.1057/be.2010.2
The current economic crisis seems to be waning, largely due to effective federal government and Federal Reserve responses. Economists deserve credit for helping to avoid the abyss, but we failed to predict the crisis and warn policymakers so that the crisis could have been mitigated or avoided. We must not miss predicting the next crisis, however, as it is staring us in the face. We can see clearly that federal debt will severely damage the U.S. economy within several decades under current policy. Moreover, simulations that take into account the effect of debt on interest rates indicate that the depressing effect on the U.S. economy will be even worse than official projections suggest.
Keywords: economic crisis; fiscal policy; federal deficits; government debt; debt-to-GDP
The Impact of the Housing Market Boom and Bust on Consumption Spending
Jeremy A Leonard
Bus Econ 45: 83-93; doi:10.1057/be.2010.11
While econometric evidence for the United States has consistently shown that increases in real estate wealth induce additional consumption, it does not directly speak to the effect of a substantial decrease in real estate wealth. This paper examines the real-estate wealth-consumption relationship over the past half century with a particular focus on the sharp decline in 2006–08, and finds that the wealth effect in the recent down market is significantly larger than in an up market. Additionally, wealth changes seem only to affect consumption of services and nondurable goods; there is virtually no impact on durable-goods consumption.
Keywords: consumption; wealth effect; real estate
Inflexible Wages and Prices? Evidence in the Current Recession
William C Dunkelberg, Jonathan A Scott and Michael J Chow
Bus Econ 45: 94-101; doi:10.1057/be.2010.3
The 2008/9 recession period brought the most massive and quickest response of fiscal and monetary policy in modern economic history. At the same time, small businesses (that produce half of private GDP) exhibited the most rapid adjustments in wages, prices, and inventories recorded in the past 35 years of data collected by the National Federation of Independent Business. The notion of “sticky” wages and prices plays a key role in arguments favoring government intervention to rebalance supply and demand for labor and output. The faster wages and prices (and therefore employment and output) adjust to a “shock” to the economy, the less the need for government intervention.
Keywords: small business; wage; price flexibility; sticky wages and prices
Victorian Financial Crises and their Implications for the Future
Kenneth N Kuttner
Bus Econ 45: 102-109; doi:10.1057/be.2010.5
Banking crises were a relatively common occurrence in 19th century England. Like the Federal Reserve today, the Bank of England struggled to quell panics by acting as the lender of last resort, while at the same time maintaining monetary stability. This article surveys the events leading up to and the Bank's response to the four post-1844 crises, highlights some of the similarities between the Victorian era panics and the 2007–08 crisis, and draws on the 19th century experience to illustrate the dilemmas facing modern central banks.
Keywords: financial crises; lender of last resort; central banking
Stress Testing Economic Data
Alan B Krueger
Bus Econ 45: 110-115; doi:10.1057/be.2010.4
The recent economic crisis has highlighted significant weaknesses in our economic and financial indicators. This paper documents what the crisis has revealed regarding some of the more critical shortcomings of our existing statistical infrastructure, and proposes a way in which these shortcomings could be mitigated.
Keywords: statistical agencies; data collection; financial crisis
Three Simple Techniques to Analyze a Complex Economic Phenomenon: The Case of Profits
John Silvia and Azhar Iqbal
Bus Econ 45: 116-125; doi:10.1057/be.2010.7
This paper seeks to characterize the behavior of profits over the business cycle as a model for analyzing any economic series by a practicing business economist. It addresses three fundamental questions about profits that are common and critical to identifying the behavior of any macroeconomic series—mean-reversion, volatility, and trend. First, does profit growth over time exhibit mean-reverting behavior? Second, how volatile are profits, and does this volatility obscure the message of average profit growth? Third, how can we estimate a long-run trend growth component for profits and thereby separate profit cycles from its long-run trend growth component?
Keywords: corporate profits; stability ratio; unit root; H-P filter
Focus on Industries and Markets
Indoor Climate Control: The Global Demand for Heating, Ventilating, and Air-Conditioning Equipment
Michael A Deneen, Andrew C Gross and Jennifer L Mapes
Bus Econ 45: 126-134; doi:10.1057/be.2010.1
World demand for heating, ventilating, and air-conditioning (HVAC) equipment is expected to rise in absolute terms during the current five-year period, but the rate of growth is slowing. However, growth is still in excess of that recorded by both global building construction expenditures and world gross domestic product. In 2007, $63.1 billion was spent on HVAC. The Asia-Pacific region now accounts for about 45 percent of the total. The two major categories of HVAC are cooling equipment, which accounts for 71 percent of the total, while heating equipment is responsible for the remaining 29 percent. The commercial market dominates the residential market by a ratio of 65:35. There are hundreds of suppliers around the world, but the eight leading firms have about 50 percent of the market.
Keywords: HVAC; heating equipment; cooling equipment; global demand and supply; regional demand; Brazil
Economics At Work
Aiming Beyond the Box: Bringing out Economists’ Transferable Skills
Susan Krug Friedman
Bus Econ 45: 135-139; doi:10.1057/be.2010.6
For individuals with considerable work background, today's rocky business environment is bringing challenges similar to those faced by new entrants in the labor market. As experienced employees seek avenues that diverge from their previous job titles, they may branch out from positions as economists or as economic or financial analysts. The following discussion focuses on ideas that may be useful in these pursuits and looks at transferable skills—the skills associated with economists in particular—and strategies to leverage these distinctive skills for additional opportunities.
Book Reviews
Gillian Tett, Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
Reviewed by Malcolm C Harris Sr.
Bus Econ 45: 140-141; doi:10.1057/be.2010.8
Charles Gasparino, The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System
and
Gregory Zuckerman, The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
Reviewed by Cliff Tan
Bus Econ 45: 142-144; doi:10.1057/be.2010.9
