April 30th, 2012
12:03 PM ET

Feldstein: The economy and the presidency

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is a former president of the US National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it onTwitter or Facebook .

By Martin Feldstein, Project Syndicate

America’s presidential election is now just six months away. If history is a reliable guide, the outcome will depend significantly on the economy’s performance between now and November 6, and on Americans’ perception of their economic future under the two candidates.

At the moment, America’s economy is limping along with slow growth and high unemployment. Output grew by just 1.5% last year, and real GDP per capita is lower now than before the economic downturn began at the end of 2007. Although annual GDP growth was 3% in the fourth quarter of 2011, more than half of that reflected inventory accumulation. Final sales to households, businesses, and foreign buyers rose at only a 1.1% annual rate, even slower than earlier in the year. And the preliminary estimate for annual GDP growth in the first quarter of 2012 was a disappointing 2.2%, with only a 1.6% rise in final sales. FULL POST

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Topics: 2012 Election • Politics • United States
February 27th, 2012
03:15 PM ET

Europe’s empty fiscal compact

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is a former president of the US National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it on Twitter or Facebook .

By Martin Feldstein, Project Syndicate

The driving force of Europe’s economic policy is the “European project” of political integration. That goal is reflected in the European Union’s current focus on creating a “fiscal compact,” which would constitutionalize member states’ commitment to supposedly inviolable deficit ceilings. Unfortunately, the compact is likely to be another example of Europe’s subordination of economic reality to politicians’ desire for bragging rights about progress toward “ever closer union.”

The plans for a fiscal compact have evolved rapidly in recent months, shifting from a politically unpopular “transfer union” to a dangerous plan for fiscal austerity and, finally, to a modified version of the defunct Stability and Growth Pact of 1997. In the end, the agreement that will emerge later this year will do little, if anything, to change economic conditions in Europe. FULL POST

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Topics: Europe
January 16th, 2012
03:00 PM ET

Feldstein: How to create a depression

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is former President of the National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it on Facebook and Twitter.

By Martin FeldsteinProject Syndicate

European political leaders may be about to agree to a fiscal plan which, if implemented, could push Europe into a major depression. To understand why, it is useful to compare how European countries responded to downturns in demand before and after they adopted the euro.

Consider how France, for example, would have responded in the 1990’s to a substantial decline in demand for its exports. If there had been no government response, production and employment would have fallen. To prevent this, the Banque de France would have lowered interest rates. In addition, the fall in incomes would have automatically reduced tax revenue and increased various transfer payments. The government might have supplemented these “automatic stabilizers” with new spending or by lowering tax rates, further increasing the fiscal deficit. FULL POST

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Topics: Economy • Europe
November 30th, 2011
07:00 AM ET

Feldstein: Europe is not the United States

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is former President of the National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it on Facebook and Twitter.

By Martin FeldsteinProject Syndicate

Europe is now struggling with the inevitable adverse consequences of imposing a single currency on a very heterogeneous collection of countries. But the budget crisis in Greece and the risk of insolvency in Italy and Spain are just part of the problem caused by the single currency. The fragility of the major European banks, high unemployment rates, and the large intra-European trade imbalance (Germany’s $200 billion current-account surplus versus the combined $300 billion current-account deficit in the rest of the eurozone) also reflect the use of the euro.

European politicians who insisted on introducing the euro in 1999 ignored the warnings of economists who predicted that a single currency for all of Europe would create serious problems. The euro’s advocates were focused on the goal of European political integration, and saw the single currency as part of the process of creating a sense of political community in Europe. They rallied popular support with the slogan “One Market, One Money,” arguing that the free-trade area created by the European Union would succeed only with a single currency. FULL POST

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Topics: Economy • Europe • United States
October 26th, 2011
04:00 PM ET

America's economic stalemate

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is former President of the National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it on Facebook and Twitter.

By Martin Feldstein, Project Syndicate

The United States appears trapped in a dangerous economic stalemate.  The refusal by both Republicans and Democrats to give ground on the budget is preventing the government from dealing with its massive fiscal deficit and rapidly rising national debt. Indeed, the Congressional Budget Office projects that the national debt could increase to 82% of GDP over the next ten years – more than double the debt ratio as recently as 2008.

That forecast, moreover, is based on quite optimistic assumptions of strong economic growth and low interest rates. With slower growth and more normal interest rates, the debt ratio could easily rise to more than 100% in 2021, and exceed 150% by 2030.

FULL POST

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Topics: Debt Crisis • Economy • Politics • United States
September 27th, 2011
03:52 PM ET

Greece must default

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is former President of the National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it on Facebook and Twitter.

By Martin Feldstein, Project Syndicate

The Greek government needs to escape from an otherwise impossible situation. It has an unmanageable level of government debt (150% of GDP, rising this year by ten percentage points), a collapsing economy (with GDP down by more than 7% this year, pushing the unemployment rate up to 16%), a chronic balance-of-payments deficit (now at 8% of GDP), and insolvent banks that are rapidly losing deposits.

The only way out is for Greece to default on its sovereign debt. When it does, it must write down the principal value of that debt by at least 50%. The current plan to reduce the present value of privately held bonds by 20% is just a first small step toward this outcome. FULL POST

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Topics: Economy • Europe • Greece
August 23rd, 2011
04:30 PM ET

China’s new currency policy

Editor's Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is former President of the National Bureau for Economic Research. For more from  Martin Feldstein, visit Project Syndicate or follow it on Facebook and Twitter.

By Martin Feldstein, Project Syndicate

China’s government may be about to let the renminbi-dollar exchange rate rise more rapidly in the coming months than it did during the past year. The exchange rate was actually frozen during the financial crisis, but has been allowed to increase since the summer of 2010. In the past 12 months, the renminbi strengthened by 6% against the dollar, its reference currency.

FULL POST

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Topics: China • Economy
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