Secondary Sources: Fed Independence, New York and Crisis, Oil

08-12-2009 16:05 - Source: blogs.wsj.com/economics
A roundup of economic news from around the Web. Fed Independence: Mark Thoma looks at issues that may challenge the Fed’s independence. “The way to reduce interest rates is to bring the deficit under control, not expand the money supply, but congress must feel pressure to change before it will act. If congress has control of the money supply, then given the choice between raising taxes, cutting government spending, creating more debt and increasing interest rates — all of which reduce growth and employment — or printing money, they are likely to keep financing deficits through money creation. This creates inflation and all the problems that come with it, and sets labor and the economy up for big problems when it comes time to bring inflation back under control. If the Fed has control of the money supply and refuses to expand the money supply to bring interest rates down, and if the Fed does its best to make clear that the problem is the government debt, then congress will have more reason to act. I suspect the Fed will come under exactly this type of pressure at some point in the future.” New York and the Crisis: On Economix, Ed Glaeser says the financial crisis may have helped New York. “The economic crisis may have actually helped New York by enabling the city to avoid an over-concentration in finance. For decades, economists have debated the “ Dutch Disease” and other ailments associated with too much success. The discovery of natural gas in the North Sea supposedly helped to de-industrialize the Netherlands by raising exchange rates and making Dutch manufacturing less competitive internationally. Almost 15 years ago, Jeffrey Sachs found a negative correlation between resource abundance and economic growth in the developing world, perhaps because those resources fueled conflict and enabled dictators.” Oil and the Macroeconomy: Olivier Blanchard and Marianna Riggi write about oil for voxeu. “In the 1970s, large increases ... - Continue...