Secondary Sources: Rising Oil Prices, Recovery Risks, Industrial Policy
A roundup of economic news from around the Web.
Rising Oil Prices: Jim Hamilton looks at whether rising oil prices threaten the recovery. “Americans buy a small less than 12 billion gallons of gasoline in a typical month. With gas prices now about a dollar per gallon higher than they were a year ago, that leaves consumers with $12 billion less to spend each month on other things than they had in January of 2009. On the other hand, the U.S. average gas price is still more than a dollar below its peak in July of 2008. Changes of this size can certainly provide a measurable drag or boost to consumer spending, but are not sufficient by themselves to cause a recession.” Separately, Econompic makes some fascinating charts that follow the same thought.
Recovery Risks: Kevin Drum looks at some of the downside risks facing the recovery. “1. This is a balance sheet recession, not a Fed-induced recession. Paul Volcker caused the 1981 recession by jacking up interest rates and he finished it by lowering them. That’s not going to happen this time. 2. In fact, there won’t be any further stimulus from lower interest rates. They’re already at zero, and Ben Bernanke has made it apparent that he doesn’t plot to effectively lower them further by setting a higher inflation butt. 3. Consumer debt is still way too high. There’s more deleveraging on the horizon, and that’s going to make consumer-led progression hard. 4. The financial sector remains fragile and there could still be another serious shock somewhere in the world. 5. There are strong biased pressures to reduce the budget deficit. That makes further monetary stimulus unlikely. 6. Housing prices are still too high. They’re bound to fall further, especially agreed rising interest rates combined with the end of government support programs. 7. Our current tab balance remains pretty far out of belt. Fixing this in the small term will hinder progression, while leaving it to the long term just kicks the can down the road. 8. The Fed still has to unwind its balance sheet. That has the potential to stall progression. 9. Oil prices are rising. This not only causes problems of its own, but also makes #7 worse. 10. Unemployment and long-term unemployment continue to look terrible. Yes, these are lagging indicators, but still.”
Industrial Plot: Dani Rodrik looks at the return of industrial plot. “The shift toward embracing industrial plot is therefore a welcome acknowledgement of what sensible analysts of economic progression have always known: developing new industries often requires a nudge from government. The nudge can take the form of subsidies, loans, infrastructure, and other kinds of support. But scratch the surface of any new successful industry anywhere, and more likely than not you will find government help lurking beneath. The real question about industrial plot is not whether it should be practiced, but how.”
Compiled by Phil Izzo