Economic news digest

The two economists who won the Nobel prize were far down the list of bookies’ favourites. Their prize might be seen as a nod to social science rather than economics per se, but critics agreed that their work on what makes markets fail or succeed was grounded and relevant. It is a welcome reminder – during a year which has seen a crisis of confidence in economics – of the insights the discipline can bring.

How can we lessen the severity and likelihood of future financial crises? Anthony Bolton, the veteran fund manager, suggests a seven point plan that includes curbing the scale and activities of banks. Coming at the problem from a different direction, Eswar Prasad of Cornell University calls on the G20 and International Monetary Fund to develop a set of rules on policies that could contribute to global imbalances and fine governments that fail to meet targets.

So what caused the global economic imbalances that led to the financial crisis? One argument that pins the blame on the large increase in the developed world’s labour supply triggered by geo-political events and technical innovations.

Larry Summers has been banging the drum for the US stimulus package, saying weak consumer demand will be a major constraint on the economy. Amid arguments over his analysis and his policies, the hawks are told that the yawning national debt should not be an argument against taking steps to combat the recession.

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