Economics news digest

After the brouhaha that accompanied Paul Krugman’s Nobel economics prize last year (not to mention the awarding of the peace prize to Obama last week) this year’s prize is less controversial.

Elinor Ostrom and Oliver Williamson, the winners of the award, are both American academics but hardly household names.

The lower profile winners come after a few years when economists have been in the spotlight, to say the least. Alan Beattie notes in Monday’s FT that Keynes said economists should aim to be regarded on a par with dentists – humble people quietly getting a routine job done. It hasn’t quite worked out like that.

As long as recession haunts the globe this is a state of affairs that is unlikely to change. In the US, things have been stabilising – for instance house prices have started rising again for the first time in several years. But Robert Shiller, creator of the eponymous index and credited with having predicted the dotcom AND housing bubbles, thinks that the new surge in prices is a blip not a boom.

In a sign of how far things have come, exit strategies are the topic de la jour. Paul Krugman has a go at predicting when US interest rates should rise again. That would be about two years, his back of the envelope calculation suggests.

But economists are likely to remain centre stage until they stop talking about the possibility of another Great Depression. Thomas Palley attracted a good deal of blogosphere attention on Monday with his suggestion that a second Great Depression is still possible in the US – with deleveraging the likely villain. Borrowing is like stepping on the accelerator pedal in a car, he argues, and as consumers rush to pay back their debt, they have slammed on the brake of debt repayment – which presumably could send the economy into the tailspin of depression. His other metaphor involves the Titanic (of the US) hitting the iceberg (of debt).

Talking of depression and cold places, Iceland is still having a hard time of it. The mid-Atlantic nation is suffering the deepest recession of the world’s advanced economies and will shrink by 8.5 per cent this year, the IMF estimates. Its stock market has lost 97 per cent of its value.

The only industries that are doing OK in Iceland are the ones that benefit from the fall in its currency – the number of foreign tourists visiting the island this year has exceeded its entire population.

The question of what impact the sharp realignments of currencies during the crisis will have is also a key issue for the US, where the weakness of the dollar is agitating opinion.

Wolfgang Münchau is pleased with the weak dollar, helping to deliver some of the much needed rebalancing of the global economy.

On the other hand, the weakening dollar raises the spectre of a dollar crisis at some future point. Roger Altman argues that the Obama administration needs to commit to implement deficit reduction once the economy has strengthened to avoid such a scary outcome.

In the UK, public spending and the deficit continue to be the story of the moment. Gordon Brown on Monday committed to a £16bn programme of asset sales in his bid to outdo the Tories rhetoric on the need for pain. But wait a second haven’t we heard this before?

And what’s it got to do with the deficit anyway?

If you want a slightly more hopeful outlook, these days you just need to look to China, where at least the prospect of a decade of fiscal consolidation isn’t on the cards. On the other hand, soaring consumption of scarce commodities does pose its own problems. The Wall Street Journal reports that the Chinese government is positioning its futures markets to be major players in setting world prices for metal, energy and farm commodities, so that the country will be less at the mercy of markets elsewhere.

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