In the weeks and months following the subprime crisis, a number of financial swindles have come to light. Perhaps the most famous of these was the Bernie Madoff scandal. Madoff ran a Ponzi scheme, in which he attracted money from individuals (and institutions) who were hoping that he would provide sound investment management and a healthy return on the funds entrusted to him. Instead, the money ended up in his pocket. The small number of “investors” who did withdraw their funds from Madoff were paid with money from new investors.
Although the media hype is usually most frenetic during presidential election years, this season’s mid-term elections are generating a great deal of heat, if not much light. By October 13, contestants in 36 gubernatorial races had spent an estimated $379 million on television ads, while hopefuls in the 36 Senate races underway had spent a total of $321 million. For those addicted to politics, newspapers and magazines have long provided abundant, sometimes even insightful coverage.
I have written about the dangers of making economic policy on the basis of ideology rather than cold, hard economic analysis. Ideologically based economic policy has laid the groundwork for many of the worst economic disasters of the last 200 years.
On September 18, Scots will go to the polls to vote on the question “Should Scotland be an independent country?” A “yes” vote would end the political union between England and Scotland that was enacted in 1707. The main economic reasons for independence, according to the “Yes Scotland” campaign, is that an independent Scotland would have more affordable daycare, free university tuition, more generous retirement and health benefits, less burdensome regulation, and a more sensible tax system.
As an early-stage graduate student in the 1980s, I took a summer off from academia to work at an investment bank. One of my most eye-opening experiences was discovering just how much effort Wall Street devoted to “Fed watching”, that is, trying to figure out the Federal Reserve’s monetary policy plans. If you spend any time following the financial news today, you will not find that surprising. Economic growth, inflation, stock market returns, and exchange rates, among many other things, depend crucially on the course of monetary policy.