Everyone knows that the resulting "entitlements" dominate government spending and squeeze education, research, defense and almost everything else. In fiscal 2008 -- the last "normal" year before the economic crisis -- Social Security, Medicare and Medicaid (programs...]]> Mon, 23 Nov 2009 00:00:00 -0600 WASHINGTON -- One of our long-running political stories is the economic assault on the young by the old. We have become a society that invests in its past and disfavors the future. This makes no sense for the nation, but as politics, it makes complete sense. The elderly and near elderly are better organized, focus obsessively on their government benefits, and seem deserving. Grandmas and Grandpas command sympathy.

Everyone knows that the resulting "entitlements" dominate government spending and squeeze education, research, defense and almost everything else. In fiscal 2008 -- the last "normal" year before the economic crisis -- Social Security, Medicare and Medicaid (programs...]]> Mon, 16 Nov 2009 00:00:00 -0600 WASHINGTON -- There is an air of absurdity to what is mistakenly called "health care reform." Everyone knows that the United States faces massive governmental budget deficits as far as calculators can project, driven heavily by an aging population and uncontrolled health costs. Recovering slowly from a devastating recession, it's widely agreed that, though deficits should not be cut abruptly (lest the economy resume its slump), a prudent society would embark on long-term policies to control health costs, reduce government spending, and curb massive future deficits. The administration estimates these at $9 trillion from 2010 to 2019. The president and all his top economic advisers...]]> Mon, 09 Nov 2009 00:00:00 -0600 WASHINGTON -- When Nouriel Roubini talks, the world listens. Roubini is, of course, the once-obscure New York University economist whose dire warnings about a financial crisis proved depressingly prophetic. Last week, Roubini was shouting. Writing in The Financial Times, he warned that the Federal Reserve and other government central banks are fueling a massive new asset "bubble" that -- while not in imminent danger of bursting -- will someday do so with calamitous consequences.

Here's Roubini's argument. The Fed is holding short-term interest rates near zero. Investors and speculators borrow dollars cheaply and use them to buy various assets -- stocks, bonds, gold, oil, minerals,...]]> Mon, 02 Nov 2009 00:00:00 -0600 WASHINGTON -- The idea that the government of a major advanced country would default on its debt -- that is, tell lenders that it won't repay them all they're owed -- was, until recently, a preposterous proposition. Argentina and Russia have stiffed their creditors, but surely the likes of the United States, Japan or Great Britain wouldn't. Well, it's still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse. What happens then?

The...]]> Mon, 26 Oct 2009 00:00:00 -0500 WASHINGTON -- In the health care debate, the "public plan" is all things to all people. For supporters, it would discipline greedy private insurers and make health coverage affordable. For detractors, it's a way station on the path to a single-payer insurance system of government-run health care. In reality, the public plan is mostly an exercise in political avoidance: It pretends to control costs and improve access to quality care when it doesn't.

As originally conceived by Yale political scientist Jacob Hacker, the public plan would be a government-created, nonprofit insurance company providing Medicare-like coverage to the under-65 population. But unlike Medicare, benefits...]]> Mon, 19 Oct 2009 00:00:00 -0500 WASHINGTON -- What can government do to crank up America's creaky job machine? We'll be arguing ferociously about that in coming months, and the answer, frankly, isn't clear. Die-hard Keynesians insist that only more government spending and tax cuts will accelerate job growth. But many other economists fear that exploding federal debt -- incurred partly to pay for more spending and tax cuts -- could trigger a new crisis that would destroy jobs.

Almost everyone agrees that the outlook is bleak. Since the recession's start in December 2007, about 8 million payroll jobs have disappeared. More will go. Employment is lower than a decade ago: the first time that's happened since the...]]> Mon, 12 Oct 2009 00:00:00 -0500 WASHINGTON -- Every generation of Americans should live better than its predecessor. That's Americans' core definition of economic "progress." But for today's young, it may be a mirage. Higher health spending, increasing energy prices and stretched governments at all levels may squeeze future disposable incomes -- what people have to spend -- and public services. Are we condemning our children to downward mobility?

Good question. Considering how health spending could threaten future living standards, it ought to be center stage in the "reform" debate. Instead, it's ignored. An oft-stated view is that the growth of the U.S. economy will make the young so much richer than their...]]> Mon, 05 Oct 2009 00:00:00 -0500 WASHINGTON -- How close did we come to the Great Depression 2.0? That question will spawn a cottage industry of books, studies and conferences. But Christina Romer, the head of President Obama's Council of Economic Advisers, already has an answer: pretty darn close. Her conclusion deserves attention because Romer, in her previous academic career, was a scholar of the Great Depression.

"Depression" is a term of art. It's more than a serious economic downturn. What distinguishes a depression from a harsh recession is paralyzing fear of the unknown -- so great that it causes consumers, businesses and investors to retreat and panic. They hoard cash and desperately curtail spending....]]> Mon, 28 Sep 2009 00:00:00 -0500 WASHINGTON -- What's driving the great health debate of 2009 is not a popular clamor for universal insurance. "Many Americans are balking again at the prospect of health care reform," writes pollster Andrew Kohut of the Pew Research Center. A new Wall Street Journal poll found 41 percent of respondents opposed to President Obama's proposals and 39 percent in favor (the rest were undecided). The underlying driver is politicians' psychological quest for glory.

"My colleagues, this is our opportunity to make history," implored Chairman Max Baucus as the Senate Finance Committee last week opened consideration of his bill. Politicians, in their most self-important moments, see...]]> Mon, 21 Sep 2009 00:00:00 -0500 WASHINGTON -- For years, American presidents have faced a China conundrum: How to deal with a country that practices predatory trade without unleashing global protectionism? President Obama's recent decision to slap high tariffs on Chinese tire imports for three years, starting at 35 percent and dropping to 25 percent in the final year, reflects the dilemma. To do nothing about China's trade policies is to encourage more of the same. But to attack them too aggressively might undermine U.S.-China cooperation on other issues (from North Korea to financial regulation) and risk a wider trade war.

The $16 billion wholesale tire market seems an unlikely flash point. It's true that from...]]> Mon, 14 Sep 2009 00:00:00 -0500 WASHINGTON -- We cannot, it seems, have a candid national conversation on health care. President's Obama speech the other night was a brilliant performance, and it may improve prospects for congressional passage of his "reform." But no possible plan will fix the "health care problem" for all time. When Obama says that "I am not the first president to take up this cause, but I am determined to be the last," he is indulging his ambition for a special place in history and illustrating why Americans don't discuss health care honestly.

The political problem was simple: support for "reform" was collapsing. In April, 43 percent felt they'd be better off with his "reform" and only 14...]]> Mon, 07 Sep 2009 00:00:00 -0500
WASHINGTON -- The first Labor Day, held in New York City in 1882, was less a celebration of the dignity of work than a demonstration in favor of the eight-hour day, down from the prevailing 10 to 12 hours. Compared to then, American workers have come a long way. Congress made Labor Day a national holiday in 1894, and over the years, it evolved into a day off rather than a moment to reflect on the state of labor, broadly defined and extending beyond unions. Well, not this year.

It's the bleakest Labor Day since at least the early 1980s (unemployment in September 1982: 10.1 percent ). With the unemployment rate at 9.7 percent in August and expected to go higher, cheery news...]]> Mon, 31 Aug 2009 00:00:00 -0500 WASHINGTON -- The problem of the burgeoning government debt is mainly political, but the adverse consequences may be economic. The trouble is that we don't know what those consequences may be, when they may occur, or even whether they will occur. Without some impending calamity, politicians of both parties recoil from doing anything unpopular that might bring the budget into balance over, say, the next six or seven years. The idea of anticipating and pre-empting future problems is not on their agenda.

Although the recent surge of budget deficits -- the annual gaps between outlays and revenues, resulting in more federal debt -- reflects the savage recession, the true cause is...]]> Wed, 26 Aug 2009 00:00:00 -0500 WASHINGTON -- It would have been insane (not to be too subtle) for President Obama not to nominate Ben Bernanke to a second term as chairman of the Federal Reserve Board. The economics dictated it; the politics dictated it.

Imagine the fallout if Obama had instead selected White House economic counselor Lawrence Summers. The next-day stories would have been predictably critical. Was Obama trying to compromise the Fed's "independence"? Given Summers' reputation for abrasiveness, could he craft a consensus in the key 12-member Federal Open Market Committee? How would the economy respond, considering the strong support for Bernanke among economists, business executives and...]]> Mon, 24 Aug 2009 00:00:00 -0500 WASHINGTON -- The Obama administration's enthusiasm for high-speed rail is a dispiriting example of government's inability to learn from past mistakes. Since 1971, the federal government has poured almost $35 billion of subsidies into Amtrak with few public benefits. At most, we've gotten negligible reductions -- invisible and statistically insignificant -- in congestion, oil use or greenhouse gases. What's mainly being provided is subsidized transportation for a small sliver of the population. In a country where 140 million people go to work every day, Amtrak has 78,000 daily passengers. A typical trip is subsidized by about $50.

Given this, you'd think even the dullest...]]> Mon, 17 Aug 2009 00:00:00 -0500 WASHINGTON -- Before we get too giddy about any U.S. economic "recovery," we should remember that the preceding economic collapse was global. No recovery can succeed unless it, too, is global. Will that happen? The world can no longer rely for growth on free-spending Americans, who are overburdened by debt and sobered by trillions of dollars of losses on homes and stocks. Without a substitute for American buying, any global revival will be feeble, because the United States needs export-led growth and other countries must somehow offset their lost sales to our market.

Developing countries would seem to be the obvious replacement for American spending as the world's economic motor....]]> Mon, 10 Aug 2009 00:00:00 -0500 "The status quo is unsustainable for families, businesses and government."
-- President Obama, June 13

WASHINGTON -- One of the bewildering ironies of the health care debate is that President Obama claims to be attacking the status quo when he's actually embracing it. Ever since Congress created Medicare and Medicaid in 1965, health politics has followed a simple logic: Expand benefits and talk about controlling costs. That's the status quo, and Obama faithfully adheres to it. While denouncing skyrocketing health spending, he would increase it by extending government health insurance to millions more Americans.

Just why this approach is perennially...]]> Mon, 03 Aug 2009 00:00:00 -0500 WASHINGTON -- California's budget debacle holds a lesson for America, but one we will probably ignore. It's easy to attribute the state's protracted budget stalemate, now temporarily resolved with about $26 billion of spending cuts and accounting gimmicks, to the deep recession and California's peculiar politics. Up to a point, that's true. Representing an eighth of the U.S. economy, California has been harder hit than most states. Unemployment, now 11.6 percent (national average: 9.5 percent), could top 13 percent in 2010, says economist Eduardo Martinez of Moody's Economy.com. Meanwhile, the requirement that any tax increase muster a two-thirds vote in the Legislature promotes...]]> Mon, 27 Jul 2009 00:00:00 -0500 WASHINGTON -- The most misused word in the health care debate is "reform." Everyone wants "reform," but what constitutes "reform" is another matter. If you listen to President Obama, his "reform" will satisfy almost everyone. It will insure the uninsured, control runaway health spending, subdue future budget deficits, preserve choice for patients and improve quality of care. These claims are self-serving exaggerations and political fantasies. They have destroyed what should be a serious national discussion of health care.

The health care conundrum involves a contradiction that the administration steadfastly obscures: In the short run -- meaning four to eight years -- government...]]> Mon, 20 Jul 2009 00:00:00 -0500 WASHINGTON -- It's not surprising that the much-ballyhooed "economic stimulus" hasn't done much stimulating. President Obama and his aides argue that it's too early to expect startling results. They have a point. A $14 trillion economy won't revive in a nanosecond. But the defects of the $787 billion package go deeper and won't be cured by time. The program crafted by Obama and the Democratic Congress wasn't engineered to maximize its economic impact. It was mostly a political exercise, designed to claim credit for any recovery, shower benefits on favored constituencies and signal support for fashionable causes.

As a result, much of the stimulus' potential benefit has been...]]> Mon, 13 Jul 2009 00:00:00 -0500 WASHINGTON -- The question that President Obama ought to be asking -- that we all should be asking -- is this: How big a government do we want? Without anyone much noticing, our national government is on the verge of a permanent expansion that would endure long after the present economic crisis has (presumably) passed and that would exceed anything ever experienced in peacetime. This expansion may not be good for us, but we are not contemplating the adverse consequences or how we might minimize them.

We face an unprecedented collision between Americans' desire for more government services and their almost-equal unwillingness to be taxed. The conflict is obscured and deferred by...]]> Mon, 06 Jul 2009 00:00:00 -0500 WASHINGTON -- Niall Ferguson is one of those rare characters: a respected scholar who's also a successful popularizer. Ferguson, a Brit, has taught at Oxford, New York University and now at Harvard. He has written about World War I, the British Empire and the Rothschilds (Europe's most powerful banking family). He has turned four of his projects into TV documentaries, the latest of which -- "The Ascent of Money," which is also a book -- begins airing on PBS July 8. It is a program that could be usefully viewed by most of America's roughly 13,000 economists.

One intriguing subplot of the economic crisis is the failure of most economists to predict it. Here we have the most...]]> Mon, 29 Jun 2009 00:00:00 -0500 WASHINGTON -- Since its earliest days, the United States has suffered periodic financial crises. The first dates to 1792. In the 19th century, bank panics occurred regularly. Then, of course, came the great stock market crash of 1929 and the failure of two-fifths of the nation's banks in the Great Depression. Now we're in the midst of another crisis. It would be reassuring to think that the Obama administration's financial "reforms" -- or, indeed, any conceivable alternative -- would prevent these collapses for all time. Dream on.

Every financial crisis originates in a failure of imagination. It's not that, before the crisis, no one foresees problems, "excesses" and losses. There...]]> Mon, 22 Jun 2009 00:00:00 -0500 WASHINGTON -- Raised in an individualistic culture, Americans dislike the concept of the "welfare state" and do not use the term. But make no mistake, the United States has a welfare state, and its future is precarious. The true significance of General Motors' bankruptcy lies more with this welfare state than with the battered condition of American capitalism.

Broadly speaking, the U.S. welfare system divides into two parts -- the private, run by firms; and the public, provided by government. Both are besieged: private companies by competitive pressures; government by rising debt and taxes. GM exemplified the large corporation as private welfare state. In contracts with the United...]]> Mon, 15 Jun 2009 00:00:00 -0500 WASHINGTON -- It's hard to know whether President Obama's health care "reform" is naive, hypocritical or simply dishonest. Probably all three. The president keeps saying it's imperative to control runaway health spending. He's right. The trouble is that what's being promoted as health care "reform" almost certainly won't suppress spending and, quite probably, will do the opposite.

A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. Should this trend continue, the CEA...]]> Mon, 08 Jun 2009 00:00:00 -0500 WASHINGTON -- To make sense of today's most perplexing economic debate -- whether we're flirting with inflation or deflation -- it's worth recalling what happened after World War II. Under intense political pressure, President Truman lifted wage-price controls. All heck broke loose. Suppressed during the war, wages and prices exploded. Autoworkers, steelworkers and others went on strike for higher pay. In 1946 and 1947, consumer prices rose 8.5 percent and 14.4 percent, respectively.

What's instructive is that prices then stabilized. There was no upward wage-price spiral as occurred in the 1960s and 1970s. True, a mild recession in late 1948 and 1949 helped temper price increases....]]> Mon, 01 Jun 2009 00:00:00 -0500 WASHINGTON -- The Obama infatuation is a great unreported story of our time. Has any recent president basked in so much favorable media coverage? Well, maybe John Kennedy for a moment; but no president since. On the whole, this is not healthy for America.

Our political system works best when a president faces checks on his power. But the main checks on Obama are modest. They come from congressional Democrats, who largely share his goals if not always his means. The leaderless and confused Republicans don't provide effective opposition. And the press -- on domestic, if not foreign, policy -- has so far largely abdicated its role as skeptical observer.

Obama has inspired a...]]> Mon, 25 May 2009 00:00:00 -0500 WASHINGTON -- When the trustees of Social Security and Medicare recently reported on the economic status of these programs, the news coverage was universally glum. The recession had made everything worse. "Social Security, Medicare Face Insolvency Sooner," headlined The Wall Street Journal. Actually, these reports were good news. Better would have been: "Social Security, Medicare Risk Bankruptcy in 2010."

It's increasingly obvious that Congress and the president (regardless of the party in power) will deal with the political stink bomb of an aging society only if forced. And the most plausible means of compulsion would be for Social Security and Medicare to go bankrupt: trust...]]> Mon, 18 May 2009 00:00:00 -0500 WASHINGTON -- Just how much government debt does a president have to endorse before he's labeled "irresponsible"? Well, apparently much more than the massive amounts envisioned by President Obama. The final version of his 2010 budget, released last week, is a case study in political expediency and economic gambling.

Let's see. From 2010 to 2019, Obama projects annual deficits totaling $7.1 trillion; that's atop the $1.8 trillion deficit for 2009. By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using...]]> Mon, 11 May 2009 00:00:00 -0500  "(The U.S. tax code is) full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share."
-- President Barack Obama, May 4

WASHINGTON -- Like it or not, ours is a world of multinational companies. Almost all of America's brand name firms (Coca-Cola, IBM, Microsoft, Caterpillar) are multinationals, and the process works both ways. In 2006, the U.S. operations of foreign firms employed 5.3 million workers. Fiat's looming takeover of Chrysler reminds us again that much business is transnational.

For most people, the multinational company is a troubling concept. Loyalty matters. We like to think that "our companies"...]]> Mon, 04 May 2009 00:00:00 -0500 WASHINGTON -- Considering the brutal recession, you'd expect the Obama administration to be obsessed with creating jobs. And so it is, say the president and his supporters. The trouble is that there's one glaring exception to their claims: the oil and natural gas industries. The administration is biased against them -- a bias that makes no sense on either economic or energy grounds. Almost everyone loves to hate the world's Exxons, but promoting domestic drilling is simply common sense.

Contrary to popular wisdom, the United States still has huge oil and natural gas resources. The outer continental shelf (OCS), including parts that have been off-limits to drilling since the early...]]> Mon, 27 Apr 2009 00:00:00 -0500 WASHINGTON -- Few things are more appealing in politics than something for nothing. As Congress begins considering anti-global warming legislation, environmentalists hold out precisely that tantalizing prospect: We can conquer global warming at virtually no cost. Here's a typical claim from the Environmental Defense Fund (EDF):

"For about a dime a day (per person), we can solve climate change, invest in a clean energy future, and save billions in imported oil."

This sounds too good to be true, because it is. About four-fifths of the world's and America's energy comes from fossil fuels -- oil, coal, natural gas -- which are also the largest source of man-made carbon dioxide...]]> Mon, 20 Apr 2009 00:00:00 -0500 WASHINGTON -- The Great Depression of the 1930s was the most momentous economic event of the 20th century. It was a proximate cause of World War II, having fed the Nazis' rise in Germany. It inspired a new American welfare system as a response to mass misery. Everywhere, it discredited unsupervised capitalism. Given today's economic crisis, our renewed fascination with the Depression is natural. But we ought not stretch the parallels too far.

The Depression was exceptional in its economic ferocity. As Liaquat Ahamed writes in his "Lords of Finance": "During a three-year period, real GDP (gross domestic product) in the major economies fell by over 25 percent, a quarter of the adult...]]> Mon, 13 Apr 2009 00:00:00 -0500 What Obama proposes is a "post-material economy." He would de-emphasize the production of ever-more private goods and services, harnessing the economy to achieve broad social goals. In the process, he sets aside the standard logic of economic progress.

Since the dawn of the Industrial Age, this has been simple: produce more with less. ("Productivity," in economic jargon.) Mass markets developed for clothes, cars, computers and much more because declining costs expanded production. Living standards rose. By contrast, the logic of the "post-material economy" is just the opposite: spend more and get less.

Consider global warming. The centerpiece of Obama's agenda is a...]]> Mon, 06 Apr 2009 00:00:00 -0500 It may surprise Americans that, up to a point, his analysis is correct. The dollarized world economy developed huge instabilities -- vast trade imbalances (American deficits, Asian surpluses) and massive, offsetting international money flows. But Zhou's omissions are equally revealing. To wit: China is heavily implicated in the dollar system's failings. By keeping its currency artificially depressed -- as an aid to exports -- China abetted the very imbalances that it now criticizes.

The Chinese denounce American profligacy after promoting it and profiting from it. Low prices of imported goods (shoes, computers, TVs) encouraged overconsumption. From 2000 to 2008, the U.S....]]> Mon, 30 Mar 2009 00:00:00 -0500 But succeed or fail, Geithner's plan illuminates a fascinating irony. "Leverage" -- borrowing -- helped create this mess. Now it's expected to get us out. How can this be? It's not as crazy as it sounds. Start with the basics on how leverage affects investment returns.

Suppose you bought a stock or bond for $100 in cash. If the price rises to $110, you make 10 percent. Not bad. Now, assume that you borrowed $90 of the purchase price at a 5 percent interest rate. Over a year, the stock or bond still increases to $110, but now you've made more than 50 percent. You pay $4.50 in interest and pocket a $5.50 gain on your $10 investment. Note, however, that if the price fell to...]]> Mon, 23 Mar 2009 00:00:00 -0500 Almost everything about Schumpeter's diagnosis rings true with the glaring exception of his conclusion. American capitalism has flourished despite being subjected to repeated restrictions by disgruntled legislators. Consider the transformation. In 1889, there was no anti-trust law (1890), no corporate income tax (1909), no Securities and Exchange Commission (1934) and no Environmental Protection Agency (1970).

We have subordinated unrestrained profit-seeking to other values. "We've gradually taken into account the external effects (of business) and brought them under control," says economist Robert Frank of Cornell University. External costs include: worker injuries from...]]> Mon, 16 Mar 2009 00:00:00 -0500 What's more, the Depression changed our thinking and institutions. The human misery of economic turmoil has diminished. "American workers (in the 1930s) had painfully few of the social safety nets that today help families," Romer said. Until 1935, there was no federal unemployment insurance. At last count, there were 32 million food stamp recipients and 49 million on Medicaid. These programs didn't exist in the 1930s.

Government also responds more quickly to slumps. Despite many New Deal programs, "fiscal policy" -- in effect, deficit spending -- was used only modestly in the 1930s, Romer argued. Some of Franklin Roosevelt's extra spending was offset by a tax increase...]]> Mon, 09 Mar 2009 00:00:00 -0500 With today's depressed economy, big deficits are unavoidable for some years. But let's assume that Obama wins re-election. By his last year, 2016, the economy presumably will have long recovered. What does his final budget look like? Well, it runs a $637 billion deficit, equal to 3.2 percent of the economy (gross domestic product), projects Obama's Office of Management and Budget. That would match Ronald Reagan's last deficit, 3.1 percent of GDP in 1988, so fiercely criticized by Democrats.

As a society, we should pay in taxes what it costs government to provide desired services. If benefits don't seem equal to burdens, then the spending isn't worth having (exceptions:...]]> Mon, 02 Mar 2009 00:00:00 -0600 Housing's distress is too much supply chasing too little demand. Huge inventories of unsold homes have depressed prices and construction. Given that prices rose too high in the "bubble" -- homes were affordable only because credit was dispensed so recklessly -- much of this painful adjustment was unavoidable. But that process should be mostly complete.

Here's a little-known fact: Housing may be more affordable now than at any recent time, thanks to lower prices and falling mortgage rates (now about 5 percent). The National Association of Realtors has an "affordability index" that estimates the family income needed to buy a median-priced house, assuming a 20 percent down...]]> Mon, 23 Feb 2009 00:00:00 -0600 His politics compromise the program's economics. Look at the numbers. The Congressional Budget Office (CBO) estimates that about $200 billion will be spent in 2011 or later -- after it would do the most good. For starters, there's $8 billion for high-speed rail. "Everyone is saying this is (for) high-speed rail between Los Angeles and Las Vegas -- I don't know," says Ray Scheppach, executive director of the National Governors Association. Whatever's done, the design and construction will occupy many years. It's not a quick stimulus.

Then there's $20.8 billion for improved health information technology -- more electronic records and the like. Probably most people regard...]]> Mon, 16 Feb 2009 00:00:00 -0600 What happened to Japan in the 1990s?

It did not, as some commentators say, suffer a "depression." Not even a "great recession," as others put it. Japan experienced a listless, boring prosperity. Its economy expanded in all but two years (1998, 1999), although the average annual growth rate was a meager 1.5 percent. Unemployment rose to 5 percent in 2001 from 2.1 percent in 1990. Not good, but hardly a calamity. Japan remained a hugely wealthy society.

Its situation compelled attention mainly because it confounded conventional wisdom. From 1956 to 1973, Japan had grown 9 percent a year; in the 1980s, it was still growing at 4 percent. Japan was widely expected...]]> Mon, 09 Feb 2009 00:00:00 -0600 Here's how the vicious circle works.

With the economy weakening, more loans go into default. Distressed households and businesses can't meet payments. Diane Vazza of Standard & Poor's predicts that the default rate on low-grade corporate bonds will reach a record 13.9 percent in 2009 -- up from only 1 percent just two years ago. Firms that took on heavy debts in "private equity" buyouts seem highly vulnerable.

Growing losses then make investors even more leery of risk. They further curb commitments. The consequences are global. Money flows into developing countries have collapsed. In 2009, they may be down 82 percent from 2007 levels, forecasts the Institute of...]]> Mon, 02 Feb 2009 00:00:00 -0600 "The smart grid, while a great idea, is basically a software project," says economist Marc Levinson of J.P. Morgan. "The reason utilities aren't pushing it faster is not lack of money or will, but because there are lots of technical issues and also important compatibility problems so that the various companies' grids can communicate freely with one another."

As it turns out, President Obama didn't make the tough choices on the stimulus package. He could have either used the program mainly (a) to bolster the economy or (b) to advance a larger political agenda, from energy efficiency to school renovation. But Obama wanted both, and, superficially, the two can be portrayed...]]>