Contrary to what economic theory would predict, business investment in things like new plants and equipment often increases when interest rates go up. Says Thoma:
The answer lies in the "all else equal" assumption economists make when examining the relationship between two variables. If nothing else in the world changed when interest rates go up, investment would fall.
But -- as Fed policy shows -- interest rate increases often result from an improving economy, and the outlook for the future has a much larger impact on investment than interest rate changes. Thus, when the economic outlook improves, we see interest rates rising in general, but the improved outlook has a larger positive impact on business investment than any negative impact from higher rates.
Read the full article.
John Wasik reviews TCF senior fellow Jeff Madrick’s new book, Seven Bad Ideas for Forbes. Says Wasik:
When I read the book recently, I came to the conclusion that Madrick will not only make a ton of enemies among his fellow economists, he’s trashing the conventional wisdom of mainstream economics. It’s about time.
Read the full review at Forbes.
A grand bargain on federal fiscal policy is an idea that is dead on arrival, says TCF fellow Andrew Fieldhouse U.S. News. A better idea: states and the federal government should reverse roles in Medicaid and education. The bargain: the federal government will pick up some of the states' share of Medicaid costs and states will in turn invest more in higher education.
To efficiently rejigger their roles, states should agree to provide more money for higher education in exchange for the federal government taking on a greater share of Medicaid financing. Rising Medicaid expenditures are consuming an increasing share of states’ revenue, which in turn crowds out other priorities, such as investment in higher education. The Great Recession greatly aggravated this dynamic.
Read the full article.
In recent decades, and especially since 2000, the richest Americans have enjoyed soaring income and wealth while the rest of the population's living standards have stagnated. The Century Foundation was one of the first institutions to raise serious concerns about these trends and propose ideas for improving economic conditions for all Americans- not just the fortunate few.
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