Archive for September 25th, 2007

Bernanke on importance of education

September 25, 2007

After disappointing some and pleasing some with his rate cut, Bernanke is back doing something he does best- educating via his speeches. And this time it is not on fin markets/ economics etc but on something very basic- the importance of education in economic growth.

He begins by giving an investment advice:

When I travel around the country, meeting with students, business people, and others interested in the economy, I am occasionally asked for investment advice.  Usually (though not always) the question is posed in jest.  No one really expects me to tell them which three stocks they should buy.  However, I know the answer to the question and I will share it with you today:  Education is the best investment.  

He then points to the benefits of education:

From a macroeconomic standpoint, education is important because it is so directly linked to productivity, which, in turn, is the critical determinant of the overall standard of living.  The Bureau of Labor Statistics estimates that, between 1987 and 2006, ongoing improvement in the education and experience of the U.S. workforce contributed 0.4 percentage point per year to the increase in nonfarm business labor productivity (U.S. Department of Labor, 2007), a significant amount.

He points to 3 challenges facing America on education front: the retirement of the baby-boom generation, the inexorable advance of the technological frontier, and the ongoing globalization of economic activity.

As baby-boomers retire, we would have fewer people in the workforce hence

 More schooling for more of the workforce could help cushion the impact of this demographic transition on economic growth by boosting productivity growth.

As technology advances further, America would need more people who can use it. So which jobs would be the ones to gain  most?

Which jobs will be most affected by technology is difficult to predict, although some research suggests that sectors that now use information technology (IT) relatively less intensively, such as health-care and other service sectors, are likely to step up their use of software and IT services.

So health-care is going to be the in thing.

He goes on to discuss how education is not just about schooling and college but is a continuous process. It is in the best interest of the economy if persons continue to learn in their adult lives as well via corporate training etc.

It is a light read and is full of ideas. Highly recommended.

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Institutions for Financial stability

September 25, 2007

I hasd mentioned earlier that most academicians keep their best for the Jackson Hole symopsium . I have covered quite a few papers from the 2007 symposium that focused on housing.

I came across this paper from Rovert Litan presented in 1997 symposium which focused on financial stability. The paper is quite good and relevant for even today. His broad idea is:

In brief, my main message is to urge a shift in emphasis from what I call the “prevention-safety net” approach to maintaining financial stability that has characterized U.S. policy since the Depression toward what I label the “competition-containment” paradigm that I submit should govern policy in the future. The post-Depression prevention model has attempted to ward off systemic danger in large part by sheltering individual depository institutions from competition, an approach that has failed, has been costly to consumers, and in any event, is being outmoded by market developments. The safety nets—deposit insurance and emergency liquidity provided by the Federal Reserve—have been more successful in preventing and containing financial crises, but can be both addictive and seductive, causing institutions and policymakers alike to tolerate excessive risks that are damaging to taxpayers who foot the bill for the safety nets.

He has stressed on the importance of Clearing and Settlement systems for making the financial system better and more efficient.

Assorted Links

September 25, 2007

1. WSJ Blog points Dallas Fed’s President, Richard Fisher defends the rate cut. I am surprised considering he is an inflation hawk and inflation pressures loom. It has nice assorted links as well

2. Rodrik shares his research in which he asks a question- is it important for a successful blogger (in economics) to also be a good scholar and vice-versa.

3. End Poverty in SA Blog points why basic services do not reach people.

4. Econbroswer on stagflation.


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