Demographics and Politics as Much as Floods and Security Undermine Pakistan's Economy

In a recent White House meeting with President Asif Ali Zadari of Pakistan, US President Barack Obama underscored the importance of the US-Pakistani relationship and emphasized continued US support for the country. Unfortunately, the prospects for a payoff to US strategic commitments in Pakistan remain clouded by deep economic weaknesses that have their origins as much in demographics and political factors as in the more widely publicized natural disasters and security issues.

The Impossible Trinity, or, Why Latin America Hates QE2

Latin America is up in arms over QE2. Brazil's finance minister, Guido Mantega, sees the Fed's program of quantitative easing as a form of currency manipulation on a par with China's efforts to maintain an undervalued yuan. We hear dark talk of currency wars and threats to raise the issue with the G20, the WTO, and anyone else who will listen. Why all the anger directed against what most people in the United States view as a purely domestic policy that hopes to reboot a sluggish recovery? Why wouldn't that be welcomed by US trading partners in Latin America and everywhere?

Part of the answer is that in today's world, there is no such thing as purely domestic monetary policy. Actions of the central banks even of small countries send out little ripples through the global financial system. Those of major central banks can send out big waves.

Could Federal Spending be Capped at 20 Percent of GDP? Should it Be?

As the budget debate heats up, we will hear much about capping U.S. federal government spending at 20 percent of GDP, roughly its level for several decades leading up to the global financial crisis. Likely presidential candidate Rep. Mike Pence (R-Ind.) has been among the most vocal backers of this idea. Together with colleagues, he has packaged it in the form of a proposed Spending Limit Amendment. Would it really be possible to impose such a spending limit? Yes. Would we like the results if we tried it? Not all of us would. Here is why.

Hidden Pitfalls of Increasing U.S. Dependence on Canadian Oil Sands

Canada is the biggest supplier of oil imports to the United States. Increasingly, those imports come from its vast reserves of oil sands. Is the growing U.S. dependence on Canadian oil sands a win-win deal for both countries, crucial for U.S. energy security, and a source of jobs and economic growth, as American Petroleum Institute President Jack Gerard claims? Is the development of Canadian oil sands "the most destructive project on earth", as a Canadian environmental report calls it? What pitfalls for policy makers and investors lie hidden in the heated rhetoric coming from both sides in the oil sands debate?

If a Stronger Yuan is Good, Can A Weaker Dollar be Bad?

One of the top themes for 2010 in economics, politics, and diplomacy was the damage being done to the U.S. economy by an undervalued Chinese yuan. As the yuan began to appreciate in the second half of the year, slowly in nominal terms but more rapidly in real terms, everyone cheered. At the same time the yuan appreciated, the dollar depreciated, not just relative to the yuan, but to all foreign currencies on average. The broad weakness of the dollar was welcomed much less enthusiastically. Words like "unpleasant" and "grim" tended to be used instead.

So what gives? If a stronger yuan is good, can a weaker dollar really be bad?

What is Price-Level Targeting? Has Its Time Come?

As we enter 2011, we are hearing more about something called price-level targeting. It clearly has something to do with monetary policy, but what does the term really mean, and why is it coming up for discussion right now? Is it a policy the Fed is likely to adopt, or is perhaps already using?

Economics in Fiction: Two Post-Christmas Book Reviews

Anyone who has studied a little economics knows that popular fiction usually avoids economic themes, and if it does not, butchers them. Yet this year, two novels landed under our Christmas tree that place economic themes front and center and treat them well. The books are Nineteenth Street Northwest by Rex Gosh (Greenleaf Book Group) and Super Sad True Love Story by Gary Shteyngart (Random House).