A roundup of economic news from around the Web.
–Italy: Antonio Fatas looks back at some Italian history. “To my surprise, and the surprise of many, Italy has managed to sustain a very high level of debt even when facing high interest rates by generating large enough primary surpluses. And it has done so with a political environment that has been volatile and in some cases driven by very poor choices. Does it mean that they can keep going like this forever? No, there might be a sense of fatigue and maybe the end of what it looks like an unstable model. But, at the same time, it is interesting to see when we look back at history that a similar episode did not automatically lead to default even with poor economic policy choices. And if you want to be even more optimistic, there is some hope that this crisis is not wasted and the future Italian government finds an even better way to manage a very difficult situation.”
–Americans’ Concerns: Jeffrey M. Jones looks at Gallup polling data on Americans’ top concerns. “Americans are clear on what they think ails the United States most at this time — the economy and unemployment. President Obama has been unsuccessful in getting Congress to pass his jobs bill, though he has taken some recent steps to address economic problems by issuing executive orders to help veterans find jobs, help with repayment of student loans, and make it easier for homeowners struggling to pay their mortgage to keep their houses. Those measures alone are not likely to do much to improve the economy, but there is still time for the economy to recover before voters decide a year from now whether Obama deserves a second term in office. If the economy does not recover and Americans remain highly dissatisfied with the state of the nation, Obama may join George H.W. Bush and Jimmy Carter as recent one-term presidents doomed by a sagging economy.”
–Student Debt Bubble?: James Surowiecki looks at whether student debt is a bubble. ” The bubble analogy does work in one respect: education costs, and student debt, are rising at what seem like unsustainable rates. But this isn’t the result of collective delusion. Instead, it stems from the peculiar economics of education, which have a lot in common with the economics of health care, another industry with a huge cost problem. (Indeed, in recent decades the cost of both college education and health care has risen sharply in most developed countries, not just the U.S.) Both industries suffer from an ailment called Baumol’s cost disease, which was diagnosed by the economist William Baumol, back in the sixties. Baumol recognized that some sectors of the economy, like manufacturing, have rising productivity—they regularly produce more with less, which leads to higher wages and rising living standards. But other sectors, like education, have a harder time increasing productivity. Ford, after all, can make more cars with fewer workers and in less time than it did in 1980. But the average student-teacher ratio in college is sixteen to one, just about what it was thirty years ago. In other words, teachers today aren’t any more productive than they were in 1980. The problem is that colleges can’t pay 1980 salaries, and the only way they can pay 2011 salaries is by raising prices. And the Baumol problem is exacerbated by the arms-race problem: colleges compete to lure students by investing in expensive things, like high-profile faculty members, fancy facilities, and a low student-to-teacher ratio.”
Compiled by Phil Izzo
