Marketplace of Ideas
Only got a few minutes to catch up on the week’s economic news? Focus on these stories:
- Nobel laureate economist Gary Becker died this week at age 84. Becker transformed economics by expanding economic analysis to areas of inquiry not previously addressed by the discipline, from gender and racial discrimination to the behavior of “rotten” kids. Catherine Rampell at the Washington Post says Becker was the “father of economics imperialism”—which she means to be a compliment: “He helped normalize the idea that many social problems and questions could benefit from rigorous economic analysis.” Of course, economists of late haven’t been particularly open to insights from other disciplines, and they’ve gotten some failing marks on addressing real-world problems. Perhaps a review of Becker’s approach will revitalize the discipline. One of his final pieces of advice: Decriminalize marijuana.
- Was former Target CEO Gregg Steinhafel, who resigned this week, another victim of the company’s massive credit card security breach last year? That seems to be the common take on the story in the news, but some outlets are taking a closer look at the retailer’s struggling business model. Target banks on the fact that while you’re in the store for cat food and dish washer detergent, you’ll also pick up some of their cheap but well-designed clothes, furniture, and home decor. But many consumers’ budgets are still too tight for such extra spending, and Target also seems to be losing sales to showrooming—when people browse at traditional stores but buy online. While many brick-and-mortar retailers are trying to curtail the practice, a recent study from Deloitte suggests they should embrace it: “Consumers using a device during their shopping journey convert—meaning they make a purchase—at a rate 40 percent higher than those who do not use a device.” Perhaps for people who can afford smartphones, price isn’t the biggest factor: Deloitte also says that over 20 percent of consumers end up spending more as a result of using digital devices.
- Headlines from Janet Yellen’s Congressional testimony this week focused on her assessment of the economy and the outlook for monetary policy, as usual. Since taking office in February, Yellen has given six public speeches, one post-FOMC meeting press conference and two rounds of testimony. It’s understandable if you feel you’ve heard enough of her views on the labor market and inflation for a while. But what the media coverage doesn’t tend to focus on is Yellen’s assessment of financial stability. The ins-and-outs of Basel III and Dodd-Frank regulatory reform may be snooze-worthy for many readers, but it’s worth checking in on the Fed’s too-big-to-fail initiatives. The failure of a big bank could bring down the whole financial system, but the promise of government support in the event of trouble may not only incentivize but also subsidize dangerous risk taking. However, the latest report from the Financial Stability Oversight Council suggests efforts to stabilize banks might just be driving risky behavior to non-bank financial institutions, such as mortgage servicers and asset managers. If you had a chance to ask Yellen one question, would it be about her much-discussed assessment of the labor market, or how the Fed plans to navigate the even murkier waters of its financial stability mandate?