Italy’s Supply Constraint

The OECD estimates the current potential capacity growth rate of the Italian economy at 1.25% a year. Actually I suspect even this very low number is over-optimistic. Growth since 2002 has been as follows: 2003 – 0.1%: 2004 – 0.9%: 2005 – 0.1%. To be sure forecast growth for this year is somewhat higher, at 1.4%, and optimists are expecting this to be more or less repeated next year. But I suspect this outcome is unlikely simply because the global economy now seems to be slowing (and in particular the ever important US economy),so the strongly advantageous situation of 2006 is unlikely to be repeated, while next year the Italian government has promised to introduce an important package of spending reductions which are bound to negatively affect growth, at least in the short term..

But why is potential growth capacity in Italy so low?
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Feldstein: A Eurosceptic at the Fed?

Bloomberg this morning has a review of the pros and cons of Marty Feldstein as Alan Greenspan’s successor. One thing they don’t touch on is what the implications might be of having someone at the head of the US Federal Reserve who is pretty much convinced the Euro can’t work.

“Marty has something of a tin ear for politics, and that would be a problem in the Fed chairman’s job,” says William Niskanen, who followed Feldstein as head of the President’s Council of Economic Advisers in 1984 and is now chairman of the Cato Institute, a free-market research group in Washington.

Feldstein finished second only to Ben Bernanke, chairman of the White House Council of Economic Advisers, when 104 financial professionals were asked last month to name Greenspan’s most likely successor. Bernanke got 38 percent of the vote and Feldstein 31 percent in the survey, which was conducted by Stone & McCarthy Research Associates, a Princeton, New Jersey, consulting company. No other candidate received more than 10 percent.
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The Price of Obesity

Economist for Dean Lerxst gets hold of something really interesting in a post yesterday ( which Calpundit also picks up on). He draws our attention to the fact that some US economists have recently been arguing that there has been a significant rise in individuals claiming disability benefits and this has taken a large number of workers out of the labor force, thus – at a stroke – reducing the “official unemployment rate”. The research by Mark Duggan and David Autor is discussed in a NYT op ed by University of Chicago Professor Austan Goolsbee.

Lerxst also highlights the significant role obesity may play in this. He cites an article in Friday’s Wall Street Journal describing a new study by RAND Health economists showing that obesity may actually be the “primary” explanation for the rise in the disability rolls. According to Dana P. Goldman, director of health economics at Rand and the principal investigator on the study cited in the WSJ there is “evidence to support (the idea) that obesity may be a primary reason.”
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