综合英语.西方思想经典选读(常俊跃黄滔)_Text B The Financial and Macroeconomic Crisis of 2008 and Beyond（1 / 1）_综合英语.西方思想经典选读最新章节免费阅读无弹窗

Paul M. Romer

Pre-reading

Paul M. Romer (1955-　) is an American economist and entrepreneur, currently the professor of economics at the Stern School of Business at New York University. He is a pioneer of endogenous growth theory. Romer earned a B.S. in physics in 1977 and a Ph.D. in economics in 1983, both from the University of Chicago. He taught at the University of California at Berkeley, the University of Chicago, and the University of Rochester. He was named one of America’s 25 most influential people by Time Magazine in 1997. Romer was awarded the Horst Claus Recktenwald Prize in Economics in 2002. He temporarily left academia, focusing his energy on his 2001 start-up company Aplia, which was purchased in 2007 by Cengage Learning.

Romer’s most important work is in the field of economic growth. His articles published in 1986 and 1990 amounted to constructing mathematical representations of economies in which technological change is the result of the intentional actions of people, such as research and development. This started endogenous growth theory.

The following passage is the epilogue from the latest Advanced Macroeconomics.

Prompts for Your Reading

1.Do you know anything about the 2008 financial crisis, or the financial tsunami? If not, read something about this crisis before you start reading the passage.

2.Have you heard of John Maynard Keynes? What are his main achievements?

3.Nearly all discussions of macroeconomic policy must begin with Keynes. Does Romer do the same in this passage? Why or why not?

4.What are the three leading explanations of the Great Moderation?

5.Romer claims that “the events of the past few years were a profound shock not just to the macro-economy, but also to the field of macroeconomics.” Can you find details supporting this claim in the passage?

6.Romer points out seriously the vulnerability of financial markets and the limits to the forces bringing asset prices in line with fundamentals. How does he elaborate it?

7.Why does Romer believe that the crisis makes a particularly exciting, and particularly important, time for macroeconomics? What do you think about the development of macroeconomics?

8.What is the general logic behind the organization of ideas in this passage? Work out an idea flow chart to illustrate train of thought in this passage.

9.How does the author achieve being academic and being readable at the same time?

[1] The period from the end of the Volcker1 disinflation in the mid-1980s to 2007 was one of unprecedented macroeconomic stability. The united States went through only two recessions in this period, both of them mild. The unemployment rate never exceeded 8 percent, and there were only five quarters in which real GDP fell.

[2] There are three leading explanations of this Great Moderation2. The first is simply good luck, in the form of smaller shocks hitting the economy. The second is changes in the structure of the economy, such as a larger role of services and improvements in inventory management. The third is improved policy. When policymakers were unsure of the correct model of the economy and the costs of inflation, they repeatedly pursued policies that caused inflation to rise, then induced recessions to reduce it. With the triumph of the natural rate hypothesis3, general agreement on realistic estimates of the natural rate, and the emergence of a consensus that inflation should be kept low, this boom-bust cycle disappeared.

[3] This period of stability ended dramatically in 2008 — though whether the end was temporary or permanent is not yet known. House prices had been rising rapidly since the late 1990s. By 2003, both the level of real house prices and the ratio of the prices of existing houses to the costs of building new ones were above their previous postwar highs. Yet the rapid price increases continued for three more years. The increases were accompanied by —and perhaps fueled by — the growth of new types of mortgages, many of them issued on the basis of little or no documentation on the part of the borrower, and by a proliferation of new ways of repackaging and insuring the mortgages, often leaving it unclear who was bearing the risk of default.

[4] House prices started falling in 2007, and the macro-economy weakened soon thereafter. The decline in the value of housing-related assets reduced the net worth of many financial institutions and increased uncertainty about that net worth, and thereby put significant strains on credit markets. For example, spreads between interest rates on overnight loans between banks and interest rates on government debt rose sharply, and the Federal Reserve4 and other central banks judged it necessary to intervene directly in credit markets in various ways. But the initial downturn in the macro-economy was mild. For example, as of August 2008, a common view was that the economy was probably in a recession but that any recession was likely to be even milder than the previous two.

[5] In September 2008, however, Lehman Brothers5, a major investment bank, declared bankruptcy. In the aftermath, financial markets suffered dramatic turmoil, and the recession changed from mild to severe. Equity prices fell by more than 25 percent in just 4 weeks; spreads between interest rates on conventional but slightly risky loans and those on the safest and most liquid assets skyrocketed; and many borrowers were unable to borrow at any interest rate. Real GDP suffered its largest two-quarter decline since 1957-1958; and from September 2008 to May 2009, employment fell by 3.8 percent and the unemployment rate rose by 3.2 percentage points. By most measures, the recession of 2007-2009 was the largest since World War II. Many other countries suffered similar downturns.

[6] The initial part of the recovery has been slow. In addition, the prevailing view is that unemployment will remain above the natural rate and output will remain below its normal level for years, and that the events of 2008 and 2009 may have long-term effects on the normal levels of unemployment and output. And there is heated debate about what, if anything, policy makers should do to speed the recovery and reduce the long-term damage.

[7] The events of the past few years were a profound shock not just to the macroeconomy, but also to the field of macroeconomics6. Short-run aggregate fluctuations, which we thought we had largely tamed, have reemerged dramatically. Moreover, the nature of the recent recession is very different from that of other major postwar recessions. Financialmarket disruptions appear to have been central, and tight monetary policy played little or no role.

[8] Thus our models and analysis will surely change. But how is not clear. In many ways, macroeconomics today is in a position similar to where it stood in the early 1970s, when the emergence of the combination of high unemployment and high inflation challenged accepted views. Then, as now, one possibility was that the unexpected developments would lead only to straightforward modifications of the existing framework. But another possibility — and the one that in fact occurred — was that the developments would lead to large and unexpected changes in the field.

[9] Obviously, we can never predict fundamental changes in macroeconomics before they occur. All we can do is identify some of the key issues that the crisis raises for the field and some possible directions of research.

[10] Several of the central issues involve financial markets. One important message of the crisis is the vulnerability of financial markets to runs. Many financial institutions issue short-term debt to finance long-term investments. The extreme is a traditional bank, which issues demand deposits and holds a variety of long-term assets, such as 30-year mortgages. Why financial institutions engage in such maturity transformation7, and why their shortterm contracts take such simple forms (such as non-contingent debt payable on demand), are complicated questions. But given these arrangements, there is a strong force acting to create multiple equilibriums: a debt holder is more likely to demand that the debt be repaid or refuse to roll it over if he or she believes that others will do the same. The recent crisis shows that this logic applies not just to a traditional bank. It also applies to a financial institution financing itself through collateralized overnight loans or through overlapping short-term debt contracts.

[11] Another message of the crisis concerning financial markets is that there are limits to the forces bringing asset prices in line with fundamentals8. For example, house prices before the crisis appear to have been above the levels warranted by likely payoffs in different states of the world; and the same is true of the prices of various assets whose payoffs were tied to the housing market, such as mortgage-backed securities9. In the case of those securities, one difficulty was that credit-rating agencies focused on evaluating the probability of default, and not on the states in which default would occur. And there is evidence that pricing errors may have switched signs once the crisis hit, with many risky assets selling at prices below what was warranted by fundamentals. If an individual believes that an asset is mispriced, he or she has an incentive to trade in a way that will push prices back toward fundamentals. But mispricings of the types we have been discussing do not create arbitrage opportunities — that is, investment strategies that will be profitable with certainty. Instead, trades that move prices back toward fundamentals involve risks, both from changes in fundamentals and from exacerbations of the mispricings. Consider an investor contemplating buying apparently underpriced assets in the midst of the crisis. If the apparent panic were to intensify before subsiding, the investor might be forced to liquidate his or her position, and so incur a loss in precisely the situation where the economy was deteriorating further and the marginal utility of consumption was especially high. This risk limits the investor’s demand for the underpriced asset, and so blunts the forces pushing prices toward fundamentals. If the specialized investors who attempt to profit from mispricing are financed by outside capital, their situation is even more difficult. Underpriced assets are typically ones whose recent returns have been low. As a result, specialized investors may find that the amount of funding they can obtain from non-experts is lower when mispricing is greater.

[12] The crisis also shows clearly that financial-market imperfections are important not just to conventional firms, but also to financial firms. Much of finance involves two levels of imperfections: one between the ultimate user of the capital and a financial intermediary, and another between the intermediary and the ultimate provider of capital. Most analyses of financial-market imperfections ignore this fact and focus on asymmetric information between the ultimate users and the providers of their capital. But asymmetric information between the financial intermediaries and the ultimate providers appears to have been very important during the crisis. For example, many financial firms had extreme difficulty obtaining capital, and fears about the incentives facing firms close to bankruptcy appear to have been a major source of this difficulty.

[13] Another issue involving financial markets raised by the crisis concerns the transmission of credit-market disruptions to the rest of the economy. The credit-market turmoil in the fall of 2008 was followed by a quick and rapid decline in economic activity. Some of the decline was clearly due to the direct effects of the disruptions. Firms that were unable to get credit canceled investment projects and cut back on inventories; households that could not get mortgages did not buy new homes; importers who could no longer obtain credit canceled orders; and households whose wealth had declined reduced their consumption. The microeconomics of these effects are shown by the model of investment in the presence of financial-market imperfections. And the macroeconomic implications are investigated in the extensions of business-cycle models to incorporate financial-market imperfections.

[14] Yet these analyses are incomplete in at least two very important ways. First, we know little about the magnitudes of the different channels. For example, we have little evidence concerning the importance of imperfections in the relationships between financial-market institutions and their suppliers of funds relative to that of imperfections in the relationships between these institutions and their borrowers. Likewise, we know little about whether it is effects on day-to-day lending, such as loans for payroll and inventory, or effects on the financing of larger projects, such as new homes and factories, that are especially important. Second, some of the impact of the disruptions appears to have operated not through their direct effects, but through more amorphous effects on the “confidence” of households and firms. Given the size of the downturn, determining the roles of these various factors and the channels through which they operated is an important task.

[15] The crisis has also raised a range of issues less directly related to credit markets. It has made clear that the zero lower bound on nominal interest rates is a crucial constraint on monetary policy. There is little doubt that in the absence of the constraint, the Federal Reserve and many other central banks would have cut interest rates much more than they did, and that the downturn would have been less severe and the recovery much more rapid. Thus the crisis elevates the importance of issues related to the zero lower bound.

[16] A more speculative view is that the crisis shows the importance of politicaleconomy issues for understanding both the shocks that give rise to fluctuations and the policy responses that have important implications for their consequences. Many of the regulatory decisions before the crisis, as well as some of the microeconomic and macroeconomic policy actions during the crisis, seem difficult to understand with the traditional view of policymakers as knowledgeable and benevolent. To give one example, before the crisis hit, there were warning signs of overvalued asset prices and some highly questionable credit-market practices; yet policymakers did little in response.

[17] This list of issues that the crisis raises for macroeconomics is far from complete. Others include the reasons for the flight to “liquidity”10 in response to financial turmoil, as well as the meaning and importance of the very concept of liquidity; the central bank’s role as a lender of last resort; how various fiscal actions affect the macro-economy in the short run; the roles of foreign-currency reserves, exchange-rate regimes, and other factors in determining how a crisis is transmitted across countries; the seemingly puzzlingly small fall in inflation so far during the crisis, and what that indicates about the structure of the economy and competing theories of inflation; the magnitude and determinants of the longterm macroeconomic effects of financial crises; and much more. Indeed, one of the few silver linings of the crisis is that it makes today a particularly exciting, and particularly important, time for macroeconomics.

Notes

1.Paul Volcker: born in 1927, Chairman of the Federal Reserve under Presidents Jimmy Carter and Ronald Reagan from 1979 to 1987. He was the chief architect of the U.S. abandonment of the gold-exchange standard and the devaluations of the U.S. dollar. He helped lower double-digit inflation rates in the early 1980s and ushered in an era of financial deregulation and innovation.

2.Great Moderation: a reduction in the volatility of business cycle fluctuations starting in the mid-1980s, referring to the major economic variables such as real gross domestic product growth, industrial production, monthly payroll employment and the unemployment rate began to decline in volatility. Some possible reasons include greater independence of the central banks from political and financial influences, information technology and greater flexibility in working and other structural changes.

3.the natural rate hypothesis: a claim by Robert Lucas that unemployment eventually returns to its normal or “natural” rate, regardless of the inflation rate. It implies the limited effectiveness of public economic policies.

4.the Federal Reserve: the central banking system in the united States, established by the Federal Reserve Act of 1913, consists of 12 federal reserve banks, with each one serving member banks in its own district. The system is supervised by a board of governors in Washington, D.C., as well as by various advisory councils and committees. It has broad regulatory powers over the money supply and the credit structure.

5.Lehman Brothers: a global financial services firm and the fourth-largest investment bank in the U.S. before declaring bankruptcy in 2008. Lehman’s bankruptcy filing is the largest in U.S. history, and is thought to have played a major role in the unfolding of the late-2000s global financial crisis.

6.macroeconomics: a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, including the aggregated indicators such as GDP, unemployment rates, and price indexes.

7.maturity transformation: the practice of fractional reserve banks (or other financial institutions) borrowing money on shorter timeframes than they lend money out.

8.fundamentals: the qualitative and quantitative information that contributes to the

economic well-being and the subsequent financial valuation of a company, security or currency. For macro-economy, they include interest rates, GDP growth, trade balance surplus/deficits and inflation levels, etc. For businesses, information such as revenue, earnings, assets, liabilities and growth are considered some of the fundamentals.

9.mortgage-backed securities: a type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by an accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

10.liquidity: the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. It is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

Questions for Further Thinking

1.What role does the financial market play in the economic system?

2.What role does the central bank play? Get to know the latest policies issued by the central bank of China.

3.In history, there have been so many financial crises and bubble bursts. Although they were warned and alerted each time before a crash, many have always seemed to be forgettable. As a result, panic, suffering and regret usually come together. How come people don’t remember lessons from the past?

4.Many economists think that Keynesian economics has weak or even no microeconomic foundations, and have been making efforts to reform the previous theory. What does this tell about economic theories?

5.How is the 2008 financial crisis different from other economic crises in history?

6.A society has to face a short-run trade-off between inflation and unemployment. Since there’s no such thing as a free lunch, a policy maker usually has to choose the lesser of the two evils. Does it still make sense to the macro-economic regulation?

7.A nation usually uses both fiscal and monetary policies to pursue its macroeconomic goals. Why are policies important in regulating economy?

8.How do the macroeconomic policies affect a nation’s economy? Collect some information and statistics that can illustrate the effects of macroeconomic policies.

After-reading Assignment

Oral Work

1.Suppose you were the U.S. Federal Reserve Chairman, how would you persuade the Congress to swiftly pass the Bush administration’s $700 billion debt bailout plan in the aftermath of the 2008 financial crisis? Make a short presentation.

2.In May 2005, Greenspan said there was only “froth” in housing, rather than a national housing bubble similar to those in the stock market. Nowadays, some believe there are bubbles in the housing market in China, or even worse, there are bubbles in the economy in general. Make a short presentation reporting different views and descriptions concerning the bubbles or froth in the economy of today.

3.You are a student now and may not have much money to manage on your own, but you still have a budget to plan and buying decisions to make. Or maybe you have your savings for the purpose of holiday trips, or gifts for special ones. How do you manage your wealth? Do you have some smart ideas to share, or have you learned any lessons? Share them with your classmates.

4.Would you like to buy stocks? What qualities do you think are important to an investor? Make a short presentation listing 3 qualities that you think are essential to an investor in the financial market.

Written Work

1.How did China respond to the 2008 financial crisis? Conduct a research and write a report about China’s significance as an emerging power during that crisis, and about China’s future role in the global financial market.

2.In the film Wall Street, Gordon Gekko’s notorious words “Greed is good” vividly depict the true face behind America’s greed culture. Do you think it justifiable? Write a 400-word essay arguing for or against the claim “Greed is good”.

3.Brain drain means the mass emigration of technically skilled people from one country to another, while reverse brain drain occurs when human capital moves in reverse, usually from a developed country to a less developed one. How do you think a country can keep its own talents and attract talents from other places? Write a proposal stating some relevant policies concerning this question.