As the American military prepares to end its conventional presence in Afghanistan, crises across the world prevent American military from shifting back to peacetime mode. With the rise of the Islamic State and the continued presence of global terrorism, coupled with the crisis in Ukraine, global humanitarian issues, and the administration’s pivot towards South Asia, the need for a strong American military persists into the 21st century.

But American budgetary cuts in the 2011 Budget Control Act have stood in the way of a perpetually increasing Department of Defense’s (DoD) budget. The 2008 Recession has forced policymakers to make difficult choices and defense spending, insulated from much of the partisan rhetoric after the September 11th attacks, now appears an attractive target for fiscal hawks. While the 2013 fiscal cliff deal postponed some of those cuts, a noticeable political coalition has started to form, uniting fiscally conservative Libertarians with anti-war and pacifist Democrats in search of defense cutbacks. This new coalition could radically redefine American military presence across the world, as many see an extended US presence abroad as an expensive distraction from more pressing policy woes. If some of the proposed austerity measures become law, we could see foreign military bases shutter, deployments shrink, and advanced weapons development halt. As this new reality sets in, defense contractors should see their revenues lower and their stock prices decline.

The reality of defense spending, however, is complicated. Since procurement of military equipment takes years, severing pre-existing contracts and relationships is both politically and professionally unpopular. According to the Center for Strategic and International Studies, the Defense Department has awarded over $314 billion to defense contractors in fiscal year 2013. Lockheed Martin, the largest contractor, accounting for 9.5 percent of all defense contracts, received over $44 billion from the DoD in 2013. This year, its profits grew from between $5.25 and $5.40 billion in 2013 to over $5.475. With the exception of Boeing, the top five contractors, Lockheed Martin, General Dynamics, Raytheon, and Northrop Grumman have seen their stock prices rise over 25 percent in the past year. In comparison, the Dow Jones Industrial Average has risen 9.37 percent, the Nasdaq 13.71 percent, and the S&P 500 12.62 percent. Although many factors contribute to stock prices, the defense industry stands out as Wall Street bets big on continued American military operations across the world.

Yet defense spending cuts have hit military contractors and in particular, research and development. Since passage of the sequester in the Budget Control Act, overall defense spending declined from $702 billion to $646 billion and contract obligations declined from $373 billion to $314 billion—a 16 percent cut, or double the overall blow to defense spending. While reductions fell across the board, research and development suffered a 21 percent hit. In total, the defense cuts in the sequester totaled $37.2 billion for fiscal year 2013 and $34 billion for fiscal year 2014, although future amounts could vary with future legislation.

Increasingly, defense contractors are looking to foreign nations to export their cutting edge technology. For example, Israel, which over the summer fought a war against Hamas, relies on American military assistance and military equipment. Raytheon has partnered with Rafael in Israel to produce missiles for the Iron Dome defense system to the tune of $149.3 million, and Israel just announced its purchase of another squadron of Lockheed Martin F-35 fighters after its first order worth $2.75 billion. This increased growth has likely fueled the rise in stock prices, and as conflicts in the Middle East have increased in intensity, the prospect of additional military exports appears more likely. As policymakers debate the extent of American involvement across the world, foreign leaders appear poised to jump at the opportunity to purchase state of the art American equipment.

The defense industry must confront its desire for ever-greater profits with its national priority to provide for the American defense industry. As American policymakers search for cuts in the budget, defense contractors have formulated creative methods to deal with the prospect of decreased defense spending. By exploring export opportunities and minimizing wasteful programs, defense contractors have survived the recent round of limited austerity. The American military remains the most powerful fighting force in the world, but as geopolitical realities combine with budgetary distress, American defense contractors face an uncertain future where they must innovate and demonstrate the worth of their programs to both appropriators and their shareholders.


In the early 2000s, housing prices took off as subprime loans made capital accessible to nearly anyone and increased demand throughout the market. In 2008, that bubble burst. Securities backed by real estate properties were rendered worthless thereby setting off a chain of events that led to one of the greatest recessions since the Great Depression of 1929. Now, as economic growth begins to pick up and we enter our 58th consecutive month of GDP growth, economists are beginning to wonder whether we are falling right back into the same trap that beset us in 2008.

A run-up in housing prices can occur due to a combination of demand, speculation, and belief that past trends in housing prices can be used to predict what will happen in the future. To test whether rises in housing prices indicate general trends of actual bubbles, some economists compare the Home Price Index with the Rent Index. When looking at this graphically, we can distinctively see the bubble that occurred in 2008.

Peter Wallison, an economist for the American Enterprise Institute, recently wrote an article in the New York Times claiming that there are many similarities between trends in housing prices today and those of the late 1990s and early 2000s. Wallison notes that from 1997-2002, housing prices grew by six percent compared to a 3.34 percent growth of rental prices. Similarly, since 2011, housing prices have grown 5.83 percent compared to an increase of only two percent in rental prices.

Among those who believe that we may be entering another bubble, opinion remains split as to its cause. Wallison blames government policies, such as low requirements on down payments, which allow individuals to buy homes too easily. He suggests that minimum down payments be raised from the current level of three to five percent to pre-1992 levels of 10 to 20 percent. Others believe that the Federal Reserve’s tax monetary policies could be fueling the rise in housing prices. Federal Reserve Governor, Jeremy Stein, stated that the Fed must be careful using expansionary tactics when risk estimates within the bond market are excessively low. Though Stein refused to voice his opinion on the Federal Reserve’s current policy, people believe that Stein would say that the Fed is being too accommodative and should take action to prevent bubbles from forming.

While some have voiced their criticism of current Fed policies, Fed Chairwoman, Janet Yellen, does not seem to be concerned about any rumors of upcoming bubbles. Her latest addresses have not even touched upon the risk that low interest rates could cause speculative run-ups in prices. In her latest address, Yellen made clear her intentions of maintaining low interest rates until the Fed deems unemployment rate is an acceptable level.

Yellen is in the unenviable position of having to decide what acceptable level of risk the Fed is willing to bring to the United States’ economy against policies that stimulate growth. Although the United States has officially been out of the recession for almost five years now, unemployment is still relatively high (6.8 percent) and the annualized rate of GDP growth in the United States in the last quarter of 2013 was an anemic 2.6 percent.

Given these facts, Yellen’s position defensible, especially when considering that no consensus has been reached on the subject of whether or not we are looking at a real bubble. According to Jed Tulko, the chief economist of the real estate company Trulia, housing prices are still undervalued by five percent. Of the 100 markets that Trulia monitors, housing prices are overvalued in only 19, compared to in 2008 when all 100 were overvalued. Tulko also notes that most of the overvalued markets are in locations that that have witnessed a significant influx of people, causing high demand and tight supply and a natural rise in home values.

For now, the best we can do is wait and see. WIth some luck, this is a temporary blip, and housing prices will soon return to a normal rate of growth. However, if this truly is a bubble, the Fed and policymakers must be especially vigilant and must make sure to clamp it down before it reaches a catastrophic size. Fresh out of the 2008 recession, many vividly remember the consequences of housing bubble’s burst and hope it does not repeat.

In Verizon v. FCC, the D.C. Circuit Court of Appeals struck down certain Federal Communications Commission (FCC) regulations that mandate net neutrality which allows for free and open access to the Internet. Many have denounced this ruling as the death of the open Internet, which could lead to the corporate corruption in attempt to restrict access by charging additional fees. The Court ruled that the FCC’s 2010 Open Internet Order was not “within the scope of (the FCC’s) statutory grant of authority” as given by Congress.

The FCC relies on the outdated 1996 Telecommunications Act, an act that was legislated when smartphones were nonexistent and dial-up was the sole form of accessing the web, for the authority to regulate internet service providers. Because no major Congressional legislation has since addressed the changing face of the Internet, the lack of technologically up-to-date laws has stymied the FCC’s attempts to further regulate the industry.

Comcast’s proposed union with Time Warner Cable, which would create the largest internet service provider in existence, has been a recent example of the FCC’s lack of ability to regulate the industry. Besides raising antitrust concerns as the entity would service one-third of Americans, the merger has tremendous ramifications for net neutrality given the size and scope of the proposed fusion. The FCC has not yet been able to issue a new order regarding the proposition that complies with the Court’s ruling. The inability for the FCC to take the necessary regulatory actions could be detrimental to upholding net neutrality.

The continuation for net neutrality is fundamental. With services such as Netflix using large amounts of data, the desire to treat all communications equally seems unreasonable given the potential costs to comply with such the Court’s decision. However, setting a precedent to differentiate between various content sources could lead to discrimination against many providers and subjugation of ideas. For example, a telecommunications company could decide Facebook videos consume too much bandwidth and thereby charge an additional fee to post these videos. This hypothetical scenario raises free speech concerns as new systems could create barriers to free expression and free enterprise. Small startups would face tremendous financial barriers to market entry if they were required to pay large telecommunications companies. Net neutrality levels the playing field, enabling economic opportunity and global interaction.

With the goal of net neutrality, the FCC promised to rewrite its bylaws to comply with the Court’s ruling. Due to the urgency and importance of the issue, the FCC plans to act within coming months to refine the Open Internet Order. Chairman Tom Wheeler stated that “preserving the Internet as an open platform for innovation and expression while providing certainty and predictability in the marketplace is an important responsibility of (the FCC).” Wheeler’s comment suggests that the FCC will act forcefully to promote an Internet that favors the creativity and interactivity of its billions of users. Should the FCC renege on its policy to “ensure that no one, not the government and not the companies that provide broadband service, can restrict innovation on the Internet,” America could suffer due to a shift toward other countries with freer, more innovative policies. The FCC therefore has an obligation to ensure the freedom of the Internet as a means of promoting American capitalism.

The United States should lead the world in promoting innovation. The American economy remains the bedrock of the global economy and American companies offer the innovative services necessary to adapt to the modern age. Nothing in the Court’s ruling precludes the FCC from championing policies that preserve America’s status as a global technological leader. However, the FCC must act within its Congressional mandate or it should press for more authority. With legislative action unlikely in the currently-polarized Congress, refining a broad rule to conform to Verizon v. FCC seems the best option for preserving the status quo in the Internet and providing for the technological innovation that could transform society.


Federal Reserve Board Building

Since the beginning of the great recession, the Federal Reserve has increased its transparency of monetary policy, created new tools for controlling short-term interest rates, and has maintained its dual mandate of fostering maximum sustainable output and employment with stable prices. The recent rise in the monetary supply and the increased size of the Fed’s balance sheet has been alarming for inflationary hawks. With an enlarged balance sheet, the federal funds rate may no longer be the most effective method for the Fed to control short-term interest rates. Two new tools: the interest on excess reserves held at the Fed, and the overnight reverse repurchase program could serve as a way for the Fed to directly control short-term interest rates and affect a larger number of market participants.

Traditionally, the Fed indirectly manages the federal funds rate in order to control short-term interest rates. The federal funds rate is the rate at which banks lend to each other for overnight loans in order to secure the amount of reserves required by the Fed. Since 2007, the Fed slashed the federal funds rate target from 5.25 percent to below ¼ of a percent in order to encourage lending and business investment during the recession.

After reaching the lower bound on the yield curve, the Fed created new tools in order to continue its expansionary stance on monetary policy. The Fed introduced three rounds of quantitative easing, consisting of purchasing millions of long-term treasury bills and mortgage-backed securities every month, in order to decrease medium- and long-term interest rates. The result of these purchases is a drastic increase in the size of the Fed’s balance sheet, which recently crossed $4 trillion and will likely continue to rise to a peak of about $4.5 trillion.

Former Fed economists, Brian Sack and Joseph Gagnon, recently published a paper proposing that the Federal Open Market Committee should stop targeting the federal funds rate as its benchmark interest rate, and instead use the reverse repurchase program in conjunction with setting interest on excess reserves at the same level.  Since 2008, the Fed has pumped $2.5 trillion into the economy by purchasing bonds on the open market. However, the traditional system will not work unless the central bank pulls out most of this money. This liquidity in the system will present a major challenge when the time comes to raise short-term interest rates. There is also economic evidence that a greater amount of liquidity in the financial system allows it to operate with less risk and greater efficiency, and therefore the Fed might not want to decrease its balance sheet even in the long run.

For monetary policy in the future, Sack and Gagnon have proposed that the Fed set short-term rates by directly controlling the interest on excess reserves rate and the reverse repurchase agreement rate. The interest on reserves (IOR) is a rate the Fed directly controls, where the Fed pays interest to banks that keep excess reserves at the Fed. The Fed’s control of interest on excess reserves gives the Fed ability to control interest rates even if there are abundant reserves in the market. By raising the interest on reserves rate, the Fed could counter inflationary pressures by increasing the opportunity cost of lending, which would incentivize financial institutions to keep their excess reserves risk free at the Fed.

Another short-term interest rate setting program is the reverse repurchase facility (RRP), which is an open market operation where the Fed sells a security with an agreement to repurchase the security at a specific time in the future at a certain price. The difference between the repurchase price and the sale price, including the length of time between the transactions, implies a rate of interest paid by the Fed on the cash invested by the counterparty institution. The RRP “interest rate” basically sets a floor on the short-term interest rate, since no market participant would be willing to lend under the risk-free rate provided by the Fed. In order to counter inflationary pressures, the Fed could increase the price of the repurchase, which would increase the opportunity cost of lending with an interest rate near or at the RRP interest rate.

Unlike the federal funds rate, the Fed can do reverse repurchase agreements with non-banks, which extends the Fed’s control to a broader set of market participants.  Therefore, the Fed will have access to over 140 financial institution and counterparties including corporations like Fannie Mae and Freddie Mac. One positive implication of this plan is that the Federal Open Markets Commission would have the ability to control financial conditions by directly setting the short-term interest rates. This would increase the Fed’s flexibility, since it could adjust its balance sheet to achieve its own economic objectives without having to be as concerned about the consequences of liquidity and indirect interest rate impacts like the Federal Funds Rate.

The Fed should use the reverse repurchase facility as its policy instrument and it should maintain the interest rate paid on bank reserves at the same level of interest. The Fed would be able to leave a large amount of liquidity in the system on a permanent basis, which should reduce risk and increase the market’s financial efficiency. Sack and Gagnon believe that the optimal solution would be achieved by setting the RRP rate in concomitance with the IOR rate. This would hopefully give the Fed sufficient control over short-term interest rates and also allow the Fed to influence broader market conditions in order to foster maximum sustainable output and stable prices.

The research on this policy is very new, and the Fed will need to complete more research on the effectiveness of using these two new tools in synchrony with each other. In the future, the Fed might no longer use the federal funds rate as its main policy tool, and the interest on excess reserves and reverse repurchase facilities could be the future determinants of United States monetary policy.

At the end of January, the United States Federal Reserve Bank will undergo a transition, as the current Chairman of the Board of Governors, Ben Bernanke, will step down. On October 9th President Obama nominated Janet Yellen, the Vice Chair of the Board, as his choice to succeed Bernanke and lead the Fed.

While the choice of Yellen was hardly unexpected, it still raised many questions regarding what the United States and the world should expect to see as Yellen takes charge, especially as the Fed prepares to deal with the transition out of quantitative easing. Will Yellen be a radically different leader than Bernanke? Or are we likely to see large similarities in the Fed’s philosophy over the last ten years? While it’s impossible to answer these questions for sure until Yellen takes over, taking a look at her past and examining her prior stances can be helpful in making educated guesses.

Prior to her experiences at the Fed, Yellen attended Brown University, where she graduated summa cum laude in Economics. Immediately following her graduation, she enrolled in Yale’s Economics PhD program, eventually becoming a professor at Harvard University, where she taught Macroeconomics.

Yellen was appointed to the Fed’s Board of Governors in 1994 and served until 1997, when she stepped down to become the head of President Clinton’s Council of Economic Advisors. Eventually, Yellen became the President and CEO of the San Francisco branch of the Fed in 2004. She served in that position until 2010, when President Obama nominated her to succeed Donald Kohn as Vice-Chair of the Board of Governors.

The general consensus seems to be that the Fed’s policies under Yellen will likely be similar to a third Bernanke term. Yellen was deeply involved in coordinating and creating the current Fed policy with Bernanke, and there is little reason to believe that she would suddenly drastically change course.

One concern regarding Yellen that has caused some commotion is that she is considered to be very “dovish”, meaning that she is more concerned about maintaining full employment rather than about controlling inflation rates. A recent poll conducted by the Wall Street Journal of forty-two economists show that almost forty percent of them are not confident in Yellen’s ability to head off inflation above two and a half percent. The poll also asked respondents whether they thought Yellen was likely to be more hawkish or dovish than Bernanke, and again, nearly forty percent stated that they felt that Yellen’s policies would likely be more dovish.

Professor Marjorie Rose, who teaches macroeconomics at Dartmouth College, stated in an interview that she generally feels that Yellen was a strong choice to succeed Bernanke. “It would have been great to have a third Bernanke term; he is absolutely brilliant,” Professor Rose said. “But barring that possibility, I think Yellen was the solid choice from the field. She has had considerable policy experience, serving as Chairman of the Council of Economic Advisors under Clinton and then as President of the San Francisco Fed and now Fed Vice Chair. She has a keen intellect and understands policy and the economy.”

Professor Rose also noted that Yellen was going to be facing a unique challenge in taking over the Fed as it undergoes the transition out of quantitative easing.

“Even the mention of the possible tapering of QE a couple of months ago resulted in a spike in interest rates,” Professor Rose said, predicting the situation Yellen will be facing. “The Fed is in uncharted waters here.”

Despite the challenging situation, Professor Rose indicated that she believes that Yellen would be capable of handling both the policy and the politics of the position, stating, “The Fed chairman has to be thoughtful and very careful with any public statements; one misspoken phrase can send markets around the world into a tailspin, and I think Yellen has the experience and has demonstrated she knows how to handle herself.”

On Thursday October 17, just hours before the government’s borrowing authority was set to expire, President Obama signed a bill to reopen the federal government. The debt limit was lifted and the government gleefully returned to its spending spree as government debt topped $17 trillion for the first time in history. The American people heaved a collective sigh of relief that our government was no longer in “shutdown.” However, we shouldn’t feel relieved because the real crisis is unresolved: the ticking time bomb of out-of-control government debt.

College students of today, my generation, and our younger siblings are certain to suffer harm from our nation’s addiction to debt unless something is done soon.

Thomas Friedman, New York Times editorial writer, says of our generation: “Whether they realize it or not, they’re the ones who will really get hit by all the cans we’re kicking down the road. After we baby boomers get done retiring- at a rate of 7,000 to 11,000 a day- with current taxes and entitlements promises, the cupboard will be largely bare for today’s Facebook generation” (New York Times). Self-made billionaire Stan Druckenmiller is touring colleges trying to impress upon students the true amplitude of the problem of the rising costs of Social Security and Medicare, which he claims is the biggest generational theft in history. “I’m not against seniors” he likes to remind people, “In fact I am going to be one in a couple of years. What I am against is present seniors stealing from future seniors.”

Druckenmiller made his fortune running a successful hedge fund, and he asserts that the current deficit problem is one that is in many ways analogous to mistakes he has seen people make in investing. People are looking at the present and not the future, he explains, “When you analyze the debt at present it looks fixable. However, this is because the expectations of government don’t factor in demographics.” For the next twenty years, we are going to have 11,000 seniors retiring each day and the proportion of seniors relative to working population is going to explode. Instead of having five workers supporting each senior we will have two. ”If you actually took what we promised to seniors and future taxes and present value both of them, that number is 200 Trillion dollars. That is the problem when you take debt of future payment to seniors and put it on the balance sheet.”

While entitlement spending on senior citizens accounted for about 30% of the government budget in 1970 it has now reached a staggering 67% of government outlays, leaving less and less for any other type of discretionary spending. While many seniors believe that they are simply drawing out the savings they were forced to deposit into Social Security and Medicare, they are actually drawing out much more, especially relative to later generations. In fact, while today’s 65 year olds will on average draw $327,400 more than they put in in net lifetime benefits, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans (Wall Street Journal). To Stanley Druckenmiller, this is an affront to the basic principle of equity, “How in the world does anyone in Washington think that a current senior should get $700,000 more net, than a future senior? You are taking out $350,000 more than you put in and leaving $400,000 in debt to your unborn grandchild” (Bowdoin Daily Sun).

Although the details of the federal budget are complicated, the big picture is very simple. Debt means that we spend money now that we have to pay back later. Common sense tells us that taking on debt to invest in something productive can be a good idea if the investment allows us to increase our income enough to comfortably pay off the debt we have incurred. But this is not what the government is doing. The United States is borrowing money to pay for consumption. The government is in effect writing checks to senior citizens to pay for retirement and expensive medical care. My generation will have to pay back the money that is currently being spent on today’s overindulged seniors. When we reach retirement age, there is no way that we will have benefits at the same level they do. Furthermore, the period of deleveraging will be a drag on tomorrow’s economy.

Politicians have systematically ignored the true drivers of the budget deficit, Social Security and Medicare. Instead, budget reforms have focused more on tampering with crucial investments in education and other discretionary spending, efforts that fall vastly short of the measures required to significantly reduce the federal debt. College students, who tend to vote for Democrats, are often against spending cuts that reduce aid to the poor, research , education and environmental regulation. The reality is that even if all of these programs were eliminated, the deficit would hardly budge. Meanwhile, as debt ceilings keep getting lifted and true spending reforms that would hit entitlements keep getting postponed. The problem just gets compounded and the ultimate cost keeps getting higher.

Our generation doesn’t seem to realize that we will ultimately bear the cost of the government’s current fiscal irresponsibility. Both cuts in entitlements and spending as well as rises in taxes, or at least eliminating loopholes, will be necessary. The debt has reached a level where even with robust economic growth, we can’t grow our way out of this mess. It’s time that politicians start taking necessary actions. As articulated by an activist youth group, The Can Kicks Back, “Our country needs a grand generational bargain.” This is not a partisan issue. The current path of the United States government spending is simply unsustainable and it is today’s younger generation that will be left struggling to pay off the debt of an America that spent beyond its means.




Five years after the financial crisis, the European Union has continued to struggle. Plagued with high unemployment rate, rising suicide rates, high government debts, and rising prices, the European Union has continued to suffer financially since 2008. In recent surveys conducted by the European Commission, less than one third of people trust the European Union (Public 23). The greatest concern of these people is the high unemployment rates – as high as 27.6% in Greece (Greece 1).

However, not every country in the European Union has been struggling to the extent of Greece. Germany, which is truly a diamond in the rough, faces an entirely different economic position. The export-heavy industrial superpower has continued to expand its economy despite the negative effects it has faced from its surrounding nations. Due to this positive trend, members of the European Union have looked to Germany as the new leader of the European Union. However, after the recent elections, many people are left wondering whether the German Bundestag will be able to command Europe. In September, Germany held its elections, in which the CDU party of Angela Merkel reigned supreme for the third time in a row. Over the course of the next 4 years, the CDU hopes to increase employment, lower taxes for the country, and defend exports with hopes to pay back its national debt. The rest of the world can only wonder if this will be enough to stabilize the financial market in the other countries that make up the European union and the Eurozone.

Even though Germany’s current unemployment rate is 5.2%, which is already below what Americans consider to be the natural rate of unemployment, the country still hopes to improve (Germany Unemployment 1). Currently, the average unemployment rate in the European Union is 11% and has been rising since early 2011(Unemployment 1). Due to the disparity between the unemployment rates, it is no surprise that the other countries have been looking to Germany as the new leader.

Unemployment Rates of Germany and European Union (Eurostats)

If the Germans are able to continue their progress in lowering the unemployment rate, it can only help the overall economic stability of Europe. As unemployment rate drops, there will be an increase in the average standard of life for the nation. The German people, who are known for their abnormally high saving rates, will hopefully expand their spending into neighboring countries. As we have seen in the past, increased spending is beneficial to the economy and thus the entire European Union.

The CDU party also hopes to increase the average German income by lowering the taxes on it rather than through a minimum wage, which is associated with unemployment (CDU 1). Disposable income, which is the amount of income that a person has after taxes, can also be used to show the response of consumption to a change in taxes. Historically, a decrease taxes has led to an increase in long-term consumption. While the increased German consumption of goods may take time to show effects on surrounding countries, history has shown that the increase in consumption should cause the European Union to finally recover from its low point in 2008.

In the final major piece of their platform, the CDUasserts that Germany must defend and improve its exports in order to pay off its national debt (CDU 1). Germany has always been “the world’s biggest exporter of goods, with particular strengths in machinery, chemical, and auto sectors.”(Merkel 1) In 2009, economists warned that Germany was in a vulnerable position due to a decrease in global demand for goods. However, four years later, Germany still holds a powerful global position that continues to grow in power. Angela Merkel, the Chancellor of Germany since 2005, stated, “I believe there is no alternative to being a country with strong exports.”(Merkel 2) The CDU party plans to encourage exports over the next few years in a hope to pay off its national debt. They hope to set an example for its neighboring countries. Most countries in the EU can no longer raise taxes to combat the major problem of growing national debt, as they already have high tax rates.

Over the next few years, the world will have to wait and see if Germany can take on a leadership position in the European Union and help the European economy recover. In the past few weeks, the European equity markets have been showing signs of recovery, with a record high of 8,981 index points in October 2013(Germany Stock 1). Regardless of the recent economic improvements for the EU, a country must step into the leadership position. Currently the most likely candidate for the position seems to be Germany, due to its current economic success. Germany must use its political policies at home in order to attempt to influence the great European economic problems, if the European Union hopes to survive.


To taper or not to taper: that is the question that has defined the Federal Reserve, market participants, and the public debates over monetary policy throughout the last twelve months. Following the start of the third round of Quantitative Easing on September 13, 2012, the Fed is currently represented by the uncertainty around the tapering of QE3.

Over the past two decades, the Federal Reserve has made an effort to increase the transparency of its monetary policy. Since 1994, the Fed has announced its target for the federal funds rate, published Federal Open Market Committee statements, released FOMC minutes three weeks after meetings, and, in 2012, even attached explicit threshold indicators that would alter the Fed’s view of longer run monetary policy goals . This idea of “forward guidance” serves as a way for the central bank to communicate with households, businesses, and market participants about the FOMC’s stance on monetary policy and its future actions. Through forward guidance, the Committee expects that more certainty in the Fed’s monetary policy can push down long- term interest rates, increase capital investment, and improve financial conditions.

Even the Federal Reserve Bank of San Francisco’s research has indicated that the effectiveness of QE2 was largely caused due to the forward guidance of the central bank, where the Fed’s macroeconomic model “suggest(s) that such interest rate forward guidance probably has greater effects than signals about the amount of assets purchased.”

While the Fed has acknowledged the benefits of forward guidance, the Federal Open Market Committee is trying to determine how and when to begin tapering its asset purchases. Following the September FOMC meeting, the FOMC press release statement indicated that the “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.” However, despite the fact that the Fed has forward guidance for the federal funds rate, the tapering of QE3 remains up in the air. There was much anticipation that tapering would begin in September, but in a 9-1 vote, the FOMC voted to keep long scale asset purchases at $85 billion per month.

The recent government shutdown has made it harder to forecast and understand the economy. The dismissal of 800,000 “non-essential” government workers includes employees of the Census Bureau, Department of Commerce, and the Department of Labor who attain and analyze economic indicators. Without these economic indicators, there has been more uncertainty in the economy, and it may be more difficult for the Fed to understand current economic conditions. Economists predict that the 16-day government shutdown will shave 0.3% off the 4th quarter of GDP growth in 2013. The government shutdown has also created a gap in the data stream of indicators the Fed needs in order to understand current economic conditions. Due to this hole in the data stream of economic information, the FOMC will be unable to fully assess the economy during its December meeting.

A taper in January is also questionable. Following the January meeting, Bernanke will step down and four new Federal Reserve Bank presidents will fill rotating seats in the committee. It seems plausible that tapering will most likely happen in March, but waiting till then would add another $255 billion to the Fed’s swelling $3.81 trillion balance sheet.

Because the Fed defines “solid economic growth,” the Fed’s tapering is not bound to any concrete threshold. In a June speech, Bernanke predicted that asset purchases would come to an end when the unemployment rate was in the “vicinity” of 7%. Despite a 7.2% unemployment rate, Bernanke has still asserted that a reduction in asset purchases would not begin until there is “solid economic growth supporting further job gains.” Although unemployment has been dropping steadily since April 2010, a lower unemployment rate does not always indicate more jobs. As economist Paul Krugman points out, the declining unemployment rate is mostly due to the paralleled decreasing percentage of Americans participating in the labor force.

As The Economist understands, “The Fed needs to spell out its priorities and plans much more fully.” In our current uncertain and tepid economic recovery, the Fed must consider the positive attributes of more transparency. John Williams, president of the San Francisco Fed, recognizes that “every step we’ve taken toward greater openness and clearer communication has made our policies more effective and has served to enhance the Fed’s accountability and transparency.” It is time for the FOMC to give the market a better understanding of the impending unwinding of the Fed’s balance sheet.


The problems embedded in the world agriculture situation have been popularly labeled as “food insecurity” or “hunger,” and these terms have risen on the international agenda particularly since the 2008 global food crisis. What’s glaringly missing, however, is any sense of the political—how the relations between corporations, governments, farmers and consumers manifest themselves in a deeply unequal distribution of benefits. The task for international social movements, then, is to craft discourses centered around local people’s sovereignty. John Dryzek, in his book Deliberative Democracy and Beyond, terms this “transnational discursive democracy,” which is highly relevant to the push toward a new model for world agriculture. 

The link between transnational discourses and a more democratic state is particularly relevant in combatting the “race to the bottom,” whereby poor countries make their resources amenable to foreign investment at the expense of local people’s human rights. This issue is not just a matter of globalization, but of the absence of democracy in developing countries. Movements to strengthen the position of, say, laborers or farmers at the domestic level may prevent the state from opening its doors to foreign capital that undermines local people.

The impasse at the Doha (Qatar) round of World Trade Organization negotiations, which have dragged on since 2001, is often considered to be a failure of international cooperation. Yet looked at another way, this stands as a promising example of how domestic-level political concerns can protect vulnerable groups in one country and promote collective action by the developing world as a whole. Leaders from developing countries refused to budge on the issue of farm subsidies, which have long been central to U.S. and European policy to artificially lower the price of agricultural exports, undermining local farmers around the world. Critics in developing countries point out the injustice of continued protectionism in the U.S. and Europe even as these powers have sought to prevent other countries from subsidizing their own farmers. That position was in no small part influenced by global discourses highlighting agricultural trade liberalization’s disastrous impact on the world’s poor. Dryzek correctly states that inserting civil society into global trade institutions would do little for democracy, serving only to remove key actors from the international “public sphere” that has really been the most effective space for advocating for a more democratic world. If the WTO itself cannot be democratized, then there still remains the possibility of democratizing its member states so that they defy the WTO’s free trade orthodoxy.

Furthermore, transnational discursive democracy’s connection to the state is evident in the movement for the “Right to Food.” This rights-based approach has been unfairly criticized for focusing on technical and legal components while neglecting structural political-economic factors. Yet efforts to implement the Right to Food at the country level inevitably draw upon transnational discourses of agriculture and development, which certainly do indeed incorporate the political economy element. The UN Special Rapporteur on the Right to Food, Olivier De Schutter, is the embodiment of global narratives coalescing into a coherent agenda for national development. When he conducts right-to-food missions to individual countries and meets with high-level leaders, he is essentially transmitting transnational discourses to the state.

Interestingly, successful activism in one part of the world may inadvertently have detrimental consequences for that same social movement in another region. In response to the European Union’s ban on genetically-modified crops, multinational seed companies headed into developing countries intent on expanding their market for such crops. It is unlikely that their efforts in India and Africa would be so aggressive if the European market had remained open. Clearly the higher degree of democracy in EU member states, compared with those of the global South, accounts for this outcome. Rather than dismiss this situation as the inevitability of capital flight, the challenge is to strengthen democracy in the global South in order to push back against capital flight.

Indeed, there is an important place for global North-South discourse in facilitating such a shift in agriculture. Food sovereignty movements in the U.S. and Europe can send a message to Southern political leaders: even as they seek to adopt the former’s agriculture system, mobilization around an alternative agriculture offers a warning that industrialized food production has proved a failure in the very countries that are supposedly the model for the rest of the world.

Dryzek encapsulates an effective way for thinking about social change when he suggests that we ask, “Will action X help bring into being the kind of world I find attractive?” rather than “Will action X achieve particular goal Y?” The task for social movements is to facilitate an arrangement of actors that transforms the apolitical “food security” frame to the explicitly political “food sovereignty” frame. These actors, in turn, will elevate the legitimacy of people and knowledge systems that have long been marginalized by trade-based and large-scale industrialized food production. By contrast, the second question does little challenge the prevailing order.  One way to think about a paradigm shift, Dryzek writes, is as the contestation of discourses rather than as competition among identities.

Discourses transcend the constituencies directly affected by an issue by appealing to moral standards of the dominant order, exposing the contradictions within that order (i.e. increasing hunger despite higher crop productivity), and imagining an alternative. All this then allows for collective choice, which rebuts the notion that discourses have little relevance to actual policymaking processes aimed at bringing about a major transition. Framing such resistance merely as the assertion of particular interest groups (i.e. developing world smallholder farmers) is problematic because it creates a zero-sum game whereby those farmers’ gain must come at another’s expense; yet in reality, significant parts of society benefit from policies favorable to those farmers. The other issue is that collective choice is deemed intractable if farmers are seen as an “interest group,” when in fact constituencies other than farmers would be supportive of their agenda.

Agricultural development strategies—be it new technologies or export-oriented production—have long evaded political accountability, finding their legitimacy in seemingly common sense notions of progress and modernization. What social movements can do is to raise questions in the political arena that have long remained off the table, challenging the taken-for-granted nature of development narratives and expanding the realm of what is indeed possible.

Recoveries after recessions in the past have been speedy, but the great recession’s recovery has bucked this trend. A variety of factors came together to make this comeback particularly tricky.

Although the colloquial definition of an economic recession is two consecutive quarters of GDP contraction, the National Bureau of Economic Research uses a variety of metrics to officially determine whether or not the economy is in a recession. According to the NBER, a recession is the period between a peak and a trough in economic activity. Additionally, recessions can include periods of expansion followed by further contraction, and vice versa.

The latest recession, according the NBER, ended in June of 2009, 18 months after it began in December 2007. This announcement included a caveat though, stating, “The committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.” Three years after that decision, in April of 2013, economic conditions are better. But the recovery is still anemic at best. Low unemployment rates mask low labor-participation rates. Low interest rates still haven’t convinced firms to resume investment. And public debt worries threaten to make the path even steeper.

Experts question the strength of the recent economic recovery. One economist, John Taylor, compares actual GDP since the recession to potential GDP – his measure of where GDP growth should be, without the recession. Even fourteen quarters after the recession began, the actual GDP is showing no signs of catching up to potential GDP. Following previous recessions, GDP returned to potential much faster: between five and ten quarters after the recovery began for recessions in 1893-94, 1907-08, and 1981-82.


                                     Economics One, John Taylor


According to recent data from the St. Louis Fed, the employment-to-population ratio has stagnated. This contrasts with previous recessions, where the employment-to-population ratio rebounded quickly. The ratio remains low despite a falling unemployment rate, which may indicate that many are giving up their job searches.


      St. Louis Federal Reserve


The recovery has been this slow for a variety of reasons. First, the Eurozone has been experiencing a persistent financial crisis. The EU as a whole is America’s largest trading partner, accounting for $636 billion in imports and exports in 2011. As conditions in the EU continue to sour, the U.S. economy will be in jeopardy. European GDP has continued to lag behind America during the recovery. While the United States continued to grow through 2012, the Eurozone contracted again, shrinking 0.3% percent on the year. Eurostat recently reported that the Eurozone reached record high levels of unemployment in February, peaking at 10.9%. European weakness will continue to drag down the recovery until their substantial sovereign debt problems clear up. Ineffective leadership and emerging crises such as Cyprus will complicate their recovery and, in turn, the U.S. recovery.

Domestically, Congress’s poor response to our growing national debt has slowed down the recovery. Political standoffs over raising the debt ceiling and avoiding the fiscal cliff have lowered consumer confidence and increased uncertainty. Despite high first quarter job growth, April employment numbers showed a lackluster 88,000 new jobs created, and another fall in the employment-to-population ratio. As both the January 1st tax increases and the brunt of the sequester come into full force through the summer, we may see few new jobs and another speed bump for the recovery. This will also come without providing a long-term national debt fix. With experts wondering how high America’s debt-to-GDP ratio can get without consequence, we may see future slowdowns stoked by either debt fears or further austerity.

Moving forward, there are still reasons to hope for a speedier recovery. March housing numbers have indicated good things are in the works; the Wall Street Journal reported a 2.36% increase in listings since February and a 20.41% decrease in the median age of housing inventory. A housing recovery could bring hope and confidence in a real and lasting change of pace for the economy. Washington must provide a stable, long-term debt solution to avoid the uncertainty and volatility that have characterized our previous budget standoffs. The EU must put in place serious austerity measures and face head-on their own debt issues. If these conditions are met, the economy will surely return to its rightful pace.