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From the editor.

Much of this issue is concerned with what the government is doing to and for the economy, including business. Most of the articles are from NABE's Washington Policy Conference last March.

Fed-watching continues to be a major preoccupation of many business economists. At various times, the Fed has targeted money supply or interest rates. In the issue's first article, Ben Bernanke provides perspective on what "inflation targeting" is and what it does as an approach to monetary policy. Although the Fed has not formally adopted inflation targeting as its policy, Bernanke suggests that for the past couple of years, its actions have been consistent with the main precepts of this approach

At the Washington Policy Conference, much of the discussion was on corporate governance and its implications for American business. With the U.S. Securities and Exchange Commission at the heart of enforcing the government's role in corporate governance, new Chairman William H. Donaldson presents his views on the recent past and desired future of corporate governance, emphasizing the need for boards of directors to assert their independence by focusing on the long run health of the company and making sure that business is conducted ethically.

John Plender also focuses on the corporate governance issue. His concern is that current models of corporate governance are obsolete, particularly the development of distorted incentives for senior managers. One of the results is that U.S. governance has become much more of an "inside game," growing closer to that of continental Europe and to Japan than to the traditional Anglo-American ideal. He concludes that the corporate governance structure must be overhauled to recognize that the capital of firms is more likely to be in their human resources than in their tangible assets.

Both Donaldson and Plender note the reemergence of government activism in the light of the stock market bubble and corporate accounting scandals. Tom Gallagher takes things a step further, making the case that we are now entering a period of intensified governmental activism in a wide range of areas. It is brought about, not by ideology, but by a conjunction of circumstances facing the United States now and over the next several years. He identifies several past waves of increased and decreased activism and indicates their causes.

One of the areas identified by Gallagher as a source of increased governmental activism is health care. Uwe Reinhardt describes the inherent conflicts in providing health care, pointing out that its intrinsic qualities are poorly understood by providers and consumers alike, with confusion exacerbated by third-party payers. He describes the evolution of the current health-care system in the United States, the fiscal burdens it imposes, and current proposals for reforms. He concludes that a satisfactory solution is a will-of-the-wisp and that health care will be in a perpetual state of reform.

To be more precise, the reference to current governmental activism should be confined to the federal government. State government, after a boom in the 1990s, is in a state of severe retrenchment. Nicholas W. Jenny outlines the factors behind the growth of state government revenues and expenditures in the 1990s and the reasons for their especially severe contraction since. He also describes the factors that will keep state budgets under severe pressure for some time to come.

While government is a major concern, economists must also forecast short run developments in the macroeconomy. One of the most popular ways of doing so in a timely manner is the use of the Conference Board's composite leading indicators. H.O. Stekler investigates their forecasting performance, focusing on how revisions of the indicators affect their quality as forecasters.

In the Forum on Emerging Issues, Joseph W. Duncan, former president of NABE, looks at how current legislative proposals concerning consumer privacy are likely to affect the flow of information necessary for efficient scoring by credit providers. He describes the content and conclusions of a recent study that indicates that caution is necessary in restricting the flow of credit information, lest there be a significant loss of efficiency in the economy.

In Economics at Work, Arnold W. Baker, the Chief Economist of Sandia National Laboratories, describes the working of a small economics department whose focus is on economic issues concerning advanced technology--including defense, energy, and environmental issues. The work of the economics department includes the Laboratory's own strategies--federal budget analysis, model building to test implications of advanced technologies as well as proposals to use them, and other issues. The ability to work with technologists is essential in their efforts. And, like most business economists, it is crucial for them to be able to turn out high-quality work in a very short time.

The issue concludes with two reviews of books by high profile economists. The first, The Passionate Economist, is by Diane Swonk, former president of NABE. The second, The New Financial Order: Risk in the 21st Century, is by Robert J. Shiller of Yale University.

Robert Thomas Crow
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Author:Crow, Robert Thomas
Publication:Business Economics
Article Type:Editorial
Date:Jul 1, 2003
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