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The Boomers have begun to retire. That may be good news for young workers looking to move up the ranks. But Laura Tyson argues it is a problem for the economy. More than half of American workers lack the funds they need to retire without changing their living standards considerably. From Project Syndicate : Nearly 60% of all employed private-sector workers aged 25-64 are not covered by employer retirement plans, and coverage rates vary by income: 73% of all workers in the top earnings quartile are covered by such plans, compared to only 38% in the bottom quartile. Plan participation also varies by income, with low-income workers much less likely to participate than high-income workers. The lack of universal coverage also means that workers move in and out of plans as they change jobs; more than one-third of all households end up with no employer-based pension coverage. By contrast, in several other countries, mandatory employer and employee participation in national employer-based plans means nearly universal coverage. Personal retirement savings, another pillar of the US retirement system, are woefully inadequate for most households, partly because the decades-long stagnation in median wages has made it difficult to save. According to a recent study, one-third of Americans aged 45-54 have nothing saved specifically for retirement. Meanwhile, three-quarters of near-retirees – those aged 50-64 – have annual incomes below $52,201 and average total retirement savings of less than $27,000. The United States relies on generous tax incentives to encourage personal retirement savings, but these incentives are poorly targeted and yield limited returns. More than 80% of the value of these incentives goes to the top 20% of taxpayers, who earn more than $100,000 a year. Moreover, while the incentives cost the US Treasury nearly $100 billion annually, they induce little new saving; instead, they cause high-income taxpayers to shift their savings to tax-advantaged assets – a major reason why President Barack Obama proposes capping the tax deduction for retirement saving. A more radical proposal would convert the tax deduction into a means-tested and refundable matching government contribution – deposited directly into a taxpayer’s individual retirement account (IRA). Taxpayers are more responsive to matching incentives than they are to tax incentives, because the former are easier to understand and more transparent. Read America's Rehearsals for Retirement here .

At Project Syndicate , Harold James , professor of History and International Affairs at Princeton, presents an interesting take on why people in developed economies are showing a lack of confidence in the future, even as the economic situation improves. The nature of "economic malaise," James writes, "lies in the combination of economic uncertainty and the emergence of radically new forms of social interaction." The new service economy extends market relations to areas of life in which, previously, informal assistance and guidance within family units prevailed. To the extent that employment and income in the new services can be easily recorded, this change implies an increase in measurable economic wealth and output, because unpaid household services are ignored in GDP calculations. Experts might thus interpret the macroeconomic consequences as largely positive. But the element of personal dependence is a throwback to the preindustrial world. The zenith of the old service economy was the court of Louis XIV, where specialist courtiers attended to the Sun King’s every need, even the most intimate (there was a Groom of the King’s Close Stool). In that pre-modern world, private life was extraordinarily public, whereas the social movements of the nineteenth and twentieth centuries dramatically expanded the realm of individual privacy and self-definition. Today’s new service economy is driven by the resulting uncertainty over identity. We need advice on every aspect of life, provided in a complex world by people whom we think to be experts in ever-narrower and more specialized fields. We can easily monitor that advice and subject it to statistical testing: are our children doing better on tests? Are we more fit? Are we dating more people who share our perceived interests? Paradoxically, the new technological possibilities are also eliminating privacy. We are moving back to the Sun King’s world, in which everything personal is known, rumored, or whispered. But now, with electronic surveillance, personal dependence has never been more extreme, more humiliating, and more depressing. This might explain some of the public dissatisfaction captured in so many surveys, even when economic conditions are not dire. Subjectively, modern growth feels problematic, and perhaps even immoral. Read The New Economy of Fealty here .

At Project Syndicate , Barry Eichengreen argues that the Federal Reserve and the European Central Bank are guilty of too much analogical reasoning. Or at least of focusing their reasoning too much on a particular analogy. In evaluating potential economic dangers, the Fed focuses too much on the Great Depression and is "hyperactive" in its response. The ECB, meanwhile, remembers the hyperinflation of the post WWI period, and "is unflappable." Eichengreen: The Fed might also consider policy in 1924-1927, when low interest rates fueled stock-market and real-estate bubbles, or 2003-2005, when interest rates were held down in the face of serious financial imbalances. At a minimum, the Fed might develop a “portfolio” of analogies, test them for fitness, and distill their lessons, as President John F. Kennedy famously did when weighing his options during the Cuban missile crisis in 1962. Similarly, the ECB might consider not only how monetary accommodation allowed governments to run large budget deficits in the 1920’s, but also how central bankers’ failure to respond to the financial crisis of the 1930’s fed political extremism and undermined support for responsible government. Again, rigorous analysis requires testing these historical analogies for fitness with current circumstances. Anyone who does so will find it hard to defend the ECB and its stubborn inaction in the face of events. There is exactly zero evidence in Europe today that inflation is just around the corner. And, if current European governments are not committed to austerity and fiscal consolidation, then which governments are? When I consider the European economy, the ECB’s failure to provide more monetary support for economic growth appears to be directly analogous to Europe’s disastrous monetary policies in the 1930’s. The political consequences could be similarly devastating. Europeans should ponder why the inflationary 1920’s, rather than the politically catastrophic 1930’s, have become the historical lodestar for current monetary policy. On the other hand, when I contemplate the US economy, I conclude that recovery from the Great Depression, and not 1924-1927 or 2003-2005, is the episode that most closely resembles current circumstances. Only in the 1930’s were interest rates near zero. Only in the 1930’s was the economy digging itself out from a major financial crisis. Read The Use an Abuse of Monetary History here .

Commodity prices remain high, and Dambisa Moyo says we better get used to it. Moyo, author of Winner Take All: China’s Race for Resources and What it Means for the World , has a piece at Project Syndicate in which she outlines how long term factors will continue to drive commodity prices. One key factor: the rise of emerging economies and their growing hunger for oil, copper, iron, and other commodities: Worst-case estimates have China’s real GDP growing at around 7% per year over the next decade. Meanwhile, the supply of most commodities is forecast to grow by no more than 2% annually in real terms. All else being equal, unless China’s commodity intensity, defined as the amount of a commodity consumed to generate a unit of output, falls dramatically, its demand for commodities will be greater this year than it was last year. As long as China’s commodity demand grows at a higher rate than global supply, prices will rise. And the rapid economic growth that China’s leaders must sustain in order to lift enormous numbers of people out of poverty – and thus prevent a crisis of legitimacy – places a floor under global food, energy, and mineral prices. To be sure, intensity of use has fallen for some commodities, like gold and nuclear energy; but for others, such as aluminum and coal, it has risen since 2000 or, as is the case for copper and oil, declines have slowed markedly or stalled at high levels. As the composition of China’s economy continues to shift from investment to consumption, demand for commodity-intensive consumer durables – cars, mobile phones, indoor plumbing, computers, and televisions – will rise. There is also the issue of the so-called reserve price (the highest price a buyer is willing to pay for a good or service). The reserve price places a cap on how high commodity prices will go, as it is the price at which demand destruction occurs (consumers are no longer willing or able to purchase the good or service). For many commodities, such as oil, the reserve price is higher in emerging countries than in developed economies. One explanation for the difference is accelerating wage growth across developing regions, which is raising commodity demand, whereas stagnating wages in developed markets are causing the reserve price to decline. By implication, if nothing else, global energy, food, and mineral prices will continue to be buoyed by seemingly insatiable emerging-market demand, which commands much higher reserve prices. Read Commodities on the Rise here .

At this year's World Economic Forum in Davos, Barry Eichengreen participated in an interesting exercise. A group of economists were asked "to imagine the contents of a Principles of Economics textbook in 2033." While the participants anticipated continued progress and sophistication, there were no predictions of truly transformational ideas or radical shifts. And Eichengreen was disappointed. He shares his thoughts at Project Syndicate : The consensus, in other words, seemed to be that there would be nothing in the next 20 years as transformative as Alfred Marshall’s synthesis of the 1890’s or the revolution initiated by John Maynard Keynes in the 1930’s. In contrast to the economics of those years, economics today is a mature, well-established discipline. And, like any mature discipline, it advances incrementally rather than in revolutionary steps. This presumption is almost certainly mistaken. It reflects the same error made by scholars of technology who argue that all of the radical breakthroughs have already been made. As this view is sometimes put, the next 20 years will see no breakthrough as revolutionary as the steam engine or the transistor. Technological progress will be incremental rather than revolutionary. Indeed, insofar as the increments are small, the result is likely to be slower productivity growth and a “Great Stagnation.” In fact, the history of technology has repeatedly refuted this pessimistic view. We can’t say what the next radical innovation will be, but centuries of human experience suggest that there will be (at least) one. Similarly, we can’t say what the next revolution in economic analysis will be, but more than a century of modern economic thinking suggests that there will be one. All of this suggests that the economics textbook of 2033 will look very different from the economics textbook of today. We just can’t say how. Indeed, one might question the very premise that, two decades from now, there will be textbooks as we know them. Today, introductory economics is taught using a textbook in which an eminent professor authoritatively bestows the conventional wisdom on his or her (typically, his) students. Knowledge, as encapsulated in the textbook and interpreted by the professor, is delivered from above. Read Our Children's Economics here .

As President Obama launches into his second term, getting the economy moving remains among his top priorities. It is not the challenge he faced four years ago, when we were just months removed from the near global economic meltdown of September 2008. Rather, it may look very similar to last year: slow growth around the globe. But, according to Nouriel Roubini , there will be some "important differences , " that might lead us to prefer slow growth to the alternative. In a piece for Project Syndicate , Roubini raises concern that, "given synchronized fiscal retrenchment in most advanced economies, another year of mediocre growth could give way to outright contraction in some countries." With growth anemic in most advanced economies, the rally in risky assets that began in the second half of 2012 has not been driven by improved fundamentals, but rather by fresh rounds of unconventional monetary policy. Most major advanced economies’ central banks – the European Central Bank, the US Federal Reserve, the Bank of England, and the Swiss National Bank – have engaged in some form of quantitative easing, and they are now likely to be joined by the Bank of Japan, which is being pushed toward more unconventional policies by Prime Minister Shinzo Abe’s new government. Moreover, several risks lie ahead. First, America’s mini-deal on taxes has not steered it fully away from the fiscal cliff. Sooner or later, another ugly fight will take place on the debt ceiling, the delayed sequester of spending, and a congressional “continuing spending resolution” (an agreement to allow the government to continue functioning in the absence of an appropriations law). Markets may become spooked by another fiscal cliffhanger. And even the current mini-deal implies a significant amount of drag – about 1.4% of GDP – on an economy that has grown at barely a 2% rate over the last few quarters. Second, while the ECB’s actions have reduced tail risks in the eurozone – a Greek exit and/or loss of market access for Italy and Spain – the monetary union’s fundamental problems have not been resolved. Together with political uncertainty, they will re-emerge with full force in the second half of the year. After all, stagnation and outright recession – exacerbated by front-loaded fiscal austerity, a strong euro, and an ongoing credit crunch – remain Europe’s norm. As a result, large – and potentially unsustainable – stocks of private and public debt remain. Moreover, given aging populations and low productivity growth, potential output is likely to be eroded in the absence of more aggressive structural reforms to boost competitiveness, leaving the private sector no reason to finance chronic current-account deficits. Read The Economic Fundamentals of 2013 here .

Given the climate in Washington, it is difficult to imagine economic policy not being held hostage by politics. But in a new commentary at Project Syndicate , Mohamed El-Erian (who looks himself to be engaging more in the political scene ) argues that for some countries, 2013 will be a year in which economics drive politics: The economic impact of politics in the US, while important, will be less dynamic: absent a more cooperative Congress, politics will mute policy responses rather than fuel greater activism. Continued congressional polarization would maintain policy uncertainty, confound debt and deficit negotiations, and impede economic growth. From stymieing medium-term fiscal reforms to delaying needed overhauls of the labor and housing markets, congressional dysfunction would keep US economic performance below its capacity; over time, it would also eat away at potential output. In other countries, the causal direction will run primarily from economics to politics. In Egypt and Greece, for example, rising poverty, high unemployment, and financial turmoil could place governments under pressure. Popular frustration may not wait for the ballot box. Instead, hard times could fuel civil unrest, threatening their governments’ legitimacy, credibility, and effectiveness – and with no obvious alternatives that could ensure rapid economic recovery and rising living standards. In China, the credibility of the incoming leadership will depend in large part on whether the economy can consolidate its soft landing. Specifically, any prolonged period of sub-7% growth could encourage opposition and dissent – not only in the countryside, but also in urban centers. Then there is Germany, which holds the key to the integrity and unity of the eurozone. So far, Chancellor Angela Merkel has been largely successful in insulating the German economy from the turmoil elsewhere in Europe. Unemployment has remained remarkably low and confidence relatively high. And, while growth has moderated recently, Germany remains one of Europe’s best-performing economies – and not just its paymaster. Read The Political Economy of 2013 here .