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Fromsixeconomists,sixwaystoconfront2012

Believeitornot,timesaregettingbetter.

Atleastthat'swhatthedrystatisticskeeptellingus.Industrialproduction,GDP-thekindoffiguresthatWashingtonandWallStreetsweatover-suggestthattheeconomyisonthemend.

YetifwegobeyondtheBeltwayandtheBattery,towheremostofAmericanlifeislived,thenumbersdon'talwaysaddup.Yes,theGreatRecessionofficiallyendedin2009.ButmanymillionsofAmericansareoutofworkorcannotfindfull-timejobs.Homepricesarewobbly.Theforeclosurecrisisdragson.AndtheOccupymovement'scampaignagainst"the1percent"hasunderscoredtheravagesofincomeinequality.

Itwas,asalways,ayearofupsanddownsinbusiness.Washingtonsaidthenation'sAAAratingwassafe,butStandard&Poor'sconcludedthatitwasn't.Europeinsistedthatitscurrencywassound,butinvestorsworrythatitisn't.WallStreetseemedperpetuallyonedge.Aftersomanywilddays,theAmericanstockmarketended2011aboutwhereitbegan.

OnthissideoftheAtlantic,aftershocksofthefinancialcrisisof2008-9arestillreverberating,thoughtheworsthaspassed.Now,howEurope'seconomictroublesplayoutmaydeterminewhetherjobgrowthherefinallypicksupenoughto

makeupforallthelostground-andwhetherthat401(k)isricherorpoorernextJan.1.

Wheretogofromhere?Andhowtofacethechallengesahead?SundayBusinessaskedthesixeconomistswhowritetheEconomicViewcolumntodoalittleblue-skythinkingonissuesasvariedastheFed,Europeandhousing.Youwon'tfindstocktips.Butif2011wasanyguide,thebestadvicefor2012maybethis:Holdtight.

DearMrBernanke,pleasetellusmore

NGregoryMankiw:AprofessorofeconomicsatHarvard,heisadvisingMittRomneyinthecampaignfortheRepublicanpresidentialnomination.

Whatcanwedotogetthiseconomygoing?

That'sthequestionBenBernankeandhiscolleaguesattheFederalReservemustbeasking.Officially,therecessionendedawhileago.Butwithunemploymentlingeringabove8percent,itstillfeelsasifwe'remiredinaslump.

TheFed'stypicalresponsetolacklustergrowthistoreduceshort-terminterestrates.Toitscredit,itdidthat-quicklyanddrastically-astherecessionunfoldedin2007and2008.Thenittookvariousunconventionalstepstopushdownlong-termrates,includingthoseonmortgages.Mr.BernankedeservesmorecreditthananyoneforpreventingthefinancialcrisisfromturningintoasecondGreatDepression.

Now,thekeywillbemanagingexpectations.Financialmarketsalwayslookahead,albeitimperfectly.TheynotonlycarewhattheFeddoestodaybutalsoaboutwhatitwilldotomorrow.Withofficialshort-termratesalreadynearzero,whattheFeddoesthisyearwillbelessimportantthanwhatpolicymakerssaytheywilldonextyear-ortheyearafterthat.

AcrucialquestionishowquicklytheFedwillraiseinterestratesastheeconomyrecovers.Sofar,Fedpolicymakershavesaidtheyexpecttokeeprates"exceptionallylow"atleastuntilmid-2013.Therehasevenbeentalkaboutextending

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thattimeframebyayear,tomid-2014.

ButCharlesI.Plosser,thepresidentoftheFederalReserveBankofPhiladelphia,wasrightwhenhesaidrecentlythat"policyneedstobecontingentontheeconomy,notthecalendar."Thekeytomanagingexpectationswillbespellingoutthiscontingencyplaninmoredetail.Thatis,whatdoestheFedneedtoseebeforeitstartsraisingratesagain?

Unfortunately,economistsdon'toffersimpleandunequivocaladvice.Somesuggestwatchingtheoverallinflationrate.Otherssaytowatchinflation,buttoexcludevolatilefoodandenergyprices.Andstillothersadvisetargetingnominalgrossdomesticproduct,whichweightsinflationandeconomicgrowthequally.

ForgingaconsensusamongmembersofFederalOpenMarketCommittee,whichsetsmonetarypolicy,won'tbeeasy.Infact,itmaywellbeimpossible.ButthemoreclaritytheFedoffersaboutitscontingencyplans,thebetteroffwe'llallbeintheyearsahead.

Twobigproblems,tworeadysolutions

ChristinaDRomer:AneconomicsprofessorattheUniversityofCalifornia,Berkeley,shewaschairwomanofPresidentObama'sCouncilofEconomicAdvisers.

TheUnitedStatesfacestwodauntingeconomicproblems:anunsustainablelong-ru

nbudgetdeficitandpersistenthighunemployment.Bothdemandaggressiveactionintheformoffiscalpolicy.

WaitinguntilaftertheNovemberelections,asseemslikely,wouldbeirresponsible.Itisalsounnecessary,sincethereareplanstoaddressbothproblemsthatshouldcommandbipartisansupport.

Onthedeficit,thebigworryisn'tthecurrentshortfall,whichisprojectedtodeclinesharplyastheeconomyrecovers.Rather,it'sthelong-runoutlook.Overthenext20to30years,risinghealthcarecostsandtheretirementofthebabyboomersareprojectedtocausedeficitsthatmakethecurrentonelookpuny.Attheratewe'regoing,theUnitedStateswouldalmostsurelydefaultonitsdebtoneday.Andlikethecostsofmaintainingahome,thecostsofdealingwith

ourbudgetproblemswillonlygrowifwewait.

Wealreadyhaveablueprintforabipartisansolution.TheBowles-SimpsonCommissionhashedoutasensibleplanofspendingcuts,entitlementprogramreformsandrevenueincreasesthatwouldshave$4trillionoffthedeficitoverthenextdecade.Itsharesthepainofneededdeficitreduction,whileprotectingthemostvulnerableandmaintaininginvestmentsinourfutureproductivity.Congressshouldtakeupthecommission'srecommendationthefirstdayitreturnsinJanuary.

Butwecan'tfocusonthedeficitalone.Persistentunemploymentisdestroyingthelivesandwastingthetalentsofmorethan13millionAmericans.Worse,thelongerthatpeopleremainoutofwork,themorelikelytheyaretosufferapermanentlossofskillsandwithdrawfromthelaborforce.

Despiteheatedrhetorictothecontrary,theevidencethatfiscalstimulusraisesemploymentandlowersjoblessnessisstrongerthanever.Andpairingadditionalstrongstimuluswithaplantoreducethedeficitwouldlikelypackaparticularlypowerfulpunchforconfidenceandspending.

ThepayrolltaxcutforworkersandemployersandtheextendedunemploymentinsurancethatPresidentObamaproposedlastSeptemberwouldhelpputpeoplebacktowork.

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Butevenbetterwouldbemeasuresthatincreaseemploymenttoday,whilealsoleavinguswithsomethingoflastingvalue.Becausemanypeopleworryaboutincreasingtheroleofthefederalgovernment,whynotgivesubstantialfederalfundstostateandlocalgovernmentsforpublicinvestment?Tellthemthatthemoneyhastobeusedforeitherphysicalinfrastructurelikeroads,bridgesandairports,orforhumaninfrastructurelikeeducation,jobtrainingandscientificresearch.Thenletthestates,citiesandtownsfigureoutwhatwouldworkbestfortheircitizens.

RonaldReaganoncesaidthat"therearesimpleanswers-therejustarenoteasyones."Whatneedstohappenonfiscalpolicyisrelativelystraightforward.Thehardpartisgettingpoliticianstodoit.

ThickeningcloudsoverEurope

TylerCowen:AprofessorofeconomicsatGeorgeMasonUniversity.

How,andwhen,willEuropegetoutofitsmess?

Theshortansweristhis:notanytimesoon,andnotwithoutmorepain.ThelongerthatEurope'stroubleslast,theworseandmoreinsidioustheybecome.Insolventgovernments,troubledbanks,divisivepolitics,painfulausterity-thelistofproblemsisformidablealready.

Thebest-caseoutlookisthattheeurozonewill,ineffect,growitswayoutofthiscrisis.TheEuropeanCentralBankisnowextendingunlimitedloanstobanksinthe17nationsoftheEuropeanUnionthatusetheeuro,providedthatthosebanksputupcollateral.Theloansdon'thavetobepaidbackforthreeyears,bywhichtimeitishopedthatsteadygrowthwillhavereturned.

Intheory,theseloansshouldensurethatEurope'sbanksstayliquid.Someofthesebanks,inturn,arealreadylendingmoneytotheirnationalgovernments,andothersmaybeforcedto.Intheshortrun,thiswillhelpkeepeurozonegovernmentsfunded,too.

Iftheeconomystartsgrowingagainbeforetheloansaredue,thecentralbank'seffortstofixtheContinent'ssolvencyproblemswillhavesucceeded.Theplan

willhaverelievedpressureinthemoneymarketsandonthebanks,sincetheywouldbebackedbywealthier,morecrediblegovernments.WewouldprobablyhavetowriteoffGreece,but,underthiscircumstance,othereurozonecountrieswouldavoidamajorfinancialcrisis.

Thereare,however,severaldarkerpossibilities.Oneisthattheeconomiesofsomemajoreurozonenationswillcontinuetostagnate.Inper-capitaterms,Italyisalreadypoorerthanitwas12yearsago,somaybeit'sstuckinaslow-growthmode.Ifthat'sthecase,moreborrowingfromtheEuropeanCentralBankissimplystretchinganunsustainablesituation.

Eventually,thecentralbankwouldhavetoletitbeknownthatitisnotexpectingitsmoneyback.Inthiscase,banksinweaknationswouldprobablybeunable

toraisefundsfromtheprivatesector.Confidencewouldevaporate.Somecountrieswouldendupabandoningtheeuroandprintingtheirowncurrencytokeeptheirpromisestobankdepositorsandbondholders.Theconsequencescouldbedisastrous,notonlyforEurope,butfortheglobaleconomy.

AseconddangerwouldariseinEuropeifanelection,probablyinasmallercountry,gaverisetoagovernmentthatrepudiatedtheeuro.Then,too,allbetswouldbeoff.

Myguess-andguessistherightword-isthatoddsofthisendingwellareab

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outoneinthree.Otherwise,fastenyourseatbelts.

WhytwoPaychecksarebarelyenough

RobertHFrank:AneconomicsprofessorattheJohnsonGraduateSchoolofManagementatCornellUniversity.

Whydomanymiddle-classfamiliesnowstruggletogetbyontwopaychecks,whereasmostgotbyonjustonebackinthe1950sand'60s?

Theanswer,accordingto"TheTwo-IncomeTrap,"byElizabethWarrenandAmeliaWarrenTyagi,isthatmanysecondpaycheckstodaygotowardfinancingalargelyfruitlessbiddingwarforhomesingoodschooldistricts.

Parentsnaturallywanttosendtheirkidstogoodschools.Butqualityisrelative.Becausethebestschoolstendtobethoseservingexpensiveneighborhoods,parentsmustoutbid50percentofotherparentswiththesamegoaljusttosendtheirchildrentoaschoolofaveragequality.

Howhardisthat?IconstructedameasureIcallthetoilindex.Ittracksthenumberofhoursamedianearnermustworkeachmonthtoearntheimplicitrentforthemedian-pricedhouse.

From1950to1970,whenincomesweregrowingataboutthesamerateforfamilies

upanddowntheincomeladder,thetoilindexactuallydeclinedslightly.Butsince1970-aperiodduringwhichincomeinequalityhasgrown-thetoilindexhasrisensharply.

Theincreaseintwo-earnerhouseholdsexplainsonlypartofit.Theclimbinthetoilindexwasalsodrivenbytheeasycreditthatfueledthehousingbubble,aswellasbyanexpenditurecascadeinhousingcausedbygrowingincomedisparities.

Since1970,thetop1percenthavecapturedmostoftheincomegrowthinthenation.Likeeveryoneelse,therichspendmoreonhousingwhentheyhavemoremoney.High-endhousesbecomebiggerandfancier.Thatshiftstheframeofreferenceforthenearrich,andsoondowntheincomeladder.Becausethemedianhourly

wage,adjustedforinflation,hasbeenfalling,there'sreallynootherwaytoexplainwhythemediannewhousebuiltintheUnitedStatesin2007wasabout50percentlargerthanitscounterpartin1970.

Theincreaseinthetoilindexhasbeenspectacular.Fromapostwarlowof41hoursamonthin1970,itrosetomorethan100hoursin2005.Althoughithasfallensincethehousingbubbleburst,themiddle-classsqueezepersists.

Growingincomedisparitiesdon'tjustmakethe99percentangry.Theyalsoraisethecostofachievingbasicgoals.

Ataxcredittofixahousingmess

RobertJShiller:AprofessorofeconomicsandfinanceatYale.

Weusedtotalkalotabouthelpinghomeownersintrouble.

Instead,thebankerswerebailedout-andnowwehardlytalkatallaboutaidingordinaryAmericans.

Yettheproblemsfacinghomeownerstodayareevenbiggerthantheywereinthedarkdaysofthefinancialcrisis.AccordingtotheS&P/Case-Shiller20-cityHomePriceIndex,homepriceshavefallen13.2percentsinceLehmanBrotherscollap

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sedinSeptember2008.Overthesameperiod,ofcourse,unemploymenthasclimbed.

Inotherwords,morehomeownersareunderwaterontheirmortgages-andmoreAmericansareoutofwork.Andhomepricesarestillfalling.

Soweneedtoovercomethesensethatrealhelpisimpossible-andtothinkaboutapproachesthatmightbepoliticallyfeasible.Despiteconcernoverournationaldebtandageneraldistasteforspendingtaxpayerdollarsonpeoplewhomayhavebeenlessresponsible,therearesomepotentialsolutions.

ProfRichardKGreen,directoroftheLuskCenterforRealEstateattheUniversityofSouthernCalifornia,hasproposedchangingthetaxsystemsothatitoffersstronger,moretargetedencouragementforhomeownershipbyfocusingonpeoplewhomightbegivingupthedreamofbuyinganyhomeatall.Thecurrentmortgageinterestdeduction,ProfessorGreenargues,basedonhisworkwithProf.AndrewReschovskyoftheUniversityofWisconsin,ismostlyanincentiveforrelativelywealthypeopletobuildbiggerhouses,ratherthanforpeopleofmodestmeanstobuyahome.Italsoprovidesastrongincentiveonlyforpeopleinhightaxbrackets,whobenefitmorebecauseoftheirhighermarginaltaxrates,andwhotendtoitemizebecausethestandarddeductionislessadvantageousforthem.

ProfessorGreenwantstooffermorehelpforlower-incometaxpayers.Hesuggestscreatingarefundabletaxcreditasapercentageofmortgageinterestpayments,

onethatcouldbeusedevenbythosewhotakethestandarddeduction.Thiscredit,presumablywithsomedollarlimit,wouldbeavailabletoallhomeowners.(ThatisincontrasttotheHARP2.0mortgagerefinancingprogramfromtheObamaadministration;itisavailable,arbitrarily,onlytothosewithFannieMaeandFreddieMacmortgages.ProfessorGreenproposespayingforthischangebygraduallyphasingouttheexistingmortgageinterestdeduction.

Homeownershipfosterscitizenship,buildsstrongerfamiliesandcommunities,encouragesactiveparticipationintheeconomyand,ultimately,bolsterseconomicconfidence.ProfessorGreen'sproposalisanexampleofachangethatwouldn'tsmackofabailout,butwouldhelpvulnerablepeoplewhoarelosinghopeintheAmericanDream.

Theanswerstartswithasaladbar

RichardHThaler:AprofessorofeconomicsandbehavioralscienceattheBoothSchoolofBusinessattheUniversityofChicago.

Incaseyou'veforgotten,wehaveacrisisinhealthcarespending.Butemployerscanhelpusdealwithit-andsavethemselvessomemoney-withafewnudges.

Thethesisof"Nudge,"whichCassR.SunsteinandIwrotein2008,isthat"choicearchitects"canoftenhelppeopleachievetheirgoalssimplybymakingthenecessarystepseasier.Aschoicearchitects,employerscandoalottoimprovetheirworkers'health.That,inturn,canleadtomoreproductiveworkerswhohavefewersickdaysandcostlesstoinsure.

Wheretostart?First,makeiteasiertoeatwellwhileatwork.Thatdoesn'tmeanlimitingthecafeteriamenutotofuandcauliflower.Itmeansofferingvarioushealthful,tastyoptionsthatarefeaturedprominently.Putanattractivesaladbarincludingsomehealthyproteinsbeforetheburgerline,forinstance,andsubsidizethehealthyfood.

Second,makeiteasiertogetsomeexerciseduringtheworkday.Walkingjust30minutesadayprovidesnoticeablehealthbenefits.Someambitiouscompanieshaveinstalledtreadmillswithworkstations,buttherearelower-costsolutions.Eve

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nasmalltomidsizebusinesscanprobablyarrangeadiscountatahealthclub.

Youdon'thavetoleaveworktogetsomeexercise.Agoodplacetostartisonthestairs.Walkingafewflightsseveraltimesadayisagoodstartonthat30minutes.Toenticeworkers,companiesshouldmaketheirstairwellsattractiveandfun.Addmusic,muralsorgraffiticontests.Ortrylotterieswithachancetowinanytimeyouwalkupordownoneflight.Finally,betteralignhealthinsuranceincentiveswithbehavior.Oneofthebiggesthealthcareproblemsisthatpatientsdon'tkeepupwiththeirmedications,eventhosethatmightsavetheirlives.Whychargepeoplewho'vehadheartattacksaco-paymentwhentheyfillprescriptionsthatreducethechanceofanotherattack?Instead,makethoseprescriptionsfreeandusetechnologytoremindthemtotaketheirmedicine,eitherwithatextmessageorapillboxthatstartsbeepingifyouforgettotakeyourpills.

Andhere'sapracticeweshouldusemoreoften:Offerinsurancediscountstorewardhealthybehavior.Saving$500onapremiumisagoodincentivetoquitsmokingorlosesomeweight.

MyNewYear'sresolutionistotakeatleasttwowalkingmeetingsaweek.Howaboutyou?

AversionofthisarticleappearedinprintonJanuary1,2012,onpageBU1oftheNewYorkeditionwiththeheadline:IJustGotHere,ButIKnowTroubleWhen

ISeeIt:FromSixEconomists,SixWaystoConfront2012.