Sleepwalking on Megathreat Mountain
Whatever one’s favored terminology for describing the current moment, there is widespread agreement that we are facing unprecedented, unusual, and unexpected levels of uncertainty, auguring a future of crisis, instability, and conflict.
The Looming Financial Contagion
With inflation on the rise and the era of ultra-low interest rates over, financial markets will face a huge stress test in 2023.
More War Means More Inflation
Advanced economies and emerging markets are increasingly engaged in necessary "wars" – some real, some metaphorical – that will lead to even larger fiscal deficits, more debt monetization, and higher inflation on a persistent basis.
Another Annus Horribilis for the Fed
Over the past two years, the US Federal Reserve has repeatedly erred in its analysis, policymaking, communications, and governance.
The Unavoidable Crash
After years of ultra-loose fiscal, monetary, and credit policies and the onset of major negative supply shocks, stagflationary pressures are now putting the squeeze on a massive mountain of public- and private-sector debt.
Done With Deglobalization?
The global economy’s dire and deteriorating prospects, together with the scale of the climate challenge, have apparently opened world leaders’ eyes to the risks that deglobalization poses. But it remains to be seen whether this realization will be followed by the action needed to reverse course.
Will Crypto Survive?
With a storyline full of celebrities, politicians, sex, and drugs, the future looks bright for producers of feature films and documentaries about the astonishing collapse of FTX.
China’s Diminishing Returns
Gone are the days when China could point to soaring real-estate prices and rising incomes to justify endless new construction.
After enjoying a long period of deflationary conditions, the global economy is being pushed by a wide range of forces toward a new and more difficult equilibrium.
A New Chance for the World Bank
The World Bank should be a major vehicle for crisis response, post-conflict reconstruction, and, most importantly, for supporting the huge investments necessary for sustainable and healthy global development.
The Stagflationary Debt Crisis Is Here
The Great Moderation has given way to the Great Stagflation, which will be characterized by instability and a confluence of slow-motion negative supply shocks.
The Cost of the Fed’s Challenged Credibility
After previously eschewing interest-rate hikes, the US Federal Reserve has been tightening monetary policy at an unprecedented rate.
Why US Inflation Is Headed Down
Despite August’s disappointing inflation numbers, the US economy is uniquely equipped to mitigate and overcome the current price surge, owing to its relative energy and food independence, abundance of immigrant labor, strong production capacity, and the capital needed to boost domestic manufacturing.
Will Truss Rehabilitate Keynes?
According to conventional economic thinking, incoming British Prime Minister Liz Truss’s economic experiment with borrowing and spending will produce disaster.
Chess and Geopolitics in the Supercomputer Era
The outcome of next year's world championship chess match will likely hinge as much on technological superiority as on individual human ingenuity.
From Great Moderation to Great Stagflation
For decades, relative global stability, sound economic-policy management, and the steady expansion of trade to and from emerging markets combined to keep costs down.
Fiscal Policy Should Return to Fundamentals
The longstanding argument that go-go Keynesian fiscal stimulus is the answer to every imaginable economic shock has been exposed as bankrupt.
The Problem with the Current Russia Sanctions Regime
There is much debate about the effectiveness of Western sanctions, the Ukraine war’s implications for markets and the global economy, and what the West’s next steps should be. While there are few good options, some are clearly worse than others.
The Energy Price Roller Coaster
In the longer term, oil and gas prices look set to rise unless investment picks up sharply, which seems unlikely given current policy guidance.
A Stagflationary Debt Crisis Looms
There is ample reason to worry that major economies like the United States are heading for a recession, accompanied by cascading financial turmoil.
Saudi Arabia Is Swinging Again – But for How Long?
The most recent change on the supply side of the global oil market has involved Saudi Arabia suddenly and dramatically regaining its swing-producer role.
What’s the Crypto Regulation Endgame?
Absent a crisis, stiffer regulation of cryptocurrencies could take many decades, especially given that major players are pouring huge sums into lobbying.
Don’t Bet on a Soft Landing
With “Team Persistent” having clearly prevailed over “Team Transitory” in the debate over the nature of today’s surging inflation, the question now is whether prices can be tamed without also causing a recession.
Beware a Global Economy with Little Fires Everywhere
Rich countries have shown impressive unity in helping Ukraine counter the Russian invasion.
The Fed Does Not Deserve All the Inflation Blame
The US Federal Reserve certainly bears its share of responsibility for the great inflation of the 2020s.
Private-Debt Risks Are Hiding in Plain Sight
The debt moratoria introduced early in the pandemic provided temporary relief for private borrowers, and may have limited the fallout of the economic disruption.
The Growing Threat of Global Recession
With luck, the risk of a synchronized global downturn will recede by late 2022.
The Gathering Stagflationary Storm
While recent shocks have made the current inflationary surge and growth slowdown more acute, they are hardly the global economy’s only problems.
This Inflation Is Demand-Driven and Persistent
Although inflation has risen sharply for multiple reasons, increased demand is by far the most important factor.
Can the World Afford Russia-Style Sanctions on China?
Many academic studies suggest that sanctions on China or a break in Sino-American economic ties probably would have a smaller quantitative impact than one might think, at least over the medium to long term. But that is a theory better left untested.
Is the New Stagflation Policy-Proof?
Like the COVID-19 pandemic, Russia's war in Ukraine has contributed to the stagflationary pressures in the United States and other advanced economies.
The Ukraine War's Multifaceted Economic Fallout
While the Russian and Ukrainian economies are being hit the hardest by Russia's invasion, the economic consequences of the war will not be confined to the countries fighting it.
Is the Peace Dividend Over?
One hopes that Russian President Vladimir Putin will soon realize that his Ukraine invasion has been a spectacular miscalculation.
The Fed's Historic Error
The US Federal Reserve’s series of suboptimal decisions in the last 12 months regarding inflation means that its next policy decision also is likely to be suboptimal.
Russia's War and the Global Economy
It is tempting to think that the war in Ukraine will have only a minor economic and financial impact globally, given that Russia represents merely 3% of the world economy.
The Return of Global Inflation
Today's inflationary surge is being felt not just by the advanced economies but also by the majority of emerging markets and developing economies.
The Winter of Our Discomfort
From the pandemic and geopolitical tensions to broader macroeconomic developments, new obstacles to "normality" seem to be cropping up everywhere.
The Fed's Wary Embrace of Digital Dollars
It is not difficult to fathom why the United States’ central bank is especially resistant to any quantum change in the existing financial system.
Inflation Will Hurt Both Stocks and Bonds
The longstanding negative correlation between stock and bond prices is an artifact of the low-inflation environment of the past 30 years.
Why Is the IMF Trying to Be an Aid Agency?
Much like the US Federal Reserve, the International Monetary Fund has subtly expanded its own remit even as it has failed to adjust to changing economic circumstances. And, as with the Fed, higher inflation could deliver a blow to the IMF's reputation – and to the economies the Fund is meant to help.
Clouds Over 2022
Although major economies and markets fared well in 2021 despite all of the uncertainties surrounding new variants of the coronavirus, 2022 will bring new challenges. In addition to central banks shifting toward policy normalization, geopolitical and systemic risks are multiplying.
Can the Fed Overcome Its Transitory Policy Mistake?
The later the US Federal Reserve is in reacting properly to inflationary developments, the greater the likelihood that it will have to hit the policy brakes hard, causing market turmoil and unnecessary economic pain. The Fed must now do two things quickly.
Biden's Wise Fed Choice
To reappoint US Federal Reserve Chair Jerome Powell, President Joe Biden had to resist strong pressure from the left wing of his party for a shakeup. By choosing continuity, Biden accomplished several things at once.
Why Italy's Presidential Election Matters
With its poor track record of managing EU funds, Italy’s recovery plan will be a major test for the future of EU policymaking more generally. While it is widely agreed that Prime Minister Mario Draghi must remain on the scene to oversee the plan’s implementation, in what capacity would he be most useful?
Why All the Inflation Worries?
Some respected economists are talking as if the US economy is in serious inflationary trouble. But the current uptick in price growth is highly likely to be a largely benign consequence of the post-pandemic recovery.
Why Are Supply Chains Blocked?
When forecasts are not specific enough to be actionable, the supply response cannot adjust in a timely or efficient manner. And because there is relatively little slack built into global supply chains, large deviations from normal patterns produce delayed responses, shortages, backlogs, and bottlenecks, like those today.
What South Africa Must Do
Locked in a low-growth trap, South Africa's fiscal and macroeconomic situation is unsustainable, not only economically but also politically. To salvage the country's democratic project, the government must offer a credible, comprehensive economic reform strategy.
Will This COP Be Different?
Limiting global warming to 1.5º Celsius remains just about attainable, but the path to this target is formidable. The United Nations climate summit now underway in Glasgow will indicate whether political efforts to achieve this goal are likely to heat up as fast as scientists tell us the planet is.
The True Costs of Government Spending
While all politicians exaggerate, US President Joe Biden’s claim that his proposed $3.5 trillion spending package “costs zero dollars” rises to a higher plane, and Americans aren’t buying it. Even if the legislation was fully covered by tax increases, the costs for the economy would be significant.
Should You Buy a Home in the US?
Even at currently elevated US home-price levels, buying still makes sense for those who are set on ownership. But buyers need to be sure that they can accept what could be a rather bumpy and disappointing long-term path for home values.
The Revenge of Supply
Policymakers should not have been caught off guard by surging prices and shortages of goods and labor. Practically the entire post-pandemic agenda is built around policies that stoke demand and discourage work, making supply-side constraints entirely predictable.
The Inflation Catch-Up Game
As price increases accelerate, policymakers at leading central banks are slowly starting to move away from the narrative of “transitory” inflation that has already cost them the policy initiative. But the needed pivot is far from complete and not nearly quick enough, particularly at the US Federal Reserve.
China's Housing Conundrum
The Chinese government may yet succeed in insulating the broader market from the financial crisis at real estate giant Evergrande. But the larger challenge is to rebalance an economy that has depended for far too long on the bloated housing market for jobs and growth.
Connecting the Dots in China
The new dual thrust of Chinese policy – redistribution plus re-regulation – will subdue the entrepreneurial activity that has been so important in powering China’s dynamic private sector. Without animal spirits, the case for indigenous innovation is in tatters.
Taming the Stagflationary Winds
Rising inflation and declining growth are more likely to be a part of the global economy’s upcoming journey than features of its destination. But how policymakers navigate this journey will have major implications for longer-term economic well-being, social cohesion, and financial stability.
Goldilocks Is Dying
Given today’s high debt ratios, supply-side risks, and ultra-loose monetary and fiscal policies, the rosy scenario that is currently priced into financial markets may turn out to be a pipe dream. Over the medium term, a variety of persistent negative supply shocks could turn today’s mild stagflation into a severe case.
Inflation in the Shadow of Debt
Generally speaking, inflation can be stabilized with little recession if people believe the necessary policy tightening will be seen through, rather than abandoned at the first signs of pain. Unfortunately, US economic authorities have done little to inspire such confidence.
Kenneth Rogoff Says More…
The progressive climate agenda in the United States has blinders on when it comes to the global nature of the carbon problem, and the imperative of finding ways to secure the buy-in of emerging-market and developing economies, which are by far the main source of carbon-emission growth.
Back to the Seventies?
Many economists seem to view inflation as a purely technocratic problem, and most central bankers would like to believe that.
The Stagflation Threat Is Real
There is a growing consensus that the US economy’s inflationary pressures and growth challenges are attributable largely to temporary supply bottlenecks that will be alleviated in due course.
Are Central Banks to Blame for Rising Inequality?
The view that central-bank interest-rate policy can and should be the main driving force behind greater income equality is stupefyingly naive, no matter how often it is stated.
Biden's Neo-Populist Economic Doctrine
Within the space of just half a year, US President Joe Biden has completed a necessary economic-policy regime shift that started chaotically under his predecessor.
Are US Corporations Above the Law?
By siding with major food corporations over six Malian former child slaves who were seeking compensation under US tort laws, the US Supreme Court has sent a dangerous message.
Central Banking, Fast and Slow
As the global economy emerges from the COVID-19 shock, systemically important central banks are faced with the unenviable task of deciding when and how quickly to phase out extraordinary stimulus measures.
Under the Latin American Volcano
Most of Latin America is still far from the horrific conditions prevailing in Venezuela, where output has fallen by a staggering 75% since 2013.
The Looming Stagflationary Debt Crisis
Years of ultra-loose fiscal and monetary policies have put the global economy on track for a slow-motion train wreck in the coming years. When the crash comes, the stagflation of the 1970s will be combined with the spiraling debt crises of the post-2008 era, leaving major central banks in an impossible position.
The Return of the Finance Threat?
Given recent history, policymakers would be unwise merely to hope for a best-case scenario in which a strong and quick economic recovery redeems the enormous run-up in debt, leverage, and asset valuations.
The Inflation Red Herring
Far from signaling the return of significant inflation, temporary price increases are exactly what one would expect in a recovery following an economic shutdown.
A Curse Worse than Cash
Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators simply cannot sit on their hands forever.
Vaccines and the West’s Credibility Crisis
Trust is a precious commodity.
Leaders and Laggards in the Post-Pandemic Recovery
While some major economies are recovering fast from the pandemic-induced recession, others are languishing, and still others remain in a state of acute crisis.
Helping the Other 66%
Addressing within-country inequality may be the political imperative of the moment.
My Worst Forecasting Mistake
There were three seemingly strong reasons to predict last year that the US economy was headed for a double-dip recession.
Is Stagflation Coming?
Lost in the debate over whether today's ultra-loose fiscal and monetary policies will trigger painful inflation is the broader risk posed by potential negative supply shocks.
Ensuring a Stronger and Fairer Global Recovery
Although tough trade-offs are sometimes unavoidable, there is a way for policymakers to maintain a robust global economic recovery in 2021 and beyond while simultaneously pulling up disadvantaged countries, groups, and regions. But it will require both national and international policy adaptations.
The Dollar’s Fragile Hegemony
Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable.
The US Recovery’s Promising Moment
Recent macroeconomic figures and the accelerating pace of COVID-19 vaccination suggest that optimism about the US economy's prospects is justified. But to avoid snatching defeat from the jaws of victory, policymakers must press ahead with measures to lock in robust, sustainable, and inclusive long-term growth.
The COVID Bubble
With equity markets reaching new heights at a time of rising income and wealth inequality, it should be obvious that today's market mania will end in tears, reproducing the economic injustices of the 2008 crash.
Are Inflation Fears Justified?
In the near term, markets should not be too worried about a possible spike in demand driving up inflation and interest rates, causing asset prices to fall across the board. But longer-term inflation risks are skewed much more to the upside than many investors and policymakers seem to realize.
Pulling Up the Inflation Anchor
Rather than worrying about the prospects of higher long-term expected inflation, the US Federal Reserve is exuding confidence that it can maintain price stability should the need ever arise. It should think again, before the inflation genie has escaped from the bottle.
Before his death on February 6, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in US government spending in recent years, including during the COVID-19 crisis.
No One Is Safe Until Everyone Is Safe
Minimizing the risk of yet more destabilizing COVID-19 variants is crucial if countries are to turn the corner on a shock that has wrecked lives and livelihoods. The alternative is to adopt a bunker-like approach and sharply curtail the inward and outward flow of citizens, residents, and visitors.
Will Inflation Make a Comeback?
Economic forecasting models have long been notoriously inaccurate in predicting inflation, and COVID-19 has further complicated the challenge. Those who heed current consensus forecasts of persistently low price growth could be in for a rude awakening.
The Perils of an Uneven Global Recovery
Heightened global economic risks mean that many poorer countries could take years to return to their pre-pandemic growth trajectories. And if higher inflation leads the US Federal Reserve to raise rates somewhat sooner than it currently plans, emerging markets will be hit particularly hard.
England’s Lockdown Lessons
Although some remain inclined to point the finger at the UK government’s missteps in tackling the COVID-19 pandemic, the explanation for its evolving approach is more complex. It also holds important lessons for managing future crises.
A Post-COVID Labor Revival?
In contrast to the US recession that followed the 2008 global financial crisis, the COVID-19 downturn has elicited strong public support for workers, especially those in essential jobs. Perhaps, at long last, that sentiment will translate into concrete policies that strengthen labor rather than capital.
A Fragile Recovery in 2021
Although 2020 ended with a flurry of announcements reporting promising results in COVID-19 vaccine trials, there is little reason to expect a robust economic recovery anytime soon. Defeating the virus remains a monumental task, and the wounds inflicted by the pandemic will not heal easily.
The Big Bounce-Back?
Following the 2008 financial crisis, many policymakers failed to focus sufficiently on securing robust, inclusive, and sustainable long-term growth. To avoid repeating this mistake in 2021 as the world emerges from the COVID-19 pandemic, governments must act early and decisively in three areas.
The Quiet Financial Crisis
The global COVID-19 pandemic has resulted in soaring infection rates, widespread lockdowns, record-shattering declines in output, and spiking poverty. But, in addition to these trends, a quieter crisis now gaining momentum could jeopardize economic recovery prospects for years to come.
A Fairer Way to Help Developing Economies Decarbonize
Global carbon pricing is an essential part of any long-term solution to the climate crisis. But advanced economies also need to provide the developing world with highly concessional financing and technical expertise to help it decarbonize – all guided by a World Carbon Bank.
Fast and Slow in “The Queen’s Gambit”
Super-fast computer programs and massive databases have had a profound impact on professional chess in recent years. But, despite the threat of cheating, the game is currently in remarkable creative and economic health – not least because it is fantastically suited to the online world.
Avoiding America’s Vicious COVID Cycle
The United States has the means not only to arrest current negative public-health and economic dynamics but also to transform them into a virtuous cycle. But this will require sustained and simultaneous efforts in four areas.
The Debt Dogs that Didn’t Bark
If global growth resumes in 2021, aided by the rollout of vaccines and the Fed’s continued commitment to ultra-low interest rates, some developing countries may be able to avoid default, because yield-hungry investors will continue to buy their bonds. But other countries will not be so lucky.
The Pandemic Public-Debt Dilemma
Much of the conventional wisdom about how governments should manage the COVID-19 economic fallout is perfectly appropriate for advanced economies, but dangerous elsewhere. Even if developing and emerging economies could simply borrow and spend more to weather the storm, doing so could jeopardize their long-term economic prospects.
The Infrastructure Spending Challenge
Macroeconomists broadly agree that productive infrastructure spending is welcome after a deep recession, especially when interest rates are at record lows. But in advanced economies, any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens.
How Much Debt Is Too Much?
The new conventional wisdom in these unconventional times is that advanced-economy governments can take advantage of today's ultra-low interest rates to borrow and spend without limit in order to support the economy. But the fact is that there is always a limit, and it may come into view sooner than many realize.
Making Sense of Sky-High Stock Prices
Many have been puzzled that the world’s stock markets haven’t collapsed in the face of the COVID-19 pandemic and the economic downturn it has wrought. But with interest rates low and likely to stay there, equities will continue to look attractive, particularly when compared to bonds.
Why Biden Can Overcome Political Gridlock
According to conventional wisdom, US President-elect Biden will find himself immediately paralyzed because Republicans will follow the same obstructionist playbook they used to sabotage Barack Obama’s administration. But there are five new features of US political dynamics that this argument has overlooked.
The Calm Before the Exchange-Rate Storm?
Core dollar exchange rates have so far been surprisingly stable during the pandemic, most likely because major central banks’ policy interest rates are effectively frozen at or near zero. But although the current stasis could last awhile, it will not last forever.
The US Election’s Chaos Quotient
While hoping for a conclusive outcome on November 3 (or immediately thereafter), market watchers unfortunately must prepare for the worst. After all, US President Donald Trump and the Republicans are not even hiding their plans to steal the election.
The Pandemic’s Complex Cocktail
Over the past few years, investors have tended to be richly rewarded for setting aside traditional determinants of market value and focusing on just one thing: plentiful and predictable liquidity injections into the marketplace. But this dynamic cannot last forever, and it may confront a moment of truth in the fourth quarter of 2020.
The Stock-Market Disconnect
The best explanation for why stock markets remain so bullish despite a massive recession is that major publicly traded companies have not borne the brunt of the pandemic's economic fallout. But having been spared by the virus, they could soon find themselves squarely in the sights of a populist backlash.
Why Biden Is Better Than Trump for the Economy
The presumption that Republicans are better than Democrats at economic stewardship is a longstanding myth that must be debunked. For all Americans who care about their and their children’s future, the right choice this November could not be clearer.
The COVID Silver Linings Playbook
The old adage that every crisis represents an opportunity is certainly true in the case of COVID-19. Now that the pandemic has lasted longer and wrought more destruction than many initially anticipated, it is all the more important that policymakers seize on the positive trends it has incidentally set in motion.
The Uncertainty Pandemic
Policymakers’ most important task is to try to reduce the massive lingering uncertainty regarding COVID-19 while continuing to provide emergency relief to the hardest-hit individuals and economic sectors. But the insecurity fueled by the pandemic is likely to weigh on the global economy long after the worst is in the past.
Is the Almighty Dollar Slipping?
Far from signaling its imminent demise as the main global reserve currency, the greenback's sharp depreciation is to be expected in the current macroeconomic context. The forces that could erode the dollar's hegemony remain slower-moving and farther off.
How to Count Humans
A major new study based on a somewhat original methodology forecasts that global population will peak well before the end of this century. Although the usual caveats apply, the authors have offered fruitful new ways to grasp crucial policy questions.
To the Brink with China
The chances of a Sino-American cold war are far higher today than they were just months ago. Even worse, the chances of an actual war, resulting from an incident involving the countries’ militaries, are also greater.
Reading the Dollar Doldrums
A sharp decline in the relative value of the dollar this year has been met with cheers from those hoping for a short-term boost to the US economy, and with hand-wringing by those worried about the currency's global standing. But while both views reflect underlying truths, neither tells the whole story.
The COVID-19 pandemic is accelerating the long-term shift away from cash, and monetary authorities risk falling behind. A recent report from the G30 argues that if central banks want to shape the outcome, they need to start thinking fast.
Revisiting the White Swans of 2020
At the start of the year, when COVID-19 was barely on anyone's radar outside of China, the global economy was entering a fraught phase, facing a range of potentially devastating tail risks. And though the pandemic has since turned the world on its head, all of these threats remain – and some have become more salient.
Is a China-US “Rivalry Partnership” Possible?
One must hope that China and the United States will eventually arrive at an understanding that great-power competition does not preclude cooperation to resolve major global challenges. The main challenge will be to avoid a damaging derailment during what is likely to be a long and bumpy journey toward this destination.
Understanding the Pandemic Stock Market
The worse economic fundamentals and forecasts become, the more mysterious stock-market outcomes in the US appear. At a time when genuine news suggests that equity prices should be tanking, not hitting record highs, explanations based on crowd psychology, the virality of ideas, and the dynamics of narrative epidemics can shed some light.
Will Universities Learn from Lockdowns?
The COVID-19 crisis is likely to bring about further rapid and far-reaching shifts in the economic ground beneath us. But we need not view these changes with dread if the pandemic also propels a transition to better and more universal higher education.
The Main Street Manifesto
The historic protests sweeping America were long overdue, not just as a response to racism and police violence, but also as a revolt against entrenched plutocracy. With a growing number of Americans falling into unemployment and economic insecurity, while major corporations take bailouts and slash labor costs, something had to give.
Post-Pandemic Economic Leadership Begins in America
No matter how big an economy is, it is heavily influenced by US economic growth, financial stability, and policy spillovers. With the COVID-19 crisis, the evolution of the global economic-policy paradigm has become an urgent matter, and the rest of the world must not suffer the consequences of a US that does too little, too late.
The Illusion of a Rapid US Recovery
The United States has built an economy based on global demand for advanced goods, consumer demand for frills, and ever-growing household and business debts. This economy was in many ways prosperous, and it provided jobs and incomes to many millions. Yet it was a house of cards, and COVID-19 has blown it down.
Which Economic Stimulus Works?
During the initial shock from COVID-19, it was understandable that governments and central banks would respond with massive injections of liquidity. But now policymakers need to take a step back and consider which forms of stimulus are really needed, and which risk doing more harm than good.
Deglobalization Will Hurt Growth Everywhere
Even if the United States turns a blind eye to deglobalization’s effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared.
Europe’s Non-Hamiltonian Muddle
Although any joint EU action should be welcomed, the current COVID-19 response plan hardly amounts to a radical break with business as usual. Far from a long-awaited embrace of debt mutualization, the newly proposed European recovery fund risks being both politically unpalatable and economically inadequate.
Europe’s Hamiltonian Moment
The proposed sum for the recovery fund proposed by French President Emmanuel Macron and German Chancellor Angela Merkel is small change in an era when politicians and central bankers conjure up trillions almost daily. But, if adopted, the proposal might be remembered as the moment when Europe became a genuine political federation.
Preventing a COVID-19 Food Crisis
The pandemic is amplifying the risk of a world-wide food-price spike, which would trigger outright crises in many developing countries. Governments must therefore work together to address disruptions to food supply chains and prevent food protectionism from becoming the post-pandemic new normal.
Appeals to recommit to globalization are highly unlikely to gain traction in the wake of the COVID-19 pandemic. Those keen to preserve globalization would instead be better advised to focus on minimizing the disruption caused by the coming period of deglobalization and laying the groundwork for a more sustainable process thereafter.
The Case for Deeply Negative Interest Rates
Only monetary policy addresses credit throughout the economy. Until inflation and real interest rates rise from the grave, only a policy of effective deep negative interest rates, backed up by measures to prevent cash hoarding by financial firms, can do the job.
The Coming Greater Depression of the 2020s
While there is never a good time for a pandemic, the COVID-19 crisis has arrived at a particularly bad moment for the global economy. The world has long been drifting into a perfect storm of financial, political, socioeconomic, and environmental risks, all of which are now growing even more acute.
Saving the Developing World from COVID-19
The COVID-19 pandemic could devastate parts of the developing world. But with a concerted, cooperative, and holistic approach, the international community can avoid a large-scale humanitarian tragedy in vulnerable regions – and protect the rest of the world from destabilizing blowback.
Suspend Emerging and Developing Economies’ Debt Payments
Leaders of the world’s largest economies must recognize that a return to “normal” in our globalized world is not possible so long as the pandemic continues its grim march. It is myopic for creditors, official and private, to expect debt repayments from countries where those resources would have to be diverted from combating COVID-19.
Mapping the COVID-19 Recession
Until there is a better sense of when and how the COVID-19 public-health crisis will be resolved, economists cannot even begin to predict the end of the recession that is now underway. Still, there is every reason to anticipate that this downturn will be far deeper and longer than that of 2008.
The Two Pandemics
Predicting the stock market at a time like this is hard. To do so well, we would have to predict the direct effects on the economy of the COVID-19 pandemic, as well as all the real and psychological effects of the pandemic of financial anxiety. The two are different, but inseparable.
The Race Between Economics and COVID-19
For years, the economics profession has suffered from a stubborn reluctance to adopt a more multidisciplinary approach. But now that the COVID-19 pandemic is transforming economic life the world over, the profession has no choice but to leave its comfort zone.
A Greater Depression?
With the COVID-19 pandemic still spiraling out of control, the best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.
This Time Truly Is Different
The vast uncertainty surrounding the possible spread of COVID-19 and the duration of the near-economic standstill required to combat it make forecasting little different from guessing. Clearly, this is a “whatever-it-takes” moment for large-scale, outside-the-box fiscal and monetary policies.
Averting Economic Disaster Is the Easy Part
Based on China’s experience with COVID-19, the fiscal cost of comprehensive compensation for lost income could reach 10% of annual GDP, and as much as 25% of GDP in the US and Europe if the epidemic turns out to be worse there, which now looks likely. These may seem like mind-boggling sums, but they can be financed in several ways.
COVID-19 by the Numbers
Callous as it may sound, the economic and political impact of the coronavirus pandemic will ultimately be determined by the epidemiological and clinical data. Fortunately, in this case, the relevant statistical trends are developing in a much less alarming way than panicked media headlines might suggest.
That 1970s Feeling
Policymakers and too many economic commentators fail to grasp how the next global recession may be unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp drops in production, generalized shortages, and rapidly rising prices.
Can China’s Economy Withstand the Coronavirus?
The COVID-19 epidemic’s tail risks are significant and frightening, but as of now, they do not seem particularly likely to materialize. Instead, the outbreak’s economic consequences will probably be substantial but transitory.
Adapting to a Fast-Forward World
The world is going through a period of accelerating change, as four secular developments illustrate. Firms and governments must make timely adjustments, not only to their business models and operational approaches, but also to both their tactical and strategic mindsets.
The White Swans of 2020
Financial markets remain blissfully in denial of the many predictable global crises that could come to a head this year, particularly in the months before the US presidential election. In addition to the increasingly obvious risks associated with climate change, at least four countries want to destabilize the US from within.
The Challenging Arithmetic of Climate Action
All strategies to mitigate climate change have distributive implications that cannot be overlooked. If left unaddressed, such implications will fuel persistent headwinds to progress on the climate change and sustainability agenda.
Fantasy Fiscal Policy
Many leading central bankers now argue that, instead of just playing its traditional role of deciding the allocation of government spending, investment, taxes, and transfers, fiscal policy must substitute for monetary policy in economic fine-tuning and fighting recession. That would be a big mistake.
Is Trump’s Iran Strategy Working?
The Trump administration's unilateral approach to trade and foreign adversaries like Iran is reminiscent of the Reagan administration's strategy against the Soviet Union. Both game theory and the historical record show that aggressive "non-cooperation" can be effective, but only if it is used carefully.
Financial Markets’ Iran Delusion
A restrained reprisal by Iran following the assassination of its top military commander has led markets to conclude that the latest threat to the global economy has been removed. But just because Iran and the United States have so far avoided a full-scale war does not mean that markets are out of the woods.
Central Banks Face a Year of Mounting Challenges
After committing to monetary-policy normalization in 2018, the US Federal Reserve and the European Central Bank spent the past year reversing course with further interest-rate cuts and liquidity injections. Yet, given mounting medium-term uncertainties, central bankers cannot assume calm conditions in 2020.
The Inequality Debate We Need
The scientific evidence increasingly indicates that the world may soon reach a point of no return regarding climate change. So, rather than worrying almost exclusively about economic and political inequality, rich-country citizens need to start thinking about how to deal with global energy inequality before it’s too late.
What My Younger Self Never Expected
At the start of a new year and a new decade, it is both humbling and illuminating to reflect on major global developments that no one saw coming just a few decades ago. For those who grew up during the Cold War or in the ensuing period of American primacy, the economic and geopolitical rise of the developing world must rank high on the list.
King Boris’s First Test
With the United Kingdom’s withdrawal from the European Union now set to take effect on January 31, 2020, the most important challenge facing UK Prime Minister Boris Johnson is negotiating his country's new relationship with the bloc. He has every incentive to keep that process as non-controversial as possible.
The Crisis of 2020
It doesn't take much to spark corrections in vulnerable economies and markets, and big shocks to highly vulnerable systems are a recipe for crisis. That's why the vulnerability of today's global economy – reflected in real economies, financial asset prices, and misguided monetary policy – needs to be taken seriously.
Trump Will Make China Great Again
Despite the latest Sino-American "skinny deal" to ease tensions over trade, technology, and other issues, it is now clear that the world's two largest economies have entered a new era of sustained competition. How the relationship will evolve depends greatly on America's political leadership – which does not bode well.
The Global Economy’s Luck May Run Out
Compared to this time last year, the prospects for markets and the global economy heading into 2020 are surprisingly bright. But look further ahead and you will encounter deep uncertainty, suggesting that policymakers around the world would do well to implement inclusive-growth policies sooner rather than later.
Government Debt Is Not a Free Lunch
With borrowing costs at multi-decade lows, governments seemingly can take on much more debt without any great concern about long-term consequences. But the real risks and costs of higher public borrowing may be hidden.
The Calm After Britain’s Brexit Election
If Boris Johnson wins the United Kingdom's upcoming vote, as expected, Brexit will go ahead and cause the country long-term damage. But for the next several years, almost nothing about the UK's relationship with the European Union is likely to change, because Johnson can – and almost certainly will – extend the transition period.
The Billionaire Problem
Writing in the 1830s, as the Industrial Revolution gathered pace, Honoré de Balzac anticipated the broader social concern: “The secret of great fortunes without apparent cause is a crime that has been forgotten, because it was properly carried out.” But today's billionaires make forgetting impossible.
After the US-China Trade War
Trade truce or not, a protracted Cold War-like conflict between the United States and China has already begun. That should worry the US, which, unlike China, is devoid of a long-term strategic framework.
Why Financial Markets’ New Exuberance Is Irrational
Owing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.
How the IMF Can Battle Gradual Irrelevance
These days, the International Monetary Fund’s policy recommendations – especially as they pertain to the advanced economies – have little impact. Although this is partly a consequence of more inward-looking national politics in richer countries, the Fund itself is not blameless.
The High Stakes of the Coming Digital Currency War
Facebook CEO Mark Zuckerberg was at least half right when he recently told the United States Congress that there is no US monopoly on regulation of next-generation payments technology.
Is the Global Dollar in Jeopardy?
The US Federal Reserve is right to be concerned, if not worried, about the greenback's dominance of international trade and finance. Fortunately for consumers, growing potential competitive pressure – call it the Libra effect – creates an incentive to make the existing system work better.
The End of Neoliberalism and the Rebirth of History
For 40 years, elites in rich and poor countries alike promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. Now that the evidence is in, is it any wonder that trust in elites and confidence in democracy have plummeted?
The Monetarist Era is Over
Central bankers have been the first to recognize that the effectiveness of monetary policy in managing demand and stabilizing economic cycles has reached its limits. The problem is that many politicians and academic economists remain in denial.
Which Wealth Tax?
Steadily rising income and wealth inequality, along with declining social mobility, is contributing to political polarization. Fortunately, If there is growing demand for some type of tax-policy response to the problem, we have ways to determine which measures would be most effective, depending on the specific objective.
The Allure and Limits of Monetized Fiscal Deficits
With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. When that happens, policymakers will almost certainly pursue some form of central-bank-financed stimulus, regardless of whether the situation calls for it.
How to Support Developing Countries in Energy Transition
Despite the severity of the climate-change crisis, much of the debate in advanced economies is entirely inward-looking, without recognizing that the real growth in carbon dioxide emissions is coming from emerging Asia. In fact, Asia already accounts for a higher share of global emissions than the United States and Europe combined.
The IMF After Argentina
It’s high time to ask how to refocus the International Monetary Fund’s mandate for dealing with emerging-market debt crises. How can the IMF be effective in helping countries regain access to private credit markets when any attempt to close unsustainable budget deficits is labeled austerity?
Are Europe’s Economic Prospects Brighter Than They Appear?
Despite all the lurid headlines about the trade war causing a recession in the United States or some kind of collapse in China and its Asian neighbors, recent economic data reveal a very different picture: the main victim has been Europe. But, fortunately for the European economy, overdependence on foreign trade is not the whole story.
Lagarde’s Edge Is Europe’s Opportunity
The eurozone economy urgently needs a more comprehensive pro-growth policy approach at both the national and regional levels, or else a second lost decade will be all but assured. Hope for the continent now rests squarely on the shoulders of Christine Lagarde, the highly accomplished incoming president of the European Central Bank.
Four Collision Courses for the Global Economy
Between US President Donald Trump's zero-sum disputes with China and Iran, UK Prime Minister Boris Johnson's brinkmanship with Parliament and the European Union, and Argentina's likely return to Peronist populism, the fate of the global economy is balancing on a knife edge. Any of these scenarios could lead to a crisis with rapid spillover effects.
Jerome Powell’s Dilemma
There is a reason that the US Federal Reserve chair often has a haunted look. Probably to his deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that President Donald Trump will be reelected next year.
Who Lost Argentina, Again?
With a presidential election approaching next month, Argentina is once again on the cusp of a crisis that could end in depression and default, owing to mistakes made by everyone involved. Should President Mauricio Macri secure another term, he must waste no time in reversing the country's economic deterioration.
Should Governments Just Print More Money?
Supporters of Modern Monetary Theory say that some governments can easily cover the cost of large social programs such as health care for all and free college tuition by jettisoning conventional thinking about the role of debt and taxes in our economies. But is it really that simple?
The Benefits of a Progressive Consumption Tax
Many economists already favor a consumption-based tax system for raising revenue on grounds of efficiency and simplicity. In an environment where wealth inequality is rising inexorably, the case for doing so has become increasingly compelling.
The Trump Narrative and the Next Recession
So far, with his flashy lifestyle, the US president has been a resounding inspiration to many consumers and investors. But his personal narrative is unlikely to survive an economic downturn, because people pull back during such periods and reassess their views and the stories they find believable.
The End of Shareholder Primacy?
The recent decision by America's Business Roundtable to abandon its support for shareholder primacy was a long time coming, and reflects a broader shift toward socially conscious investment. Now that the multi-stakeholder model is receiving the attention it deserves, it will be incumbent on governments to create space for it to succeed.
Whither Central Banking?
In an environment of secular stagnation in the developed economies, central bankers’ ingenuity in loosening monetary policy is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means.
The Anatomy of the Coming Recession
Unlike the 2008 global financial crisis, which was mostly a large negative aggregate demand shock, the next recession is likely to be caused by permanent negative supply shocks from the Sino-American trade and technology war. And trying to undo the damage through never-ending monetary and fiscal stimulus will not be an option.
Trump’s Cross of Gold
US President Donald Trump wants to compress the United States trade deficit and enhance the competitiveness of domestic manufacturers by using tariffs to raise the price of imported goods. And the fixed exchange rates he needs to achieve that goal are the real reason behind his nomination of Judy Shelton to the Federal Reserve Board.
Trade Disruption Is a Symptom of a Deeper Malaise
Trade tensions are a symptom rather than a cause of the world’s underlying economic and financial malaise. Moreover, an excessive focus on trade could deflect policymakers’ attention from other measures needed to ensure faster and more inclusive growth in a genuinely stable financial environment.
The Inequality of Nations
Markets are mechanisms of social choice, in which dollars effectively equal votes; those with more purchasing power thus have more influence over market outcomes. Governments are also social choice mechanisms, but voting power is – or is supposed to be – distributed equally, regardless of wealth.
Political betting markets now put the chance of a no-deal Brexit at roughly one-third. But, regardless of the reckless promises to Conservative Europhobes that made Boris Johnson prime minister, an orderly, negotiated Brexit will be the favored option for a political libertine whose only consistent principle has been inconsistency.
Are Central Banks Losing Their Big Bet?
Following the 2008 global financial crisis, central banks bet that greater activism on the part of other policymakers would be their salvation, helping them to normalize their operations. But that activism never came, and central bankers are now facing a lose-lose proposition.
The Great Crypto Heist
Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.
The Central Banker Europe Needs
While having a president with specialized training as a monetary economist would benefit the European Central Bank, such training is not essential. If Christine Lagarde is confirmed for the position, Europe will learn that other attributes matter much more.
The Case for a World Carbon Bank
To the dismay of many energy experts, the World Bank recently rather capriciously decided to stop funding virtually all new fossil-fuel plants. But phasing out readily available coal is a move that most major developing countries simply cannot afford without adequate incentives.
Thumbs Down to Facebook’s Cryptocurrency
Only a fool would trust Facebook with his or her financial wellbeing. But maybe that’s the point: with so much personal data on some 2.4 billion monthly active users, who knows better than Facebook just how many suckers are born every minute?
Expansions Don’t Die of Old Age
Many economists have become convinced that a recession in the United States is now overdue, if not immediately then surely before the 2020 presidential election. But US recessions since the end of World War II have generally resulted from three causes, none of which is currently present.
The Coming Sino-American Bust-Up
Whether or not US President Donald Trump and his Chinese counterpart, Xi Jinping, agree to another truce at the upcoming G20 summit in Osaka, the Sino-American conflict has already entered a dangerous new phase. Though a negotiated settlement or a managed continuation of the status quo are possible, a sharp escalation is now the most likely scenario.
The Growing Risk of a 2020 Recession and Crisis
Across the advanced economies, monetary and fiscal policymakers lack the tools needed to respond to another major downturn and financial crisis. Worse, while the world no longer needs to worry about a hawkish US Federal Reserve strangling growth, it now has an even bigger problem on its hands.
America’s Unusual Recovery is Now Also its Longest
After overcoming significant political and economic headwinds during the past decade, the US economy now appears to have undergone its longest sustained expansion in history. Yet, behind the data showing historically low unemployment and long-awaited wage growth lie vulnerabilities that cannot be ignored.
Unconventional Thinking about Unconventional Monetary Policies
Defenders of central-bank independence argue that quantitative easing should have been avoided last time and is best avoided in the future, because it opens the door to political interference with the conduct of monetary policy. But political interference is even likelier if central banks shun QE in the next recession.
As Populists Rise, Latin America’s Economies Will Fall
In the space of a year, populists with autocratic tendencies have taken office in Mexico and Brazil, and laid the groundwork to return to power in Argentina. With the three largest economies in Latin America destined for further mismanagement, the prospects for growth in the region are dim.
Has a No-Deal Brexit Become More Likely?
Fanatical Brexiteers argue that a UK prime minister genuinely determined to deliver a no-deal Brexit could, and should, go nuclear: suspend parliament and refuse to call MPs back until after the October 31 deadline, when Brexit will happen automatically. The problem for them is that the UK isn't Zimbabwe or Venezuela.
In modern economies, people may have jobs, but they still harbor major concerns in a wide range of areas, including security, health and work-life balance, income and distribution, training, mobility, and opportunity. By focusing solely on the unemployment rate, policymakers are ignoring the many dimensions of employment that affect welfare.
How Inflation Could Return
After years of low inflation, investors and policymakers have settled into a cyclical mindset that assumes advanced economies are simply suffering from insufficient aggregate demand. But they are ignoring structural factors at their peril.
The Global Consequences of a Sino-American Cold War
What started as a trade war between the United States and China is quickly escalating into a death match for global economic, technological, and military dominance. If the two countries' leaders cannot manage the defining relationship of the twenty-first century responsibly, the entire world will bear the costs of their failure.
Explaining Inflation Inertia
Despite central bankers' concerted efforts, credible price-stability targets have proved elusive in countries like Argentina, where inflation is soaring, and Japan, which can't shake the specter of deflation. What can governments do to influence inflation expectations when central banks’ policies prove insufficient to the task?
Leave the Renminbi Out of US-China Trade Talks
A potential agreement could contain many “win-win” elements, notably concerning intellectual property rights and export subsidies. But pushing China to commit to a more stable exchange rate risks creating major problems when the next big Asian recession hits.
Sooner or later, some political shock will disrupt the current happy balance of robust global growth and low inflation, as US President Donald Trump’s trade wars and oil sanctions almost did last year. But until such a shock actually happens, investors can sit back and enjoy their porridge just the way they like it.
America’s False Narrative on China
Washington has been loose with facts, analysis, and conclusions about China, and the American public has been far too gullible in its acceptance of this false narrative. The point is not to deny China’s role in promoting economic tensions, but to stress the need for objectivity and honesty in assigning blame – especially with so much at stake in the current conflict.
Bipolar Markets in the “New Mediocre”
After the global risk-off of late 2018, a newfound dovishness on the part of central bankers has combined with other positive developments to revive investors' animal spirits. But with a wide array of financial and political risks clearly in view, one should not assume that the current ebullience will last the year.
Emerging Risks for Emerging Economies
The US Federal Reserve's pause on further monetary-policy tightening has fueled a revival of capital inflows. But, given the uncertainties about US policy and Chinese growth prospects, it is too early to conclude that emerging economies are out of the woods.
How Western Economies Can Avoid the Japan Trap
With the return of Europe's economic doldrums and signs of a coming growth slowdown in the United States, advanced economies could be at risk of falling into the same kind of long-term rut that has captured Japan. To avoid that outcome, policymakers must recognize and address the deeper structural forces at work.
Elizabeth Warren’s Big Ideas on Big Tech
The debate about how to regulate the tech sector is eerily reminiscent of the debate over financial regulation in the early 2000s. Fortunately, one US politician has mustered the courage to call for a total rethink of America's exceptionally permissive merger and acquisition policy over the past four decades.
Was the Stock-Market Boom Predictable?
While the conventional wisdom holds that it is never possible to "time the market," it might seem that major shifts – like the quadrupling of the US stock market over the last decade – should be at least partly foreseeable. Why aren't they?
Brexit Fever is Breaking
A no-deal disaster is still theoretically possible when the next Brexit deadline arrives on April 12. But a much longer extension is almost certain, now that the principle of a potentially endless negotiation has prevailed.
The Economic Consequences of Global Uncertainty
With new sources of uncertainty seemingly proliferating by the day, a broad economic slowdown should come as no surprise. And as long as the rules and institutions governing the global economy remain in doubt, continued underperformance is to be expected.
Modern Monetary Realism
Kenneth Rogoff's criticism of Modern Monetary Theory assumes that MMT advocates don't care about budget deficits or the independence of the US Federal Reserve. But these assumptions are wide of the mark, and Rogoff himself sometimes undermines his own arguments.
Understanding the Fed’s Dovish Turn
Over the past few years, the US Federal Reserve has been ahead of other major central banks in normalizing monetary policy. But now the Fed has abruptly put further interest-rate hikes on hold, owing to key changes in macroeconomic conditions and the political environment.
Market Concentration Is Threatening the US Economy
Rising inequality and slow growth are widely recognized as key factors behind the spread of public discontent in advanced economies, particularly in the United States. But these problems are themselves symptoms of an underlying malady that the US political system may be unable to address.
Why Economics Must Get Broader Before It Gets Better
Even as the public's skepticism toward their profession has grown, economists have continued to ignore increasingly obvious flaws in their analytical frameworks. A discipline long dominated by “high priests” must now adopt a more open mindset, or risk becoming irrelevant.
Modern Monetary Nonsense
A number of leading progressive US politicians advocate using the Federal Reserve's balance sheet to fund expansive new government programs. Although their arguments have a grain of truth, they also rest on some fundamental misconceptions, and could have unpredictable and potentially serious consequences.
Stock Buybacks Are the Wrong Target
Legislation banning companies from purchasing their own shares, or conditioning buybacks on investment in workers, would not significantly alter the distribution of wealth. What it would do is undermine the broad cooperation needed to tackle income inequality and a fast-changing labor environment.
Risky Retirement Business
Regardless of whether yields in advanced economies rise, fall, or stay the same, core demographic trends are unlikely to change in the coming years, implying that pension costs will continue to balloon. Is there an asset class that can provide yield-hungry pension-fund managers what they're looking for?
Misreading China’s Strength
The US believes that with Chinese growth slowing, China's leaders are desperate for a deal to end the bilateral trade war, regardless of when the current 90-day truce actually ends. But the two economies’ longer-term fundamentals compel a very different verdict about which side has the upper hand.
Will the US Capitulate to China?
The most important problem that a bilateral deal between the United States and China needs to resolve is Chinese theft of US firms’ technology. Unless the Chinese agree to stop stealing technology, and the two sides devise a way to enforce that agreement, the US will not have achieved anything useful from Trump's tariffs.
The Dialectic of Global Trade Policy
It is often said that with risk comes opportunity. What initially was viewed as an unfortunate US shift to protectionism may in fact have opened a window to improve the functioning of the global economy and world trade.
Europe, Please Wake Up
The first step to defending Europe from its enemies, both internal and external, is to recognize the magnitude of the threat they present. The second is to awaken the sleeping pro-European majority and mobilize it to defend the values on which the EU was founded.
A Mixed Economic Bag in 2019
Since the global synchronized growth of 2017, economic conditions have been gradually weakening and will produce an across-the-board deceleration in the months ahead. Beyond that, the prospect for markets and national economies will depend on a broad range of factors, some of which do not bode well.
How EU Leaders Can Prevent a No-Deal Brexit
British Prime Minister Theresa May’s strategy of threatening a no-deal Brexit requires a hard deadline that forces her opponents to capitulate. Without that, “running down the clock” becomes “kicking the can down the road,” which more accurately reflects May’s paradoxical combination of robotic inflexibility and exasperating indecisiveness.
Financial Stability in Abnormal Times
Despite improvements in the financial system since the 2008 crisis, the piecemeal reforms that have been enacted fall far short of what is needed. And an inexorably growing financial system, combined with an increasingly toxic political environment, means that the next major financial crisis may come sooner than you think.
At the recent World Economic Forum annual meeting in Davos, participants made the same mistake they always do: extrapolating from the recent past rather than looking genuinely into the future. Three key changes would enable the event to fulfill its considerable potential.
There Is No Sino-American Trade War
Chinese negotiators recently offered to buy enough American products to reduce the bilateral trade deficit to zero by 2024. Why, then, have US negotiators rejected that as a way to end the dispute?
Warnings from the Global Trade Cycle
The global trade cycle is facing major stress in 2019, downward revisions have just begun, and the risk of a major slowdown in world GDP growth cannot be minimized. In a still tightly connected world, no major economy will be an oasis.
Morality and Money Management
Following his recent death, Vanguard Group founder Jack Bogle was widely and generously eulogized – and justifiably so. But if everyone followed Bogle’s investment strategy, market prices would turn into nonsense and would provide no direction to economic activity.
The World Economy Goes Hollywood
In a world where “nobody knows anything,” investors may be no better than film-studio moguls at predicting the future. If so, then markets, instead of being predictive, become increasingly reactive, simply extrapolating recent events.
Risks to the Global Economy in 2019
Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies.
Central Bankers’ Fiscal Constraints
With policy interest rates near zero in most advanced economies (and just above 2% even in the fast-growing US), there is little room for monetary policy to maneuver in a recession without considerable creativity. But those who think fiscal policy alone will save the day are stupefyingly naive.
Trump vs. the Economy
Between publicly chastising US Federal Reserve Chair Jerome Powell and escalating his trade war with China, US President Donald Trump has finally rattled the markets. While investors were happy to look the other way during the first half of Trump's term, the dangerous spectacle unfolding in the White House can no longer be ignored.
Is Canceling Brexit Now Inevitable?
As matters stand today, a new British referendum on leaving the European Union would produce a clear majority for remaining a member, regardless of how the votes were counted or the questions were asked. And with the only two Brexit options set to be rejected next month, the questions are increasingly likely to be asked.
Why Is the Fed Still Raising Interest Rates?
Given that the US Federal Reserve has long said that its interest-rate policy is “data dependent,” why has it pressed ahead with monetary tightening in the face of worsening economic indicators? Three reasons stand out.
In Defense of the Fed
Despite howls of protest from market participants and rumored threats from an unhinged US president, the Federal Reserve should be congratulated for its commitment to normalizing interest rates. There is simply no other way to break the US economy's 20-year dependence on asset bubbles.
The Biggest Emerging Market Debt Problem Is in America
A decade after the subprime bubble burst, a new one seems to be taking its place in the market for corporate collateralized loan obligations. A world economy geared toward increasing the supply of ﬁnancial assets has hooked market participants and policymakers alike into a global game of Whac-A-Mole.
Overestimating the EU Economy
If the EU were a soccer team, it would not lose games for lack of a game plan or due to inadequate capacity. The problem is that the team as a whole is not playing cohesively, and all of the top players are struggling individually, owing to messy problems at home.
Betting on Dystopia
The right way to think about cryptocurrency coins is as lottery tickets that pay off in a dystopian future where they are used in rogue and failed states, or perhaps in countries where citizens have already lost all semblance of privacy. That means that cryptocurrencies are not entirely worthless.
What we measure affects what we do. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.
How to Save Social Security Systems
Providing benefits to support a comfortable standard of living for retirees with just a modest rate of tax on the working population depends on there being a small number of pensioners relative to the number of taxpayers. That is no longer the case.
Why a US-China Tariff Ceasefire Is Coming Soon
Donald Trump's negotiating style – “shout loudly and carry a white flag” – may seem incoherent and dishonest, but it has been spectacularly successful for him. And he's about to use it again with China.
Inflation targeting is supposed to reduce uncertainty about prices. But keeping the inflation target at 2% or more, might actually increase a sense of uncertainty about real things like home values or investments.
Brexit and the Global Economy
The United Kingdom’s divorce negotiations with the European Union have dragged on through multiple déjà vu moments, and the consensus among experts is that the economic fallout will be felt far more acutely in Britain than in the EU. But policymakers worldwide would benefit from watching the process closely.
Why Central Bank Digital Currencies Will Destroy Cryptocurrencies
Leading economic policymakers are now considering whether central banks should issue their own digital currencies, to be made available to everyone, rather than just to licensed commercial banks. The idea deserves serious consideration, as it would replace an inherently crisis-prone banking system and close the door on crypto-scammers.
The Lessons of Quantitative Easing
A decade after the US Federal Reserve launched one of the boldest policy experiments in the modern history of central banking, economists and policymakers are still debating its implications. To prepare for future crises, five key lessons should be kept in mind.
Exposing China’s Overseas Lending
China has fueled an unprecedented surge in official lending over the past 15 years. The most remarkable feature of this wave of credit, however, is not its size, but its dangerous lack of transparency.
Why Italy is the Latest to Question Policy Orthodoxy
The budget standoff between Italy's anti-establishment government and the European Commission has rattled markets and brought back memories of the eurozone sovereign debt crisis. EU officials should remain open to unconventional economic-policy approaches, and the Italians should show that they are serious about long-term reforms.
The Long Sino-American Trade War
If governments are going to engage in trade wars, they should have a clear and pragmatic vision of where they want to end up. Yet the trade war initiated by the Trump administration seems less like a tough negotiating tactic, and more like a guessing game.
Theresa May Could Back a New Brexit Referendum
If voters rejected “no deal” in favor of no Brexit in a new referendum, May’s hardline opponents would be silenced, and her position as Prime Minister would be secured until the 2022 election. Why would she not seize this chance?
America’s Inflation Risks
Thanks to trade tariffs on Chinese imports, China-centric global value chains will no longer offset pressure on prices stemming from a tight US labor market. That could mean that the Federal Reserve must significantly exceed the so-called comfort zone of interest-rate normalization that financial markets are currently discounting.
The Big Blockchain Lie
Now that cryptocurrencies such as Bitcoin have plummeted from last year's absurdly high valuations, the techno-utopian mystique of so-called distributed-ledger technologies should be next. The promise to cure the world's ills through "decentralization" was just a ruse to separate retail investors from their hard-earned real money.
Crazy Rich Asia
With an unexpected hit on its hands, perhaps Hollywood will use more films like “Crazy Rich Asians” to illustrate key concepts about a region that is the biggest economic success story of the last several decades. There are many more stories about that story to be told.
Managing the Global Factor Better
The IMF is the body best suited to serve as a trusted adviser and an effective conductor of the global policy orchestra. If it is to fulfill that role, however, it must strengthen its credibility as a responsive and effective leader. That means listening to its members, then guiding them toward more harmonious policies.
The Restructuring of the World
Trade protectionism, together with fears over the national-security implications of technological development, are contributing to a balkanization of the world order. This is not good news for the United States as it faces an intensifying rivalry with an increasingly powerful China.
The Trade Wars of Codependency
Whatever the source, the conflict phase of codependency is now at hand. China is changing, or at least attempting to do so, while America remains stuck in the time-worn mindset of a deficit saver with massive multilateral trade deficits and the need to draw freely on global surplus saving to support economic growth.
When Hindsight Is Not 20/20
Surely the financial crisis of 2008 and its immediate aftermath could have been handled better; battlefield medicine is never perfect. But there is not even a prima facie case to be made for Rob Johnson and George Soros’s allegations of foolish ineptitude on the part of the Obama administration.
Do Spectacular Earnings Justify Spectacular US Stock Prices?
With share prices and corporate earnings moving together on a nearly one-for-one basis, one might conclude that the US stock market is behaving sensibly, simply reflecting the US economy’s growing strength. But the stock market has not always been so dismissive of the volatility of earnings.
Why the US Would Lose A Trade War with China
In handicapping the US-China conflict, Keynesian demand management is a better guide than comparative advantage. In principle, China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus.
The Makings of a 2020 Recession and Financial Crisis
Although the global economy has been undergoing a sustained period of synchronized growth, it will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it.
The Stable-Coin Myth
The problems with the latest wave of cryptocurrencies will be familiar to anyone who has encountered even a single study of speculative attacks on pegged exchange rates, or to anyone who has had a coffee with an emerging-market central banker. But this doesn’t mean that the flaws in these schemes will be familiar to investors.
A decade after the collapse of Lehman Brothers and the start of the global financial crisis, it is clear that many lessons have been learned, while many economic misconceptions remain embedded in the public consciousness. If economic history teaches us anything, it is to be mindful of our own limitations in a world of infinite uncertainties.
Final Thoughts on Secular Stagnation
Too little was done in the aftermath of the financial crisis a decade ago to stimulate aggregate demand, which would be boosted by a more equal income distribution. And substantially stronger financial regulation than was in place before 2008 needs to be adopted to minimize the risks of future crises.
Beyond Secular Stagnation
There is no reason economists should agree about what is politically possible. What they can and should agree about is what would have happened if their preferred policies had been implemented – and keep those lessons in mind as the next downturn approaches.
The Regional Costs of Venezuela’s Collapse
The refugee crisis generated by the country's economic implosion is comparable to that in Europe in 2015. In response, US President Donald Trump has floated the idea of military intervention, when what the US should be doing is increasing financial and logistical aid to Venezuela's neighbors.
Setting the Record Straight on Secular Stagnation
Echoing conservatives like John Taylor, the Nobel laureate economist Joseph Stiglitz recently suggested that the concept of secular stagnation was a fatalistic doctrine invented to provide an excuse for poor economic performance during the Obama years. This is simply not right.
The Myth of Secular Stagnation
Those responsible for managing the 2008 recovery found the idea of secular stagnation attractive, because it explained their failures to achieve a quick, robust recovery. So, as the economy languished, a concept born during the Great Depression of the 1930s was revived.
What Next for the US Stock Market?
August 22 marked the longest period of rising share prices in US history. But the stock market's nine-year bull run won't last much longer, as three factors drive up long-term interest rates, reducing the present value of future corporate profits and providing investors with an alternative to equities.
The Current Account Counts
Despite the US government’s recent upward revision to personal saving data, the overall national saving rate, which drives the current account, remains woefully deficient. And the major surplus countries – Germany, China, and Japan – have been only too happy to go along for the ride.
Emerging Vulnerabilities in Emerging Economies
For many emerging economies, it is imperative to pursue a rebalancing of growth patterns, with a more active approach to managing debt and capital flows and their effects on asset prices, exchange rates, and growth. Otherwise, the dangers of unsustainable growth patterns will bring expansion to an abrupt halt.
Can Turkey Rewrite the Crisis-Management Rules?
Rather than sticking with the approach taken by numerous other countries – including Argentina earlier this year – by raising interest rates and seeking some form of IMF support, Turkey has shunned both in a very public manner. Unless it changes course, the government risks much wider damage – and not just in Turkey.
Globalization with Chinese Characteristics
US President Donald Trump’s erratic unilateralism represents nothing less than abdication of global economic and political leadership. Trump’s withdrawal from the Paris climate agreement, his rejection of the Iran nuclear deal, his tariff war, and his frequent attacks on allies and embrace of adversaries have rapidly turned the United States into an unreliable partner in upholding the international order.
Trump’s Victorious Retreats
Why does US President Donald Trump keep making empty threats against other countries? While his detractors think he is simply a braggart, a fool, and an ignoramus, there could be a less unflattering, though equally depressing, explanation.
When Economic History Improves With Time
The rates of US economic growth and especially personal saving have been higher than previously believed, according to revised data from the Bureau of Economic Analysis. But it's not all good news, because the largest economic imbalances remain unchanged.
Are Trump’s Policies Hurting Long-Term US Growth?
When it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations. And it is by this standard that Donald Trump's administration should be judged.
The US is at Risk of Losing a Trade War with China
The “best” outcome of President Donald Trump’s narrow focus on the US trade deficit with China would be improvement in the bilateral balance, matched by an increase of an equal amount in the deficit with some other country (or countries). In fact, significantly reducing the bilateral trade deficit will prove difficult.
QE Turns Ten
Are independent central banks willing to force society to sacrifice growth in order to preserve financial stability? That is the fundamental question that must be answered after a decade of quantitative easing.
From Brexit to Breferendum
The consequences of the Brexit self-delusion are now becoming obvious, as Britain’s government finds itself unable to get a parliamentary majority for any realistic plan to leave the EU. If this situation persists, Britain will have only one alternative: another referendum to reconsider the impossible result of the 2016 vote.
Trump May Kill the Global Recovery
In a sharp departure from this time last year, the global economy is now being buffeted by growing concerns over US President Donald Trump's trade war, fragile emerging markets, a slowdown in Europe, and other risks. It is safe to say that the period of low volatility and synchronized global growth is behind us.
How to Protect Workers Without Trade Tariffs
Donald Trump’s trade war is an international tragedy. But it could have a happy ending if it eventually reminds us of the risks that free trade imposes on people, and if we improve our insurance mechanisms to help them.
The Economic Consequences of Trump’s Trade War
For those who observe that the economic and financial fallout from US President Donald Trump’s trade war has been surprisingly small, the best response is that a lagged effect is exactly what we should expect. Just wait.
A “Reagan Moment” for International Trade?
In the 1980s, US President Ronald Reagan initiated a military spending race with the Soviet Union that ended up altering the global balance of power in ways that affected many countries worldwide. Could Donald Trump's tariff race with China lead to a similar outcome?
Big Tech Is a Big Problem
The prosperity of the US has always depended on its ability to harness economic growth to technology-driven innovation. But right now Big Tech is as much a part of the problem as it is a part of the solution.
Global Aging and Fiscal Solvency
Countries that rely on pay-as-you-go public pension systems are running up against two problems: increasing life expectancy and rising old-age-dependency ratios. How can such systems be sustained without massive tax increases?
American Democracy on the Brink
In just the past few days, the US Supreme Court has handed down a series of rulings favoring corporations over workers, and right-wing extremists over the majority of Americans. With the Court following Donald Trump down the path of racism, misogyny, nativism, and deepening inequality, it would appear that yet another pillar of American democracy has crumbled.
Four Lessons from Egypt’s World Cup Experience
Egypt’s qualification for the World Cup showed that the country is capable of competing at the highest international level. Rather than treating its loss as a failure, Egyptians should view it as a learning experience, one that can guide the country as it seeks to achieve its full potential.
When Politics Trumps Economics
The Trump administration seems to believe that America has reached a propitious moment in the economic cycle to play power politics. But can this approach offset the increasingly tenuous fundamentals of a saving-short US economy that continues to account for a disproportionate share of global military spending?
Nationalism Will Go Bankrupt
The opposite of populist nationalism is not globalist elitism; it is economic realism. And in the end, countries such as Britain, the United States, and now Italy will learn the hard way that reality always eventually wins.
Why Markets and Political Scientists Disagree on the G7
Contrary to the warnings of some political analysts, even after the recent debacle in Canada, the G7 can and will play a role – albeit a less important one – on the global stage. But that does not mean that the summit's failure was cost-free.
Can the Euro Be Saved?
Across the eurozone, political leaders are entering a state of paralysis: citizens want to remain in the EU, but they also want an end to austerity and the return of prosperity. So long as Germany tells them they can’t have both, there can be only one outcome: more pain, more suffering, more unemployment, and even slower growth.
The Populists’ Euro
It is not hard to imagine that if Italy's new government proceeds with its ambitious fiscal plans, instituting both a flat tax and a universal basic income, it could blow up the budget deficit. In that case, Italy could quickly find itself out of the eurozone and ring-fenced by capital controls, whether the government intended this or not.
The Italian Economy’s Moment of Truth
Unlike many other European countries, Italy still has not restored economic growth to its pre-crisis level – a fundamental failing that lies at the heart of many of its political problems. Now that a new anti-establishment government is taking power, it remains to be seen if the economy will be remade, or broken further.
Are Emerging Markets the Canary in the Financial Coal Mine?
Economists who assure us that advanced-economy debt is completely “safe” sound eerily like those who touted the “Great Moderation” – the supposedly permanent reduction in cyclical volatility – a generation ago. In many cases, they are the same people.
Italy’s Slow-Motion Euro Train Wreck
Financial markets have finally woken up to the fact that Italy could soon be ruled by a populist government with designs to take the country out of the eurozone. And, given Italy's tepid economic performance since adopting the single currency a generation ago, there is little reason to think that the current crisis is a one-off event.
Italy’s Long, Hot Summer
Severe political uncertainty, chronic slow growth, and a sovereign-debt level currently hovering around 160% of GDP already is enough for Italy to trigger a debt crisis. And there is no plausible resolution that would not generate additional risks and complications.
America’s Exploding Budget Deficit
The federal government’s debt has risen from less than 40% of GDP a decade ago to 78% now, and the Congressional Budget Office predicts that the ratio will rise to 96% in 2028. While many blame the tax cuts enacted last year, the real reason lies elsewhere.
A Bilateral Foil for America’s Multilateral Dilemma
The May 19 deal between the US and China seems to have reduced tensions between the two countries. But, given the global nature of America's trade deficit, any effort to impose a solution focusing on one country will likely backfire.
The Old Allure of New Money
Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.
The Known Unknowns of US Sanctions Against Iran
The sanctions against Iran reinstated by US President Donald Trump raise two all-important questions that have no convincing answers. But they also raise a third question, about which financial markets are likely to be wrong.
The Known Unknowns of US Sanctions Against Iran
The sanctions against Iran reinstated by US President Donald Trump raise two all-important questions that have no convincing answers. But they also raise a third question, about which financial markets are likely to be wrong.
Managing the Risks of a Rising Dollar
Some may view the US dollar’s appreciation as consistent with a longer-term rebalancing of the global economy. But, as Argentina’s recent request for IMF financing starkly demonstrates, a sharp and sudden dollar appreciation risks unbalancing things elsewhere.
Initial Coin Scams
There are now nearly 1,600 cryptocurrencies, and the number continues to rise. It is time to start recognizing their issuers' utopian rhetoric for what it is: self-serving nonsense meant to separate credulous investors from their hard-earned savings.
How Costa Rica Gets It Right
How has a country of under five million people become a world leader in developing holistic policies that promote democratic, sustainable, and inclusive economic growth? The answer lies in its people's belief that focusing on the welfare of all citizens not only enhances wellbeing, but also increases productivity.
Is Realism Trumping Populism?
With economic conditions returning more or less to normal around the world after a decade of financial crises, nationalist populism is now seen as the biggest threat to global recovery. But is it possible that this consensus has emerged just as the populist wave has crested?
America’s Weak Case Against China
The US Trade Representative appears to have made an ironclad case against China in the so-called Section 301 report issued on March 22. But the report – now widely viewed as evidence justifying the Trump administration's recent tariffs and other punitive measures against China – is wide of the mark in several key areas.
The Global Trade Game
History is less likely than game theory to provide useful insights into where the latest trade dispute between the US and China may be heading. The question, ultimately, is whether new tariffs will eventually lead to a more cooperative game, or to a competitive one in which everyone loses.
Trump’s Trade Confusion
US President Donald Trump's recently announced import tariffs on steel, aluminum, and $60 billion in other goods that the US imports from China each year are in keeping with his record of responding to nonexistent problems. Unfortunately, while Trump captures the world's attention, serious real problems go unaddressed.
Will China Really Supplant US Economic Hegemony?
As artificial intelligence reshapes the global economy, economists who once argued that China's massive population would propel it to superpower status should rethink that assumption. In fact, as the global economy reaches higher stages of development, China's labor advantage today could become a handicap tomorrow.
Whatever Happened to Saving for a Rainy Day?
The US will be paying for its current fiscal excesses with the promise of future payments. But inefficient economic stimulus now will not give future generations the productive resources needed to make good on it.
Preventing the Balkanization of the Internet
With the entire global economy becoming inextricably linked to the Internet and digital technologies, stronger regulation is more important than ever. But if that regulation is fragmented, clumsy, heavy-handed, or inconsistent, the consequences for economic integration – and, in turn, prosperity – could be severe.
Why Aren’t US Bond Investors Panicking?
Economists may warn that the combination of Trump’s protectionism, big tax cuts, and uncontrolled government borrowing, coming at a time when the US economy is already near full employment, will ultimately fuel inflationary pressure. But financial markets simply do not believe this message.
Saving the Shrinking Middle
From the anchoring role in society of the middle class to the agility and resilience of mid-size firms, the middle has long been regarded as consistent with both individual and collective wellbeing. Yet, in recent years, the middle has become less stable, less predictable, and more elusive.
China as Seen from a Glass House
The removal of presidential term limits in China sent shock waves around the world. But the real issues that should be confronted – not just in China, but also in the US – concern the quality of a country's leadership.
Making the Case for Sovereign GDP-Linked Bonds
The crises that erupted in countries like Ireland and Greece a decade ago would not have been so severe had their debt been linked to their economic performance. And the same is true today: Investors around the world will continue to accept the risk, given the unlimited upside to investing in entire economies.
The Real Reason for Trump’s Steel and Aluminum Tariffs
The Trump administration's proposed tariffs on steel and aluminum imports will target China, but not the way most observers believe. For the US, the most important bilateral trade issue has nothing to do with the Chinese authorities' failure to reduce excess steel capacity, as promised, and stop subsidizing exports.
The Dollar’s Doldrums
Economic commentators are better at rationalizing past exchange-rate movements than at forecasting future trends. So, when it comes to explanations for the dollar’s decline over the past year, we are confronted by an embarrassment of riches.
When Shall We Overcome?
In 1968, the year after riots erupted in cities throughout the US, the Kerner Commission, established by President Lyndon B. Johnson, famously concluded that the country was “moving toward two societies, one black, one white – separate and unequal.” Sadly, it is conclusion that still rings true.
The Blockchain Pipe Dream
Even after a sharp correction earlier this year, the price of Bitcoin and other cryptocurrencies has remained unsustainably high, and techno-libertarians have continued to insist that blockchain technologies will revolutionize the way business is done. In fact, blockchain might just be the most over-hyped technology of all time.
Economists vs. Scientists on Long-Term Growth
Artificial intelligence researchers and conventional economists may have very different views about the impact of new technologies. But right now, and forgetting the possibility of an existential battle between man and machine, it seems quite plausible to expect a significant pickup in productivity growth over the next five years.
The Fed Should Be Careful What It Wishes For
Major central banks’ fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next – the battle against too-high inflation.
Working Toward the Next Economic Paradigm
Building support for a new unifying economic paradigm to replace the discredited Washington Consensus will be an analytically challenging, politically demanding, and time-consuming process. In the meantime, both economists and policymakers must ensure that the existing paradigm doesn't cause more damage than it already has.
The Market Dogs That Didn’t Bark
Did February’s equity-price reversal mark the end of the bull market, or was it just a temporary correction? In addressing this question, one must look not just at the stock market, but also at oil prices, long-term US interest rates, and currencies.
The Myth of Sound Fundamentals
The recent correction in the US stock market is now being characterized as a fleeting aberration – a volatility shock – in what is still deemed to be a very accommodating investment climate. In fact, for a US economy that has a razor-thin cushion of saving, dependence on rising asset prices has never been more obvious.
Pessimism Amid Plenty
While there is no shortage of challenges facing economies and societies today, they should not be allowed to obscure positive long-term trends. The best remedies for undue pessimism are practical: effective fact-based policymaking, shaped by scientific inquiry and social solidarity.
The Social Media Threat to Society and Security
It takes significant effort to assert and defend what John Stuart Mill called the freedom of mind. And there is a real chance that, once lost, those who grow up in the digital age – in which the power to command and shape people’s attention is increasingly concentrated in the hands of a few companies – will have difficulty regaining it.
When Will Tech Disrupt Higher Education?
Universities pride themselves on producing creative ideas that disrupt the rest of society, yet higher-education teaching techniques continue to evolve at a glacial pace. Given education’s centrality to raising productivity, shouldn’t efforts to reinvigorate today’s sclerotic Western economies focus on how to reinvent higher education?
The CEOs of Davos were euphoric this year about the return to growth, strong profits, and soaring executive compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive; but in a world where greed is always good, such arguments have little impact.
Are Oil Prices Heading for Another Spike?
The decline in the dollar’s exchange rate seems to have gathered momentum, in part because the person who has his signature on US currency, Treasury Secretary Steve Mnuchin, seems unperturbed by its weakness. If it continues, will energy costs spiral upward?
Blockchain’s Broken Promises
Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain's only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.
The Heightened Risks of a US Downturn
The US economy has experienced nine recessions during the last 50 years. What makes the current situation unusual and more worrying than in the past is the low level of short-term interest rates and the high (and rising) level of federal debt, which will limit policymakers' ability to provide the stimulus needed to counter a recession.
The World’s Priciest Stock Market
It is impossible to pin down the full cause of the high price of the US stock market. That alone should remind all investors of the importance of diversification, and that the overall US stock market should not be given too much weight in a portfolio.
Oil’s Uncertain Comeback
Unless there is a notable geopolitical shock, traditional oil producers should treat the recent oil-price gains as a temporary windfall, not a permanent state of affairs. To prolong the price recovery as long as possible, they should reinforce their collective production discipline.
The Missing Ingredients of Growth
Several positive macroeconomic trends suggest that the global economy could finally be in a position to achieve sustained and inclusive growth. But whether that happens will depend on whether governments can muster a more forceful response to changing economic and technological conditions.
The US Donor Relief Act of 2017
There is nothing about the GOP’s recently-passed tax package that lives up to its proponents' promises; it is neither a reform effort nor an equitable tax cut. Rather, the bill embodies all that is wrong with the Republican Party, and to some extent, the debased state of American democracy.
China, the Innovation Dragon
Given its own policies, and those of the US, China is on track to become the world’s innovation leader. By the end of 2018, it will likely be apparent to all just how quickly and easily this latest chapter in the Chinese success story will be written.
Economics and American National Security
The US government should focus on combating foreign governments’ trade policies – such as technology theft, non-tariff barriers to US exports, and forced technology transfers – that hurt American firms without any offsetting benefits to American consumers.
Monetary-Policy Normalization in Europe in 2018
As the European Central Bank pursues monetary-policy normalization in 2018, it should proceed with caution. It will need to balance mounting pressure from Germany for faster normalization with a realistic assessment of the durability and breadth of the unfolding recovery.
Will the Center Hold?
Changes in tax, regulatory, or budget policy can be rescinded – albeit with difficulty – by a subsequent administration. A perception that the US is no longer prepared to stand up for its allies in the international community is much less reversible.
The Global Economy’s Risky Recovery
As the advanced economies’ post-2008 recession fades into the distant past, global prospects for 2018 look a little better than in 2017. The shift from fiscal austerity to a more stimulative stance will reduce the need for extreme monetary policies, which almost surely have had adverse effects not just on financial markets but also on the real economy.
Fake Brexit or No Brexit
If a hard Brexit is economically unacceptable to British business and Parliament, a soft Brexit is politically unacceptable to EU leaders, and a fake Brexit is unacceptable to almost everyone, just one alternative remains: no Brexit. That would mean revoking Britain’s withdrawal notice under Article 50 of the Treaty on European Union.
Financial Investors’ Wish List for 2018
Given how well investors have been doing lately, many are probably hoping for more of the same in the coming year. But what they should really be wishing for is that economic and policy fundamentals improve to the point that they validate existing asset prices, while laying a foundation for greater gains.
Two Myths About Automation
While many people believe that technological progress and job destruction are accelerating dramatically, there is no evidence of either trend. In reality, total factor productivity, the best summary measure of the pace of technical change, has been stagnating since 2005 in the US and across the advanced-country world.
Populist Plutocracy and the Future of America
In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats. Sooner or later, Trump's core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.
The Globalization of Our Discontent
Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US in recent years has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.
The US Is Exporting Obesity
Left unchecked, rapidly rising obesity rates could slow or even reverse the dramatic gains in health and life expectancy that much of the world has enjoyed over the past few decades. And by forcing its food culture on countries like Mexico and Canada, the US is making the problem worse.
The Long and Winding Road to a Haircut
There are significant differences between Puerto Rico and Venezuela regarding the origins of their economic crises, their political systems, their relationship with the US and the rest of the world, and much else. Nonetheless, some notable similarities are likely to emerge as their debt sagas unfold.
The Global Economy in 2018
The global economy will confront serious challenges in the months and years ahead, and looming in the background is a mountain of debt that makes markets nervous – and that thus increases the system's vulnerability to destabilizing shocks. Yet the baseline scenario seems to be one of continuity, with no obvious convulsions on the horizon.
Today’s Rational Exuberance
What many analysts still see as a temporary bubble, pumped up by artificial and unsustainable monetary stimulus, is maturing into a structural expansion of economic activity, profits, and employment that probably has many more years to run. There are at least four reasons for such optimism.
America’s Supply-Side Scam
Congressional Republicans' proposed tax cuts are no recipe to "make America great again." Lacking in saving, outsize US budget deficits spell nothing but serious trouble ahead on the balance-of-payment and trade fronts.
Central Banks in the Dock
Today, central banks are under attack for missing their inflation targets, failing to maintain financial stability or restore it in transparent ways, and ignoring the global repercussions of their policies. But compromising central bank independence in order to enhance political accountability would be to throw the baby out with the bathwater.
The Plot Against America’s 99%
US President Donald Trump, in partnership with congressional Republicans, is pursuing tax cuts that will blow up the fiscal deficit and add to the public debt, while benefit the rich at the expense of middle- and working-class Americans. Once again, Trump has not hesitated to betray the people he conned into voting for him.
Has Trump Captured the Fed?
US President Donald Trump has an uncanny ability to embrace economic policies, such as the Republicans' proposed tax cuts, that benefit him personally. In choosing the relatively moderate Jerome Powell to chair the Federal Reserve, he realized that an extremist would raise interest rates – any real-estate developer’s worst nightmare.
Donald Trump’s Federal Reserve
Jerome Powell, US President Donald Trump's pick to succeed Janet Yellen as Fed Chair, will face some extraordinary challenges at the outset of his five-year term. But the greatest challenge of all will be to stay out of Trump's shadow and uphold the Fed's independence.
Big Tech Meets Big Government
In an ideal world, major tech companies would recognize and adjust to their growing systemic importance in step with external actors, including governments and consumers, thereby striking the right balance between innovation, consumer benefits and protection, and national security. But this is not an ideal world.
The Curious Case of the Missing Defaults
Usually, a sudden stop in capital inflows sparks a currency crash, sometimes a banking crisis, and quite often a sovereign default. Why, then, has the worldwide incidence of sovereign defaults in emerging markets risen only modestly?
Empowering China’s New Miracle Workers
China’s success in the next five years will depend largely on how well the government manages the tensions underlying its complex agenda. In particular, China’s leaders will need to balance a muscular Communist Party, setting standards and protecting the public interest, with an empowered market, driving the economy into the future.
Notwithstanding all the self-congratulatory flourishes in Chinese President Xi Jinping’s political report to the 19th National Congress, there is good reason to believe that the Chinese economy is only in the early stages of its long-heralded structural transformation. To reach its goal, China will have to resolve three contradictions.
How Money Could Unblock the Brexit Talks
With talks on the UK's withdrawal from the EU stalled, negotiators should shift to the temporary “transition” Prime Minister Theresa May officially requested last month. Above all, the negotiators should focus immediately on the British budget contributions that will be required to make an orderly transition possible.
Intellectual Property for the Twenty-First-Century Economy
Developing countries are increasingly pushing back against the intellectual property regime foisted on them by the advanced economies over the last 30 years. They are right to do so, because what matters is not only the production of knowledge, but also that it is used in ways that put the health and wellbeing of people ahead of corporate profits.
The Demise of Dollar Diplomacy?
Pundits have been saying last rites for the dollar’s global dominance since the 1960s – that is, for more than half a century now. But the pundits may finally be right, because the greenback's dominance has been sustained by geopolitical alliances that are now fraying badly.
Another Nobel Surprise for Economics
Richard Thaler has shown in his research how to focus economic inquiry more decisively on real and important problems. His research program has been both compassionate and grounded, and he has established a research trajectory for young scholars and social engineers that marks the beginning of a real and enduring scientific revolution.
Three Scenarios for the Global Economy
The International Monetary Fund, which in recent years had characterized global growth as the “new mediocre,” recently upgraded its World Economic Outlook. But is the IMF right to think that the recent growth spurt will continue over the next few years, or is a temporary cyclical upswing about to be subdued by new tail risks?
The price of Bitcoin is up 600% over the past 12 months, and 1,600% in the past 24 months. But the long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates – and there is no reason to expect virtual currency to avoid a similar fate.
Dealing with Damaging Institutional Inertia
Institutions matter, especially in a period of economic, political, and social fluidity, when they shield countries from frequent volatility and reduce the risk of costly shocks. The longer it takes to restore confidence in them, the greater the impediments to our wellbeing and that of our children.
A Trump administration staffed by plutocrats – most of whom gained their wealth from rent-seeking activities, rather than from productive entrepreneurship – could be expected to reward themselves. But the Republicans’ proposed tax reform is a bigger gift to corporations and the ultra-rich than most had anticipated.
The Courage to Normalize Monetary Policy
A decade after the onset of the global financial crisis, it seems more than appropriate for central bankers to move the levers of policy off their emergency settings. A world in recovery – no matter how anemic it may be – does not require a crisis-like approach to monetary policy.
Tackling Non-Inclusive Growth
Rigorous research on the causes and consequences of unequally distributed growth is necessary to identify solutions. But the best analysis means little in the absence of hands-on consensus-building and political engagement.
Europe’s Battle on Four Fronts
Last year’s "multi-crisis" in the EU – including Brexit, refugees, “illiberal democracy” in Hungary and Poland, and the still-unresolved euro crisis – has produced a convergence of opportunities. With Germany's election over, European leaders no longer have an excuse for inaction while they wait for voters’ next rebuff.
The Fear Factor in Today’s Interest Rates
Atlantic-hugging policymakers and pundits, buffered by a continent and a large ocean, may not fully appreciate the significant effect on global financial markets that the threat posed by North Korea has had in recent months. But competition for safe assets has clearly heated up.
The Coming Bear Market?
The US stock market today looks a lot like it did at the peak before all 13 previous price collapses. That doesn't mean that a bear market is imminent, but it does amount to a stark warning against complacency.
The Risk of a New Economic Non-Order
The upcoming IMF and World Bank annual meetings offer a critical opportunity to start a serious discussion on how to arrest the lose-lose dynamics that have been gaining traction in the global economy. The longer it takes for the seeds of reform to be sown, the less likely they will be to take root.
The Mystery of the Missing Inflation
Since the summer of 2016, the global economy has been in a period of moderate expansion, yet inflation has yet to pick up in the advanced economies. The question that inflation-targeting central banks must confront is straightforward: why?
Trump’s 3% Growth for the 1%
Even if US President Donald Trump hits his growth targets in 2018 and 2019 – and he just might – only the stock market may be cheering. Policies that produced more broadly shared and environmentally sustainable growth would be far better than policies that perpetuate current distributional trends and exacerbate many Americans’ woes.
Learning from Harvey
Hurricane Harvey has left in its wake upended lives and enormous property damage, estimated by some at $150-180 billion. But the storm that pummeled the Texas coast for the better part of a week also raises deep questions about America's economic system and politics.
The Persistence of Global Imbalances
When the world's leading central bankers gathered at their annual meeting in Jackson Hole, Wyoming, the main focus of discussion was global trade and imbalances. And here, the old adage applies: the more things change, the more they stay the same.
The Global Economy’s New Rule-Maker
As China's domestic market continues to grow, so, too, does its economic power and ability to set global rules. With the country fast approaching a position similar to that of the US and Europe after World War II, much will depend on the policies it pursues in two key areas.
America and China’s Codependency Trap
On August 14, President Donald Trump instructed the US Trade Representative to commence investigating Chinese infringement of intellectual property rights. Whatever the merit of such allegations, Chinese retaliation against US trade sanctions would almost certainly cause far more economic damage.
The Lost Lesson of the Financial Crisis
When the global financial crisis began ten years ago this month, policymakers in advanced economies treated it as a cyclical shock rather than an epochal event. Because they misdiagnosed the sickness, they administered the wrong medicine, and advanced economies have struggled to achieve strong, inclusive growth ever since.
Britain’s Road to Perdition
The British political establishment is now converging on a form of Brexit that will satisfy neither the "Leave" nor the "Remain" camp. With this depressing prospect setting in, some are starting to wonder what it would take for Britons to change their minds about leaving the European Union.
Revenge of the Experts
Just prior to the Brexit referendum, then-UK justice secretary Michael Gove dismissed dire warnings of an economic meltdown following a "Leave" vote by stating, "The people of this country have had enough of experts." And, indeed, the experts seemed to have been proved wrong – until now.
A Dim Outlook for Trumponomics
Now that US President Donald Trump has been in office for six months, the prospects for the US economy and economic policymaking under his administration can be more confidently assessed. And, like Trump’s presidency more generally, paradoxes abound.
Protectionism Will Not Protect Jobs Anywhere
As US and European political leaders fret about the future of quality jobs, they would do well to look at the far bigger problems faced by developing Asia. There, the same angst that Americans and Europeans have about the future of employment is an order of magnitude higher.
Recovery is Not Resolution
Last week, the IMF revised upward its growth projections for the eurozone and Asia’s advanced economies, including Japan, with the US Federal Reserve’s ongoing exit from ultra-easy post-crisis monetary policy adding to the growing sense that normal times are returning. But are they?
Explaining Global Recovery Amid Political Recession
The world’s major economies are experiencing a steady recovery, and financial markets are showing no signs of convulsion, even as monetary stimulus is gradually withdrawn. This is all the more remarkable when one considers the sharp increase in risk stemming from profound political dysfunction.
Why Tax Cuts for the Rich Solve Nothing
America’s plutocrats may disagree about how to rank the country’s major problems, but the solution to them is usually the same: lower taxes and deregulation, to “incentivize” investors and “free up” the economy. While President Donald Trump is counting on this package to make America great again, it won't work, because it never has.
How Would Health-Care Reform Affect Patient Health?
The US Congressional Budget Office has estimated that some 32 million people would lose their formal insurance coverage in the next decade under the various proposals to replace "Obamacare." But it is important to understand just what that would mean in practice, and how much it would actually affect health outcomes.
Deciphering China’s Economic Resilience
International economic forecasters find it difficult to resist superimposing the experience of crisis-prone developed economies onto China. But, once again, the Chinese economy has defied the pessimists: after decelerating for six consecutive years, real GDP growth appears to be inching up in 2017.
A “Macroneconomic” Revolution?
Since the global financial crisis began a decade ago, there has been no shortage of useful ideas for ameliorating economic conditions and alleviating public resentment. The real question is why so few of them have been implemented.
Why Do Cities Become Unaffordable?
Inequality is usually measured by comparing incomes across households within a country. But there is also a different kind of inequality, in the affordability of homes across cities, and the impact is no less worrying.
Asia’s Unhappy Anniversary
This month marks the 20th anniversary of the Asian financial crisis. While such milestones are not exactly cause for celebration, they at least afford an opportunity to look back and examine what has changed – and, no less important, what hasn’t.
The New Abnormal in Monetary Policy
Financial markets are starting to get rattled by the winding down of unconventional monetary policies in many advanced economies. But such policies may not be gone for long, because a new recession or financial crisis would force central banks to deploy measures such as quantitative easing and negative interest rates once again.
How Healthy is the Global Financial System?
In recent weeks, policymakers on both sides of the Atlantic have affirmed the financial system’s soundness and stability. And yet, it would be premature to declare victory: while some financial risks have been eliminated, others have migrated into less regulated non-bank activities.
Shaking Russia’s Weak Economic Hand
Despite the steep drop in oil prices that began in 2014, Russia has managed to escape a deep financial crisis. But while the economy is enjoying a modest rebound after two years of deep recession, the future no longer seems as promising as its leadership thought just five years ago.
Trump and the Truth About Climate Change
When Donald Trump announced that he was withdrawing the US from the Paris climate agreement, he argued that the accord is bad for America and "unfair" to it. In fact, the Paris accord is very good for America, and it is the US that continues to impose an unfair burden on others.
One Hundred Years of Indebtedness
Gabriel Garcia Márquez, the Nobel laureate novelist most famous for One Hundred Years of Solitude, was native to Colombia. Nonetheless, as a master of magical realism, Garcia Márquez would have appreciated the Republic of Argentina’s recent combination of fact and fantasy.
Does Addressing Bilateral Trade Imbalances Work?
Even if China opened its markets fully to US goods and services, the total US trade deficit would not change. But focusing on imbalances with individual countries can nonetheless lead to desirable policy changes, as the Trump administration's approach to China has shown
Another Lesson from Japan
Though Japan’s experience since the early 1990s provides many lessons, policymakers in the rest of the world have failed miserably in heeding them. Time and again, major central banks – especially the Federal Reserve, the European Central Bank, and the Bank of England – have been quick to follow the Bank of Japan's disastrous lead.
An IMF Bridge to Somewhere for Greece?
The IMF has resurrected an old technique – commonly used in the 1980s during the Latin American debt crisis – that will allow Greece to avoid a payment default next month on debt owed to European creditors. But the Fund’s elegant compromise still leaves Greece under the shadow of an enormous debt overhang.
Brexit In Reverse?
Economic reality is beginning to catch up with the false hopes of many Britons that the UK's withdrawal from the EU will not reduce their standard of living. The Brexit referendum cannot be undone, but people can change their minds about what their vote meant.
Britain’s Norway Solution
In the wake of the UK's snap election, how long Theresa May will survive as prime minister is impossible to predict. But in trying to anticipate the outcome of the Brexit negotiations, the questions that matter no longer have much to do with May’s political survival.
The Eurozone Must Reform or Die
With the election of a reform-minded centrist president in France and the re-election of German Chancellor Angela Merkel seeming ever more likely, is there hope for the stalled single-currency project in Europe? Perhaps, but another decade of slow growth, punctuated by periodic debt-related convulsions, still looks more likely.
Can US States Right Trump’s Wrongs?
This is a good time to remember that the US is a federal system, not a unitary state with an all-powerful central government. So, can Americans who oppose the contraction of social programs and revocation of progressive federal legislation use US states’ authority to counter these trends?
The Global Recovery’s Downside Risks
Recent economic data from around the world suggest that growth could soon accelerate, now that the global economy has weathered multiple crises over the past two years. And yet the possibility of another global slowdown – if not an outright stall – cannot be ruled out.
The Divergence of US and British Populism
Britain, France, the United States – which is the odd one out politically? The answer seems obvious. Last year’s Brexit referendum in the United Kingdom and the election of Donald Trump in the United States were the twin symbols of populist revolt against global elites. In Emmanuel Macron, France, by contrast, has just elected as its president the quintessential “Davos Man” – a proudly globalist technocrat identified with his country’s most elitist financial, administrative, and educational institutions.
Trump’s Magic Budget
Many observers have criticized the White House's budget plan for fiscal year 2018, owing to its optimistic assumptions about underlying economic growth. But the budget appears to be unrealistic in another crucial respect: interest rates – and thus debt-service costs – are supposed to remain low, even as full employment is reached.
Rethinking the Next China
Once an adapter to globalization, China is increasingly a driver of it. The Next China is becoming a Global China, upping the ante on its connection to an increasingly integrated world – and creating a new set of risks and opportunities.
Understanding Today’s Stagnation
One explanation for today’s stagnation focuses on growing angst about new technologies that could eventually replace many or most of our jobs, fueling massive economic inequality. People may be increasingly reluctant to spend today because they have vague fears about their employability tomorrow.
How to Be an Open Economy
Because changing technologies and trade patterns can be both beneficial and disruptive, countries must strike a balance between the abstract principle of openness and concrete measures to limit their negative impact. To this end, policymakers should be mindful of not just how but when they implement structural reforms.
Is Germany Unbalanced or Unhinged?
Donald Trump thinks Germany's massive current-account surplus reflects currency manipulation and import restrictions. But, while the German external balance is indeed a problem, the best way to address it has nothing to do with the exchange rate or trade policy.
Whistling Past the Geopolitical Graveyard
Even with geopolitical conflicts proliferating around the world, global financial markets have reached new heights. But while there are many explanations for why investors might be underpricing today's risks, there is no good reason for them to ignore the possibility of another "black swan" event on the horizon.
Lessons from the Anti-Globalists
The likely victory of Emmanuel Macron in the French presidential election has elicited a global sigh of relief. But it would be a mistake to conclude that discontent with the global economy has crested.
A False Spring at the Spring Meetings?
The IMF is optimistic about the world economy's growth prospects over the next two years. But the Fund is taking too much comfort in the stabilization of economic conditions: beneath the headline numbers, there is little evidence that underlying problems have been resolved.
Reprieve or Reform in Europe?
With the pro-EU Emmanuel Macron seemingly headed toward the French presidency, the immediate threat to the EU and the eurozone appears to have subsided. But unless Europe addresses flaws in growth patterns and pursues urgent reforms, the longer-term risks to its survival will continue to mount.
Theresa May’s Pyrrhic Victory
The election called by UK Prime Minister Theresa May for June will transform Britain’s politics and its relationship with Europe, but not necessarily in the way implied by a large majority for May’s Conservatives. Britain’s pro-European progressive forces could still snatch victory from the jaws of defeat for three related reasons.
A World Turned Inside Out
Slowly but surely, a bruised and battered global economy now appears to be shaking off its deep post-2008 malaise. But this hardly means that the world is returning to normal; on the contrary, the global growth dynamic has undergone an extraordinary transformation during the last nine years.
Inconvenient Truths About the US Trade Deficit
Reducing the US trade deficit requires Americans to save more or invest less. On their own, policies that open other countries’ markets to US products, or close US markets to foreign products, will not change the overall trade balance.
New Life for the SDR?
The rise of anti-globalization political movements and the threat of trade protectionism have led some people to wonder whether a stronger multilateral core for the world economy would reduce the risk of damaging fragmentation. If so, enhancing the role of the IMF's incipient global currency may be the best option.
Crouching Donald, Paper Tiger
Donald Trump’s comments about China during the US presidential campaign didn’t exactly bolster high hopes for Sino-American relations once he was elected. But the two leaders' summit at Mar-a-Lago showed that even a president as reckless as Trump knows that the US cannot afford to antagonize the Chinese.
A Fiscal Reality Test for US Republicans
After failing to "repeal and replace" the Affordable Care Act, US President Donald Trump and congressional Republicans are now pursing tax reform, as if this will be any easier. It won’t be, as evidenced by the fact that all of the Republicans’ initial proposals are already dead in the water.
Growing Out of Populism?
After nine dreary years of downgrading their GDP forecasts, macroeconomic policymakers around the world are shaking their heads in disbelief. Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017.
Delivering on Promises to the Middle Class
US President Donald Trump owes his electoral victory largely to the older white middle- and working-class voters who have missed out on the benefits of economic growth over the last 30 years. But his administration's economic program will not deliver the reversal of economic fortune his key constituency was promised.
Vladimir Putin and other post-communist autocrats sell their system of “illiberal democracy” on the basis of pragmatism, not some universal theory of history. But while they have certainly been effective in stirring nationalist sentiment and stifling dissent, they have been less successful at nurturing long-term economic growth.
How to Handle an Oil Shock
The global oil market is a volatile place, and the fate of countries that have treated adverse shocks as temporary and reversible, and were then proven wrong, has seldom been encouraging. Gulf producers, by going on a borrowing binge, could be setting themselves up for future pain.
A Dramatic Comeback for Europe
The Dutch are famous for building dykes that hold back the tides and storms sweeping across the Atlantic. Have the Dutch now done it again, stopping the wave of populist politics that has been threatening to engulf Europe?
The Temptations of a Resilient China
Another growth scare has come and gone for the Chinese economy, with export growth up strongly in the first two months of 2017. For the country's policymakers, the challenge now is to stay focused on executing their domestic strategy, rather than seeking to replace the US at the center of the global system.
Trump or No Trump?
Ongoing congressional gridlock will be the key to continued buoyancy in US equity markets, says Gavekal Dragonomics’ Anatole Kaletsky. It’s when Trump’s agenda starts to be implemented that the euphoria will wane.
Robotization Without Taxation?
The public reaction to recent proposals that robots be taxed when they replace human labor has been largely negative. But a moderate tax on robots – even a temporary levy that merely slows the adoption of disruptive technology – seems like a natural and obvious component of any policy to address rising inequality.
America’s Confidence Economy
While financial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in hard data, such as GDP growth, economists and policymakers remain unsure. Whether their doubts are vindicated will matter for both the US and the world economy.
The Great Eurozone Bounceback
The eurozone could surprise everyone with a dramatic recovery this year, says Gavekal Dragonomics’ Anatole Kaletsky, so long as populists stay out of power.
What’s a President to Do?
Donald Trump took office promising a raft of sweeping economic-policy changes. He has quickly discovered, like previous US presidents, that America’s political system is designed to prevent rapid, large-scale change, by interposing formidable institutional obstacles.
Trump’s Virtual Wall
The proposed border adjustment tax in the US has not seeped into public consciousness in nearly the same way as Trump’s physical wall has. But the tax-and-subsidy scheme could end up affecting the average American a lot more – and not necessarily in a good way.
America’s Bad Border Tax
US Republican leaders claim that a border-adjustment tax – which would effectively subsidize US exporters and penalize importers – would improve the US trade balance and boost domestic production, investment, and employment. They are wrong.
Addicted to Dollars
Since the end of World War II, America’s share of global output has fallen from nearly 30% to about 18%, yet the US dollar retains its dominant position as the world’s reserve currency – and by a solid margin. When – and how – will that change?
From Bad to Worse for Puerto Rico
The island's deep and long-lasting recession has made its debt position unsustainable. But the latest fiscal plan imposed by the US commonwealth's federal overseers openly assumes that a Venezuela-scale depression will somehow bring about recovery.
Europe or Anti-Europe?
Since the 2008 financial crisis, the conventional wisdom has been that a long, difficult recovery for eurozone economies will eventually lead to strong growth. But this narrative is losing credibility, as various trends suggest that Europe is trapped in a semi-permanent low-growth equilibrium.
Don’t Cry for Corporate America
In an ideal world, it would be nice to streamline, simplify, and even reduce tax and regulatory burdens on US businesses. But business is not the weak link in the US economic chain; workers are, because economic returns have shifted dramatically from the providers of labor to the owners of capital over the past 25 years.
Tony Blair’s Democratic Insurrection
The former UK leader’s recent call for voters to rethink leaving the EU is an Emperor’s New Clothes moment. Blair is now an unpopular figure, but his voice is loud enough to carry above the crowd of flatterers assuring Prime Minister Theresa May that her naked gamble with Britain’s future is clad in democratic finery.
Boosting South Africa’s Diversity Dividend
South Africa will need much more than improved economic governance if it is to reduce inequality and achieve strong growth. In particular, the private sector must deepen its efforts to improve economic inclusion, and capitalize on the well-known benefits of greater diversity in the workforce and the boardroom.
How to Survive the Trump Era
In barely a month, US President Donald Trump has managed to spread chaos and uncertainty – and a degree of fear that would make any terrorist proud – at a dizzying pace. While most elected officials welcome being all things to all people, Trump has left no room for doubt about who he is.
Trump the Reluctant Multilateralist
US President Donald Trump did not take office as a committed multilateralist. But even a president committed to putting “America first” now seems to recognize – at least with respect to NATO – that a framework through which countries can pursue shared goals is not a bad thing.
Why Trump Can’t Bully China
As US President Donald Trump proceeds to destabilize the post-war global economic order, much of the world is collectively holding its breath. While Trump's supporters defend the economic rationale of his actions, most economists view abdication of US global leadership as a historic mistake.
The End of Trump’s Market Honeymoon
Expectations of stimulus, lower taxes, and deregulation might boost the US economy and the stock market’s performance in the short term. But US President Donald Trump's inconsistent, erratic, and destructive policies will take a heavy toll on domestic and global economic growth in the long run.
Is the Deflation Cycle Over?
After a decade of deflationary pressure, central banks will probably not overreact if inflation overshoots their targets in the near term. In fact, there is now growing support for higher inflation targets, to give central banks more space to lower interest rates in the event of a future recession.
Three Surprises in 2017
Donald Trump’s economic policies are likely to produce higher US inflation and interest rates, and more dollar appreciation, than financial markets expect. But Europe could stabilize after France's presidential election, ushering in a period of healthy economic growth and strong financial performance.
An Unstable Economic Order?
The retreat of the advanced economies from regional and global institutions has received a lot of attention lately. But while the destabilization of multilateral economic and financial structures could be particularly devastating for developing countries, the entire global economy will be adversely affected if the trend continues.
Four Certainties About Populist Economics
While few anticipated the British vote to leave the EU and Donald Trump's election as US president, neither outcome should have been all that surprising: disaffected voters were rejecting economic models that had produced high levels of inequality. The question now is what will replace those models.
China’s Big Sticks
The Trump administration's China-bashing strategy is based on the mistaken belief that a newly muscular US has all the leverage in dealing with its presumed adversary, and that any Chinese response is hardly worth considering. Nothing could be further from the truth.
Donald Trump’s presidency is a symptom of an interregnum between economic orders – a period that will result in a new balance between state and market. While his administration’s economic policies are unlikely to provide the right answer, they may at least show the world what not to do.
The Illusions Driving Up US Asset Prices
Speculative markets have always been vulnerable to illusion, and in the US, two have been sustaining asset-price gains since November's presidential election. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of an illusion are difficult to predict.
The Trump Deficit
It is a post-financial-crisis myth that austerity-minded conservative governments always favor fiscal prudence while redistribution-oriented progressives view large deficits as the world’s biggest free lunch. This simplistic perspective badly misses the true underlying political economy of deficits.
Trump Before Trump
Understanding the political success of US President-elect Donald Trump is not easy, and there have been many glib comparisons with earlier populist US politicians, from Huey Long to George Wallace. But the most revealing comparison may be with an historical figure from another country: the British nativist firebrand Enoch Powell.
“America First” and Global Conflict Next
When America pursued “America first,” policies in the 1920s and 1930s, it brought on the Great Depression and helped sow the seeds of World War II. If US President-elect Donald Trump shifts US geopolitical strategy similarly toward isolationism and unilateralism, there is little reason to expect a better outcome.
Will Dollar Strength Trigger Intervention in 2017?
While it is quite plausible to expect that Dona'd Trump’s incoming US administration will want to reverse the dollar’s climb, it is equally plausible that no other major economy will help. If the strong dollar prompts intervention in currency markets in 2017, the most likely scenario is one in which the US intervenes alone.
Open Society Needs Defending
Open societies are in crisis, and various forms of closed societies – from fascist dictatorships to mafia states – are on the rise. Because elected leaders failed to meet voters’ legitimate expectations and aspirations, electorates have become disenchanted with the prevailing versions of democracy and capitalism.
A Growth Agenda for China
At a time when the US is poised to turn inward, China’s economic performance is more important globally than ever. Whether China can achieve sustainable growth patterns in the coming years will depend on several key factors, the most important being internal
Trump’s Gathering Trade War
Donald Trump's use of foreign trade as a lightning rod in his presidential campaign is not an uncommon tactic for candidates at either end of the political spectrum. What is unusual is that he has not moderated his anti-trade tone since winning, despite the potentially disastrous consequences for the US and the world.
The Crisis of Market Fundamentalism
When a particular model of capitalism is working successfully, material progress relieves political pressures. But, as we saw in 2016, when the economy fails – and the failure is not just a transient phase but a symptom of deep contradictions – capitalism’s disruptive social side effects can turn politically toxic.
The International Barriers to Trump’s Economic Plan
With Republicans holding majorities in both houses of Congress, US President-elect Donald Trump should have a relatively clear road ahead to implement his domestic economic agenda. But if Trump is to deliver the high growth he has promised, he will have to overcome external barriers as well.
Bad News for America’s Workers
There really is no silver lining to the cloud that now hangs over the US and the world. As bad as President-elect Donald Trump's administration will be for America’s economy and workers, its policies on climate change, human rights, the media, and ensuring peace and security are likely to be no less damaging for everyone else.
The Age of Hyper-Uncertainty
The year 2017 will mark the 40th anniversary of the publication of John Kenneth Galbraith’s The Age of Uncertainty. But if Galbraith were writing the same book in 2017, he probably would call the 1970s the Age of Assurance.
The Trump Boom?
Exactly how much US President-elect Donald Trump’s policies will raise output and inflation will depend on how close the US economy is to full capacity.
Donald Trump and the New Economic Order
Since the end of World War II, the hierarchy of economic priorities has been relatively clear: build a prosperous and open world order first, then try to generate inclusive and sustainable national growth patterns. Now, a reversal seems to be underway, with far-reaching consequences for the global economy.
Ten Consequences of Trump
With the Republican Party in full control of the US government, fiscal stimulus will boost economic growth in the short term. But enacting large tax cuts and boosting public spending in an economy already nearing full employment implies accelerating inflation, higher interest rates, or probably some combination of the two.
Sustaining the Trump Rally
Since Donald Trump's victory in the US presidential election, stock markets have rallied and the dollar has soared. Explaining these unforeseen market responses could provide a glimpse into what the next few months hold in store for the US economy.
The Achilles’ Heel of Trumponomics
The US president-elect's economic strategy is severely flawed: its protectionist bias collides head-on with the imperative of increased US reliance on foreign saving and trade deficits in order to sustain economic growth. A saving-short, protectionist America is a country on a path to nowhere.
Fleeing from Italy
In Italy’s December 4 referendum, voters will approve or reject the country’s most extensive constitutional reforms since the monarchy was abolished at the end of World War II.
Donald Trump and the Sense of Power
US President-elect Donald Trump campaigned in part on a proposal to cut taxes dramatically for those with high incomes, a group whose members often have elite educations as well. So why did his most enthusiastic support tend to come from those with average and stagnating incomes and low levels of education? What gives?
Trump’s Monetary Conundrum
If the US Federal Reserve becomes too hawkish too soon, it will strengthen the US dollar, undermining Donald Trump’s stated goal of creating jobs and boosting incomes for his blue-collar base. Given his proposed fiscal expansion, Trump would be better off keeping Barack Obama's dovish appointees.
Globalization’s Last Gasp
Determining causality in economics may be elusive, but in the case of world trade it is clear: slower growth is the result of slower global GDP growth, not the other way around. And slower growth in international flows of financial capital may be just what the global economy needs.
What America’s Economy Needs from Trump
Donald Trump’s astonishing victory in the US presidential election has made one thing abundantly clear: too many Americans – particularly white male Americans – feel left behind. Unfortunately, he is unlikely to pursue the policy agenda his voters need.
The Taming of Trump
Donald Trump is a businessman who relishes the “art of the deal,” so he is by definition more of a pragmatist than a blinkered ideologue. Once in office, he will throw symbolic red meat to his blue-collar supporters, while reverting to the same supply-side, trickle-down economic policies that Republicans have favored for decades.
Big Danger at the Lower Bound
Markets nowadays are fixated on how high the US Federal Reserve will raise interest rates in the next 12 months. This is dangerously shortsighted: the real concern ought to be how far it could cut rates in the next deep recession.
How Inequality Found a Political Voice
It took a long time for widening inequality to have an impact on politics, as it suddenly has done in recent years. Now that it is a central issue, national economic priorities will need to shift substantially to create more equitable, inclusive societies, or electorates could embrace explosive political alternatives.
The World Economy Without China
With its debt overhangs and property bubbles, its zombie state-owned enterprises and struggling banks, China is increasingly portrayed as the next disaster in a crisis-prone global economy. If the China bears are right, no country would be spared.
The Return of Dollar Shortages
Despite the broad global trend toward more flexibility in exchange-rate policy and freer movement of capital across national borders, many countries are lacking dollars. Indeed, in many developing countries, the only thriving market for the past two years or so has been the black market for foreign exchange.
Toxic Politics Versus Better Economics
The relationship between politics and economics is changing. Advanced-country politicians are locked in bizarre, often exceptionally hostile conflicts, instead of acting on a growing economic consensus about how to escape a prolonged period of low and unequal growth.
On the Bombing of Aleppo
|Russian warplanes are bombing the civilian population of Aleppo, the country’s most populous city, to assist Syrian government forces attempting to take control of rebel-held areas. The world must not stand idly by in the face of a humanitarian catastrophe of historic proportions.|
Is the Fed Playing Politics?
Escaping the New Normal of Weak Growth
Saving Europe By Reversing Brexit
The Perils of Debt Complacency
The Return of Fiscal Policy
Managing the Economic Consequences of Nationalism
Desperate Central Bankers
The Coming Anti-National Revolution
A Better Economic Plan for Japan
The Case Against Cash
An Opportunity for Egypt and the IMF
Global Growth – Still Made in China
The Easy Money Contagion
Reform or Divorce in Europe
Brexit and King Canute
America’s Looming Debt Decision
Globalization and its New Discontents
Europe’s Brexit Hangover
What’s New About Today’s Low Interest Rates?
Growth in a Time of Disruption
The Globalization Disconnect
The Global Economy’s Hesitation Blues
Unburdening the Facebook Generation
The Promise of Regrexit
From Brexit to the Future
Globalization’s Political Fault Lines
Brexit’s Blow To Globalization
Brexit and the Future of Europe
Britain’s Democratic Failure
Brexit in Context
Brexit’s Impact on the World Economy
Learning from Namibia
Latin America’s Rising Right
The Overselling of Financial Transaction Taxes
Populists and Productivity
Reigniting Emerging-Economy Growth
The Limits of Oil’s Rebound
Argentina’s Eternal Debt Problem
America’s Saving Perils
Fighting the Next Global Financial Crisis
Saudi Arabia’s Bold Vision for Economic Diversification
Monopoly’s New Era
Better Learning Through Better Betting
Central Banking’s Final Frontier?
Emerging Markets Should Go for the Gold
The Global Growth Funk
Managing Debt in an Overleveraged World
America’s Trade Deficit Begins at Home
The Post-Crisis Economy’s Long Debt Hangover
Time for Debt Reduction in Greece
What’s Wrong With Negative Rates?
Bringing Europe’s Migration Crisis Under Control
Unconventional Monetary Policy on Stilts
China’s Economic Identity Crisis
The Brexit Muddle
China’s Incompatible Goals
Is Russia’s National Character Authoritarian?
The Fear Factor in Global Markets
Is the Perfect Storm Over for Markets?
China’s Volatile Growth
Whose QE Was it, Anyway?
Closing Developing Countries’ Capital Drain
Central Banking Goes Negative
The Case for Surge Funding
Putin is No Ally Against ISIS
What’s Holding Back the World Economy?
The Global Economy’s New Abnormal
The End of the New Normal?
The Great Escape from China
The Return of the Currency Crash
In Search of Growth Strategies
China’s Bumpy New Normal
False Alarm on China
Economists on the Refugee Path
The Chinese Economy’s Great Wall
Extreme Weather and Global Growth
The New Geo-Economics
The Europe Question in 2016
The Great Malaise Continues
A Year of Sovereign Defaults?
How to Fight Jihadi Terrorism
Puerto Rico’s Debt Trap
The Perils of Fed Gradualism
Why Big Oil Should Kill Itself
Argentina’s Economic Big Bang
The Fed’s Risk to Emerging Economies
Oil Prices and Global Growth
When Inequality Kills
The Great Policy Divergence
Europe’s Barbarians Inside the Gate
China’s Macro Disconnect
The Commodity Roller Coaster
Crowdfunding or Crowdphishing?
America’s Education Bubble
The Fed’s Communication Breakdown
Europe’s Politics of Dystopia
The Wrong War for Central Banking
Governments’ Self-Disruption Challenge
China is Not Collapsing
The Hidden Debt Burden of Emerging Markets
The French Exception?
The Middle East Meltdown and Global Risk
The Trans-Pacific Free-Trade Charade
The Sino-American Codependency Trap
Rebuilding the Asylum System
Refugees and Reform in Europe
Fraud, Fools, and Financial Markets
The Age of Bobby Fischer
Fed Up with the Fed
The Art of Capital Flight
Inflation, the Fed, and the Big Picture
Cheap Oil and Global Growth
A Financial Early-Warning System
China’s Complexity Problem
Oil’s New Normal
America in the Way
A New Deal for Debt Overhangs?
In Defense of Varoufakis
Are US Middle-Class Incomes Really Stagnating?
Why the Greek Deal Will Work
The Mirage of the Financial Singularity
Why the Greek Bailout Failed
Emerging Markets After the Fed Hikes Rates
Europe’s Attack on Greek Democracy
Shelter from the Storm in Europe
America, China, and the Productivity Paradox
A Rule of Law for Sovereign Debt
The Right Food Fight
The Quiet Financial Revolution Begins
Europe’s Last Act?
The Liquidity Time Bomb
The Currency Manipulation Charade
The Economic Consequences of Mr. Osborne
Inspiring Economic Growth
Western Politics’ Locust Years
Inequality, Immigration, and Hypocrisy
The Dollar Joins the Currency Wars
Will China’s Infrastructure Bank Work?
Signs of Life in the Eurozone
Last Chance for Ukraine and Europe
China’s New Normal and America’s Old Habits
Are Equities Overvalued?
How Far Will the Euro Fall?
The Messy Politics of Economic Divergence
How Scary Is the Bond Market?
The Stock-Bond Disconnect
A Fair Hearing for Sovereign Debt
The Negative Way to Growth?
Obama Steps Up
Steady on the Renminbi
An Accidental Currency War?
A Greek Morality Tale
What Is Plan B for Greece?
An Unconventional Truth
Wall Street for President?
The Lemmings of QE
The Politics of Economic Stupidity
A New Ceiling for Oil Prices
Bracing for Stagnation
What Good Are Economists?
Don?t Bet on a Stronger Dollar
What Are We Betting On?
Europe at War
Europe?s Lapse of Reason
Paul Krugman and the Obama Recovery
Do Economic Sanctions Work?
Stability and Prosperity in Monetary Union
Where Will All the Workers Go?
Break Up Citigroup
The Fed Sets Another Trap
Inequality and the American Child
A Year of Divergence
Can Japan Reboot?
The Return of Currency Wars
Chinas Monetary-Policy Surprise
Creativity, Corporatism, and Crowds
The Return of the Dollar
Ebola and Inequality
Celebrity Central Bankers
The Single-Engine Global Economy
Last Chance for Japan?
The Inequality Trifecta
The Age of Vulnerability
Venezuelas Spectacular Underperformance
China’s Inscrutable Contraction
Markets’ Rational Complacency
Debeaking the Vultures
The Fed Trap
Europes Austerity Zombies
Markets Rose-Tinted World
Parallels to 1937
The Exaggerated Death of Inflation
Democracy in the Twenty-First Century
Abenomics, European Style
The Stall-Speed Syndrome
The Fragmentation of Bretton Woods
A Tear for Argentina
Russias Eurasian Vision
The Sino-American Trust Deficit
Booming Until It Hurts?
The Three-Track Middle East
American Delusions Down Under
Europes Debt Wish
Gouging the Gauchos
Rethinking the Sino-American Relationship
Mexicos Breakout Moment?
The 4% Non-Solution
Creating a Learning Society
The Great Backlash
China Sets America’s Mental Trap
Europes Ukrainian Lifeline
Markets Federal Reserve Love Story
Inequality Disaster Prevention
A Light Unto Cities
Where Is the Inequality Problem?
The Return of the Renminbi Rant
Global Ground Zero in Asia
The Democratic Disruption of Finance
A Surplus of Controversy
Cementing Europe?s Recovery
Reforming China?s State-Market Balance
The End of Chinese Central Planning
The Global Economy?s Tale Risks
The Innovation Enigma
Malthus, Marx, and Modern Growth
Wallets Wide Shut
China?s Growth Puzzle
Emerging-Market Risk and Reward
Stagnation by Design
How Fragile are Emerging Markets?
A Happier Ending for IMF Reform?
The Trouble with Emerging Markets
America's False Dawn
Achieving Escape Velocity
The Financial Fire Next Time
The Great Malaise Drags On
Slow Growth and Short Tails
The World Economy's Shifting Challenges
China's Policy Disharmony
America's Partisan Peril
What's the Problem With Advanced Economies?
An Agenda to Save the Euro
Back to Housing Bubbles
Bringing the Chinese Consumer to Life
The Uncertain Future of Central Bank Supremacy
Is Economics a Science?
Bubbles in the Broth
Why Wealth Taxes Are Not Enough
China's Wake-Up Call from Washington
Civilizing the Marketplace of Ideas
The Fed's Surprise and Yellen's Challenge
Five Years in Limbo
Angela Merkel's Pyrrhic Victory
America's Endless Budget Battle
The Eurozone's Calm Before the Storm
Don't Cry for Me, Ben Bernanke
America's Labor Market by the Numbers
The Best, Brightest, and Least Productive?
The Vultures' Victory
Autumn's Known Unknowns
Are Emerging Markets Submerging?
US Interest Rates Will Continue to Rise
Lehman's Morbid Legacy
The Global QE Exit Crisis
The Changing of the Monetary Guard
Europe's Fake Normal
The Federal Reserve in a Time for Doves
Misreading Chinese Rebalancing
Trouble in Emerging-Market Paradise
The Free-Trade Charade
The negotiations to create a free-trade area between the US and Europe, and another between the US and much of the Pacific (except for China), are not about establishing a true free-trade system. Instead, the goal is a managed trade regime managed, that is, to serve the special interests that have long dominated trade policy in the West.