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.
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.
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.
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.