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.
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.
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.