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?
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.