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.
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 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.
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.
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.