26
A 11-piece thread on Italy, the ECB, and the need to avoid another euro crisis. Start with the basics, the first two points being the most important.
27
A fact that struck me: Russia's GDP (1.4 trillion in dollars) is equal to the sum of Netherlands and Belgium GDP (0.9 and 0.5 trillion respectively)...
28
Macroeconomics 8th edition is out. Compared to the first edition (1997), I am struck by two things. The architecture has not changed. But the degree to which what was exotic then is, at least for the time being, the new normal.
29
1. I thought it useful to gather my thoughts and predictions for the US economy for the rest of the year. The usual caveat applies: there is a lot of uncertainty around them, but these are my best guesses. 1/9
30
1. Twitter is great in allowing you to get your thoughts out quickly. Sometimes too quickly. You have second thoughts. The world changes. I want to take three covid forecasts that I got wrong:
31
"Against ignorance we have education. Against inequalities, development. Against cynicism, trust and good faith. Against fanaticism, culture. Against disease and epidemics, medicine. Against the threats on the planet, science."
Macron in his speech to Congress. Feels good.
32
Some quick reactions to the new lockdowns in Europe.
1. The degree of uncertainty is much higher than in the first wave. In the first wave, the (incorrect) belief was that the infection rate would quickly decrease and remain low thereafter.
33
A fascinating graph in many ways. The starting point. The steady collapse over 80 years. The sharp, but limited reversal. (from Daniel Wadenstrom, bit.ly/3Fqzicr )
34
Why I am pessimistic about inflation, and why I believe the Fed will have to increase rates more than markets think. bit.ly/3q4nua8
35
Janet Yellen: A truly great appointment. The perfect expertise mix. Especially at a time when, because of the secular stagnation environment, fiscal and monetary policy makers must work together in new and complex ways.
36
Democrats. Delighted by your win. But please don't go for the 2000 dollars checks. Aim the money better, for those who really need it.
37
1. A mini revolution in the presentation of the US budget. Two new lines: Real net interest payments (that is, net interest payments corrected for inflation, in dollars and as % of GDP. And striking numbers: They are negative up to 2028, small after that....
38
I am known as a dove. I believe that the absolute priority is to protect people and firms affected by covid. Still, I agree with Summers. The 1.9 trillion program could overheat the economy so badly as to be counterproductive. Protection can be achieved with less.
39
1/6 The lag conundrum of monetary policy
Monetary policy affects activity with a lag. This enormously complicates the task of policy makers, and the design of disinflationary policy.
40
Weighing my words carefully: We may be on the verge of a shift in fiscal paradigm. Proof of concept: The large agreement between Summers, Furman, Bernanke, Rogoff, and me, in the PIIE-Brookings zoom. bit.ly/2VnhwRU (Second hour. The first hour is great as well)
41
A lot of similarities between crypto and QAnon. Same anti-state sentiment, same irrationality, same herd behavior. Good reasons to worry.
42
7/8. It is a highly inefficient way to deal with distributional conflicts. One can/should dream of a negotiation between workers, firms, and the state, in which the outcome is achieved without triggering inflation and requiring a painful slowdown.
43
Not joking: Very relevant, as we learned in 2008-9.
Maybe the toughest challenge to macro as we do it. twitter.com/JustinWolfers/…
44
Much of the debate about fiscal policy appears to be based on the notion that governments will ALWAYS misbehave, so one should NEVER tell them that there is more policy space, even when there is. This is counterproductive, and leads governments to ignore academic advice.
45
Much of the progress in macro in the last 40 years came from the assumption of ergodicity. It lies behind the use of VARs and other time series tools. It lies behind the solution to dynamic optimization problems. These may have a hard time dealing with the current data...
46
In the name of covid, a naked attack by the administration on foreign students and universities. (and, with lower educational exports, a likely major hit to the trade balance, dear to the President. ) Maybe I take too personally, but it stinks and hurts. bit.ly/2Z3OJEu
47
1. During World war II, economists working for US military intelligence, and using analytical tools, identified how bombings should be chosen so as to have the maximum impact on production in Germany.
48
Let's be clear. The German "non paper" proposal for the reform of EU fiscal rules, requiring in particular a decline of 0.5% in the debt to GDP (1% for high debt countries) ratio each year would be catastrophic. It would lead to the worst form of pro-cyclical fiscal policy.
49
My Princeton webinar on fiscal policy. What it should do, what are the challenges, whether there will be too much debt, both in rich and poor economies, the need for coordination, and the role of international institutions. All this in 45 minutes. 😀 youtu.be/9jSyhtYq_ME
50
Inspired by France's events. Could it be that, given the political constraints on redistribution and the constraints from capital mobility, we may just not be able to alleviate inequality and insecurity enough to prevent populism and revolutions. What comes after capitalism?
Robert Solow Professor of economics emeritus, MIT
Fred Bergsten Senior Fellow, Peterson Institute for International Economics