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1. The war in Ukraine will to an increase in gas and oil prices. How much will depend on whether either Russia is willing to limit exports or the EU is willing to limit imports. For the moment, the effects are limited. They could get worse.
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1. The next few days will likely see an avalanche of analyses of the economic effects of the corona virus. Here are a few points, building on a previous thread. Basic point: Anti virus measures aim at the core of economic organization, the division of labor.
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1/6 The risk of a false dawn in US inflation.
Headline inflation is likely to decrease sharply over the next few months. The reason is simple: Many of the large increases in commodity prices have started to reverse.
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It is hard to understate the importance of the decision of the European Court of Justice to allow the EU to withhold funds to countries that do not respect the rule of law. It is a truly major decision, decisive for the future of the European Union.
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One thought about inflation fighting
1. When inflation comes from overheating, convincing workers that the economy needs to slow down, and that unemployment has to increase to control inflation, is hard but at least the logic can be explained.
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2.Les dépenses budgétaires augmentent la demande, mais l’offre ne peut répondre que si l’économie n’est pas au plein emploi. Sinon elles créent de l’inflation.
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In the next few months, I intend to write a short book about fiscal policy today. The slides, used for a discussion with
@JohnHCochrane below are a first pass. bit.ly/2LqAXIb More to come as I make progress.
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I keep being asked: You say we may not need to increase taxes to pay for the additional debt. How can this be? Who will pay? The answer: Investors, who are willing to accept a negative rate (or more technically, a rate less than the growth rate).
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People have mentioned that I am big on r<g, but Piketty became famous by arguing that r>>g. How do we reconcile? My r is the safe rate. Piketty's r is the rate of return on capital, which is indeed much higher than g.
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2. Given China's zero-covid policy, this implies frequent and major lockdowns, with a large effect on activity in China.
It also implies major effects on trade. Sharp limits on travel, inbound and outbound will make it hard to maintain/expand supply chains going through China.
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Global supply chains and trade wars. You are China and unhappy about the new tariffs. You identify a few Chinese plants crucial to the supply chains of a couple of US firms. You send a hygiene inspector, who finds a rat, and closes the plant for a month. You are done.
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Why I am concerned about the size of the Biden 1.9 trillion package. A closer look at the output gap, the multipliers, and the risk of inflation. bit.ly/2ZpQvzg
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プライマリーバランス赤字を維持し、更には拡大する理由は三点あります。第一に、需要を確保するためです。財政のスタンスが引き締めとなれば、何が需要を確保するのでしょうか？民間の需要が何らかの理由で拡大すれば、財政の引き締め余地があるでしょう。しかし、現時点ではそうではないでしょう。
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I wanted to start a conversation on public debt and fiscal policy. The conversation has started. This is a first pass at listing and discussing objections to my AEA paper, and also an attempt to translate general principles into practical policy advice. bit.ly/2tlwiL9
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A Trump administration potential silver lining: It may provide macroeconomists with true randomized (not quite controlled) experiments.
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Message from my AEA address: Low interest rates imply that, not only public debt may have small fiscal costs, it may also have low welfare costs. You can use it, if you use it wisely. The beginning of a conversation? bit.ly/2C38cso text: bit.ly/2C2ahEW
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1. 「21世紀の財政政策」が出版されました。"Fiscal Policy under Low Interest Rates"の邦訳です。財政政策、財政赤字、債務に関心を持つすべての方にとって、本書が貴重な材料となることを願っています。
amazon.co.jp/21%E4%B8%96%E7…
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Two reasons to expect Russia to drastically cut gas supplies.
1. Russia is a gas monopolist facing a very inelastic European demand curve. The only reason not to set a nearly infinite price (and sell epsilon) is to preserve future demand.
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第二に、インフレ率がインフレ目標を下回っていることです。インフレ目標の達成は望ましいことです。そのため、経済の過熱をある程度の期間継続する必要があります。それにより賃金と物価が上昇します。プライマリーバランス赤字の多少の拡大が、その達成の助けとなるでしょう。
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Cost of banana 2 dollars. cost of duct tape: 3 dollars. Price of banana with duct tape: 120,000 dollars. Conclusion for research: We need a deeper theory of markups (and entry in the banana plus duct tape market). twitter.com/gabriel_zucman…
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On the swoosh recovery. My guess is that, conditional on covid not getting worse (big if), there will be an initial fast recovery as many businesses simply reopen. But this will be another "mission accomplished" moment. Don't be fooled. The rest of the climb will be a slog.
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The Italian government is behaving extremely responsibly—more so than many. It is putting health considerations and the control of the epidemic ahead of short term economic considerations---exactly as it should.
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A nice example of salience: relation between inflation rate and google searches for ``inflation'' for the US, from 2004 to today. From Oleg Korenok, David Munro et Jiayi Chen (2022) ideas.repec.org/p/zbw/glodps/1…. Suggests things are ok up to close to 4%.
Robert Solow Professor of economics emeritus, MIT
Fred Bergsten Senior Fellow, Peterson Institute for International Economics