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The heated discussion between Larry Summers and Emmanuel Saez at the PIIE conference ( bit.ly/2BtKqWK) is exciting. But the discussion by Gabriel Zucman (currently only audio at bit.ly/2Iv4sno session 11, at 23:58, video available monday) is more informative. twitter.com/gabriel_zucman…
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Asked by Bloomberg today: What are economists (or economic forecasts) getting wrong today?
So once again:
Economics is not primarily about economic forecasting.
Economists analyze how the economy works, examine policies, explore counterfactuals.
But they know that:
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On the P curve discussion. To try to clarify semantics, and what I think the discussion is about.
I take ``belief in the Phillips curve’’ to mean ``belief that there is a positive relation, however complex and shifting, between inflation and activity.”
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The motto for fiscal policy these days is “Whatever it takes”, This is indeed the right motto. But what does it mean? And can we really afford it? Or will we wake up in a few months with a hangover, asking “What on earth did we do?” My views: bit.ly/39tlvRD.
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Monetisation: Do not panic. ( A Vox EU piece with Jean Pisani Ferry) bit.ly/2xno5vg
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When the virus struck, the priority was to protect fragile firms and workers. As the lockdown ends, the focus must change from protection to reallocation. How it should done is the topic of a piece by Jean Pisani Ferry, Thomas Philippon and me. bit.ly/3dIiHCY
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Three remarks about the coronavirus and China. Conventional monetary or fiscal policy will not do much for China. Those policies affect demand but the problem is supply. If workers do not go to work, and firms run out of parts, higher demand will not help.
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Concerns about the Biden stimulus plan bit.ly/3qsCMGL were justified. Inflation is running much above what was forecast. We should now concentrate on what comes next, what the Fed may need to do, and what the implications may be. A few thoughts: bit.ly/3n8s7yO
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Serious? yes. Modest? yes. Pedestrian? Maybe. Essential? Absolutely. The low-key, honest, approach to macro modeling for policy by Ray Fair. Capturing the facts, using theory, accepting the limits of our knowledge. cowles.yale.edu/sites/default/…
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China has indicated it is tired of lending to the US. It has asked the US to take measures to cut its trade deficit vis a vis China by 200 billion by the end of 2020. (Just kidding obviously. But doesn't it remind you of another set of ridiculous demand?)
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Macro Policy makers: Please listen to the experts 😀 (I know: Such listening is not in fashion. ☹️ But we actually know something about the economy works)
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On r-g, some striking statistics from the IMF fiscal monitor. Forecasts of r-g over 2018-2023: Negative for 29 of 34 advanced countries, negative for 33 of 39 emerging market and middle income countries...
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Euro crisis on hold.
Next:
Capital outflows and sudden stops in emerging market countries.
Plumbing failures in the financial system.
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This chart from @jburnmurdoch is truly worrisome. 2% of the population is already a very large number, and the graph suggests that it will increase further. This is macro significant.
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Italy. A case of contractionary fiscal expansion? bit.ly/2ORyqHu
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Some thoughts about the need to rethink EU fiscal rules and the EU fiscal architecture in a low interest rate environment. bit.ly/2X0wzUa
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The best argument for helicopter money in the Euro area is to get around the fiscal rules. But it is a avenue full of risks, in particular for the ECB. Much better to relax the fiscal rules in the first place. twitter.com/PIIE/status/11…
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2/
If markets work half decently, they imply that most economic movements should be largely unpredictable.
The best example is the stock market.
Anybody who says that they can forecast major movements in the stock market is a crook, not an economist
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The cliff notes video of my AEA address (7 minutes) on public debt. bit.ly/2SDABiW
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Is the 7% RMB depreciation re $ since April sufficient to cancel the effects of US tariffs on Chinese imports? My sense is: Enough to offset the tariffs on 50b (25%* 50=12.5b, vs 7%*500=35b), prob enough to offset the threatened tariffs on 200b (25%*50+10%* 200=32.5b, vs35b).
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The usual argument that markets eventually scare governments in doing the ``right thing'' sounds hollow when there is no government in place to scare.
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For a fascinating discussion of whether low rates have led to excessive risk taking, go to the new AEA discussion forum, bit.ly/2Or6tVU. Remarks by Summers, Stein, Borio, Caballero, Llaeven, and many others. Register and add your own thoughts.
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My first tweet... Trying to make sense of the latest stock market slump blogs.piie.com/realtime/?p=53…
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Interesting IMF graph on the effects of euro fiscal expansion of 1% for 2 years through public investment with unchanged interest rates bit.ly/2ySqn5a Output higher by 1.4% for 2 years, higher output in the long run, and an increase in D/Y <1% Attractive trade-off...
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Japan has a virulent case of ``secular stagnation’’, i.e. weak private domestic demand. To maintain full employment, it has needed and still needs aggressive monetary and fiscal policies. Monetary policy is doing everything it can. The burden thus falls on fiscal policy.
Robert Solow Professor of economics emeritus, MIT
Fred Bergsten Senior Fellow, Peterson Institute for International Economics