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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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Euro crisis on hold.
Next:
Capital outflows and sudden stops in emerging market countries.
Plumbing failures in the financial system.
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Must read. Many great contributions. If you do not have the time to read the 200 pages, read the great intro by Beatrice Weber di Mauro and Richard Baldwin. twitter.com/BaldwinRE/stat…
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Italian debt is sustainable.
But to make sure, the Italian government, euro-members, the ESM, and the ECB all have to do what they need to do. Please do it.
More flesh and arguments in bit.ly/2IWouan (unintended irony: look at the bitly address...)
80
People have been told to hanker down for a few weeks, until the infection is under control. After this, they are led to believe, we shall emerge from isolation, and things will slowly return to normal. I am not so sure; this report, bit.ly/2Uf7hhr reinforces my worries.
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The world is de facto at war (against the virus, rather than against each other---this is the good news...) With this in mind: US Federal deficits as a ratio to GDP: 1942: -12%, 1943: -26%, 1944: -21%, 1945: -20%. Let's not be squeamish.
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The last thing the world needs at this juncture is another euro crisis. The ECB should and can avoid it.
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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.
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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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My two cents on the virus today. Two vital sets of measures.
Keep the flow of infections down so the health system is not overwhelmed. Do whatever it takes.
Prepare fiscal measures, including transfers and backstops to banks. Do whatever it takes.
This is more or less it.
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25 years ago, Michael Kremer and I wrote a paper on ``Disorganization'', arguing that the collapse in output in Central and Eastern Europe was largely due to disruptions of supply chains. This seems fairly relevant today. bit.ly/3cofhFq
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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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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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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.
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How can we have so much political and geopolitical uncertainty and so little economic uncertainty?
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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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Dani Rodrik's and my conclusions form the conference on inequality we organized in October. Governments have the tools to combat inequality if they want to. bit.ly/2D4fcpZ
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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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some room to go to get to gender balance... twitter.com/Lagarde/status…
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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.
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A wide ranging discussion about public debt between Ken Rogoff and me, moderated by Gita Gopinath. More convergence than divergence. I learned a lot from it. (the video lasts about an hour. Starts at minute 4.50 ) twitter.com/IMFLive/status…
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Taking again the risk of discussing an MMT proposition, and fully expecting to be told that I have not understood….
One of the propositions of MMT is that, in contrast to standard mainstream arguments, government spending is automatically financed by money creation.
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Everything you wanted to know about the evolution of income, wealth, social, health, inequality in the US and in Europe in the 10 minutes video of Lucas Chancel presentation at the PIIE conference on combating inequality bit.ly/31P0n4g
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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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My views on the Phillips curve puzzles and non puzzles. And the implication for wage inflation targeting. (from a discussion at Brookings)
bit.ly/319lCO1
Robert Solow Professor of economics emeritus, MIT
Fred Bergsten Senior Fellow, Peterson Institute for International Economics