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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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A question. Central banks have large research departments. Ministries of finance typically do not even have a research department. (with the result that research on monetary policy is much more developed than research on fiscal (macro) policy). Why?
128
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?
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Some thoughts on the French ``yellow jackets'' and the (current) failure of representative democracy. bit.ly/2FUAuKR
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In response. I do not think I am known as a pro-austerity messiah... But this does not imply that I have to say amen to every fiscal expansion, from Trump to Italy. Important to look at each situation on its own, and avoid sweeping ideological positions.
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For those who follow Italy closely. An in-depth analysis of the likely effects of the fiscal expansion, and an assessment of debt sustainability: piie.com/publications/p… .
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A great new site from PIIE on globalization and its consequences. Facts, history, graphs. Tackling the hard questions. Worth a long visit. @PIIE piie.com/globalization
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Italy. A case of contractionary fiscal expansion? bit.ly/2ORyqHu
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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.
135
My discussion of Bernanke's paper on the crisis. 3 points
1. A typology of crisis. From multipliers to multiple equilibria
2. Multipliers vs multiple equilibria. Why it matters
3. When do multiple equilibria emerge? Dark corners or hidden mines?
bit.ly/2QFxLGq
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In response to popular demand. An AEA discussion board, to be populated with information about job market, discussions about anything economic. True facts, no rumors, and civility. Whether it works depends on all of us.
aeaweb.org/economics-disc…
137
Un tweet en francais, sur ``l'affaire Benalla.'' Sentiment fort de tempete dans un verre d'eau, de quasi hysterie journalistique. Habitant aux US, et souffrant de ses exces, j'esperai mieux des journaux de mon pays.
138
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).
139
On immigration in Europe. The only realistic option, economically and politically: Let countries set their own targets, but fully mutualise the costs across EU members. (As an added bonus: a good and sellable reason to have a common EU budget.) bit.ly/2MJFbFF
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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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/1
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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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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Should we be worried about an Italian economic crisis? Yes. bit.ly/2LqXqAd
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Anybody who says that economics is in trouble, that economists do not deal with the relevant issues, just has not done his/her homework. Look at the set of papers presented at the AEA meetings. Amazing. bit.ly/2J2Iiub
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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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"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.
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With the threatened tariffs, the Chinese may be succeeding where the Democrats have so far failed: Decreasing support in the Trump base. Russians may have determined the last election. The Chinese may determine this one. :)
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For those who still think that trade wars have a winner and a loser: Look at the synchronous movements of stock markets in Asia and in the US on Friday, and on Monday. Case closed.
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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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Too slow progress on euro inflation should be seen as great news, not bad news: It tells us that unemployment can decline for quite a bit more without triggering overheating. The natural unemployment rate is lower than policy makers assumed.
Robert Solow Professor of economics emeritus, MIT
Fred Bergsten Senior Fellow, Peterson Institute for International Economics