Weekly Selection

Adair Turner, What if Zero Interest Rates Are the New Normal?(Project Syndicate, March 29, 2019)This is an important article to understand what has happened since [...]

Nouriel Roubini, Understanding the Fed’s Dovish Turn Due to key changes in macroeconomic conditions and the political environment, the Fed has abruptly put further interest-rate hikes on hold for the rest of the year. Roubini offers six different reasons why the new normal in the foreseeable future will be a US policy rate close to or just below 3% (reads in 6-7 min).

Jeffrey Sachs, The Dangerous Absurdity of America’s Trade Wars Last week, the US trade deficit widened to $621 billion, despite Trump’s promise that tough trade policies vis-à-vis Canada and Mexico, Europe, and China would slash it. This article reminds us that a deficit on the current account is purely a macroeconomic measure: the shortfall of saving relative to investment. Therefore, the US trade deficit is not an indicator of unfair trade practices by Canada and Mexico, the European Union, or China. Rather, it’s been exacerbated by the 2017 US tax cuts (reads in 6-7 min).

Neil Irwin, What if All the World’s Economic Woes Are Part of the Same Problem?(The New York Times, March 5, 2019)This article is music to [...]

Raghuram Rajan, A Better Populism The proof that populism can come in many shapes and sizes! This is a rich article that touches upon many different issues. In a nutshell, the former governor of the Bank of India and Chicago professor argues that the only policy that left- and right-wing populists can agree on to address economic decline is trade protectionism, which will make the world poorer. Instead, he says, a new type of “populism” that puts more trust in local communities would have a greater chance of success (reads in 5-6 min).

Diane Coyle, “What Will Succeed GDP?” There is a widespread consensus that GDP is no longer a useful measure of economic progress. Its successor will need to tell a persuasive story of what is happening in our economies, both compelling and consistent with experience. Three broad possibilities exist: (1) ask people how much they value free things excluded from GDP (like the natural environment, leisure, digital goods such as online search and social media) to generate a meaningful economic-welfare metric, (2) the direct measurement of wellbeing or happiness, (3) to measure wealth rather than income (reads in 7-8 min).

Arvind Subramanian and Josh Felman, “The Coming China Shock” Recent Chinese macroeconomic developments suggest that the country's exceptionalism is nearing its expiry date. The two economists argue that this could have devastating effects on the global economy. When China is hit by a combination of rapidly decelerating growth and a sharply depreciating exchange rate, there will be a tsunami-like impact on global currencies, with strong deflationary effects on Europe and the US and competitive devaluations in Asia (reads in 6-7 min).

Parag Khanna, “America First, meet Asia First” (Quartz, 6 February 2019)This a short essay adapted from “The Future is Asian: Commerce, Conflict, and Culture in [...]

Alan Blinder, “The Free-Trade Paradox” This is an important article to understand why the idea of free trade is so compelling economically, but so hard to sell politically. The theory of comparative advantage that underpins free trade is counterintuitive: it holds that the gains from trade to a nation as a whole always exceed the losses. The problem is this: the gains from trade are widespread but small for each individual, and as such almost invisible. The losses, by contrast, are concentrated and highly visible because they hit well-defined groups. The bottom-line: mercantilism (I win, you lose: Trump’s anti-trade agenda) has a bright future (reads in about 10 min).

Barry Eichengreen, “Shelter from the Storm in 2019” In the next few months, global economic, financial, and political stability will depend on four things: (1), the trade war between the US and China will have to be placed on hold, (2) the US economy will have to grow by at least 2%, (3) China will have to avoid a significant intensification of its financial problems, and (4) voters in the European Parliament election in May will have to prevent the victory of a right-wing nationalist majority hostile to European integration. What happens on one front is likely to affect the prospects for positive outcomes on all the others (reads in 7-8 min).

Elijah Wolfson, “How the world got better in 2018, in 15 charts” So much goes wrong or in the wrong direction that it’s important to remember that, all things being equal, a lot of improvement takes place in today’s world. This article picks 15 charts to illustrate this point. They range from climate change to poverty and public health. Is it enough to claim that: “2018 was in many ways the best year yet to be a human living on Earth?”(Reads in 5-6 min).

Satyajit Das, “The Bubble’s Losing Air. Get Ready for a Crisis” The former banker turned author argues that the “everything bubble” is deflating. He warns us that the fact that it’s happening relatively slowly shouldn’t blind us to the real threat: the world is dangerously underestimating how hard it’ll be to deal with the fallout once it pops. Investors need to start focusing on how best to respond to a new crisis because policy-makers are constrained and the choices are more limited than many realize (reads in 5-6 min).

Edoardo Campanella, “Making Retirement Work” This is an intriguing idea that, we think, will gain traction. When public pensions were first introduced, younger workers paid into the system while most retirees did not live long enough to collect benefits. With ageing, this is becoming economically and politically unsustainable. To address the issue, this article argues that governments will have to make public pensions partly conditional on community work. This policy of “mandatory active retirement” may be the only way to redress intergenerational social contract (reads in 7-8 min)

Jean Pisany-Ferry, “The Great Macro Divergence” A bit dry maybe, but this is a useful read to understand why all advanced economies are neither structurally nor cyclically aligned. As a consequence, they are unevenly vulnerable to recession, making international policy coordination both more necessary and more difficult. The main risks that could intensify the current slowdown: a more aggressive US monetary tightening; a further escalation of protectionism; a harder-than-expected economic landing in China; and a return of tensions in the Eurozone (reads in 5-7 min).

Adair Turner, “Climate Change, Markets, and Marxism” At a time when some prominent world leaders are hampering progress toward a low-carbon economy, the chairman of INET explains why combating climate change threatens neither prosperity nor private enterprise. In fact, market competition is essential for a zero-carbon economy: once carbon prices and appropriate regulation provide the required incentives, it is the competition among profit-motivated firms that will ensure decarbonization is achieved at the lowest possible cost. The new report published by the Energy Transitions Commission makes this very clear. And it is uplifting! (reads in 6-7 min).

Anne Krueger, “Trump’s Protectionist Quagmire” This (very factual) article should be read against the background of increased evidence that China might be winning the trade war with the US. The US President’s tariffs on imported steel are a perfect example of how protectionism raises costs for consumers and producers, destroys jobs, and undermines domestic competitiveness. In short: the deficit reflects the difference between domestic savings and investment; so tariffs will neither reduce the US current-account deficit nor create more net jobs (reads in 6-8 min).

Kenneth Rogoff, “The Global Impact of a Chinese Recession” The Harvard economist thinks that when the inevitable Chinese growth recession occurs, the rest of the world will suffer more than commonly assumed. First, the effect on international capital markets could be vastly greater than Chinese capital market linkages would suggest, simply because foreign firms enjoy huge profits on sales in China. Second, a Chinese slowdown spreading across Asia could paradoxically lead to higher interest rates elsewhere, particularly if a second Asian financial crisis leads to a sharp draw-down of central bank reserves (reads in 6-7 min)

Roberto Simon and Brain Winter, “Trumpism Comes to Brazil” Bolsonaro has accomplished the once unthinkable: he has won the presidency of Latin America’s largest country, which accounts for approximately 40 percent of the region’s population and a roughly equal share of its GDP. Most likely, he’ll preside over the biggest foreign policy shift in that country’s recent history - a change that will have important reverberations throughout the Americas and across the globe (reads in 7-9 min).

Jean Pisany-Ferry, “The Global Economy’s Three Games” The economist explains how three major players – the US, China, and a loose coalition made up of other members of the G7 – are shaping the future of the international economic and geopolitical order. All are engaged in three contests simultaneously: (1) the Trump’s “break the rules of trade” game; (2) the “discipline China” game, and (3) the “roll back China” game. It is not yet clear which will prevail or whether in fact only the G2 US-China really matters (reads in 5-6 min).

Mohamed El-Erian, “Global Economic Leaders Point to Mounting Risks” Central bankers and finance ministers just gathered in Bali for the IMF annual meeting and dismissed prospects for a synchronized pickup in growth. The optimistic tone of the spring meeting is gone because risks “are increasingly skewed to the downside.” The rising clouds: trade tensions, geopolitical concerns, tighter financial conditions that affect many emerging economies, policy uncertainty, historically high debt levels, rising financial vulnerabilities and limited policy space (which further undermines confidence and growth prospects) (reads in 4-5 min).

Barry Eichengreen, “The Dollar and its Discontents” The academic thinks that 5-10 years is a plausible time frame over which the US could lose the “exorbitant privilege” afforded by issuing the world’s main international currency. Having unilaterally re-imposed sanctions on Iran, Trump's administration is threatening to penalize companies doing business with it by denying them access to US banks. But that could hasten the dollar's demise as the main global currency (reads in 6-7 min).

Nouriel Roubini and Brunello Rosa, “The Makings of a 2020 Recession and Financial Crisis” It’s hard to disagree with Nouriel’s warning: by 2020, the conditions will be ripe for a financial crisis, followed by a global recession. The global economy - that has been undergoing a sustained period of synchronized growth - will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it (reads in 6-7 min).

Martin Wolf, “Why so little has changed since the financial crash” (Financial Times – paywall, 4 September 2018)Normally, we don’t include FT articles because of [...]

Simon Johnson, “Saving Capitalism from Economics 101” Markets can be a force for good, but are also highly susceptible to abusive practices, including on the part of prominent private-sector individuals. One core problem is that market incentives reward self-interested private behavior, without accounting for social benefits or costs. This is central to current policy debates, including important new US legislation that has just been put forward. According to Johnson, this Accountable Capitalism Act would greatly enhance the legitimacy of capitalism. (reads in 5-6 min).

Timur Kuran and Dani Rodrik, “The Economic Costs of Erdoğan” For more than a decade, financial markets supplied the Turkish economy with easy credit, making economic growth dependent on a steady flow of foreign capital that financed domestic consumption and flashy investments in housing, roads, bridges, and airports. This kind of economic expansion rarely ends well, and the only real question was: what would it take to push the country’s economy into a fully-fledged currency crisis? President Trump! (reads in 5-6 min).

Ruchir Sharma, “Worried About Turkey’s Economic Problems? China’s Could Be Worse” The author of “The Rise and Fall of Nations” argues that the fate of the world economy depends on how China negotiates a weakening currency and capital flight. This is a tough and complex dilemma. The strengthening dollar threatens to provoke more capital flight out of China, but any effort to shore up the renminbi in response could further slow the Chinese economy. If, however, it does the opposite (lowering rates), China will only give Chinese investors more reason to leave the country, further undermining confidence (reads in 5-6 min).

Satyajit Das, “Banks Aren’t as Safe as They Think” The former banker explains why, in his opinion, measures taken to prevent another financial crisis may just be adding new risks. He’s particularly concerned about the focus on banks having to raise collateral requirements. This short article (reads in 4-6 min) may be a bit technical, but it is an important read at a time when the collapse of the Turkish Lira is raising fears of losses spreading to European banks and beyond.

Minxin Pei, “China’s Summer of Discontent” (Project Syndicate, 2 August 2018)There is a lot of food for thought in this rather contrarian short piece. The [...]

Diane Coyle, “Three Cheers for Regulation” For some years now, the Monthly Barometer has been arguing that more regulation is coming. This short article makes our case by explaining in simple terms why contrary to the simplistic view that regulation is inevitably bad for business, there are three important channels through which it can benefit an economy: (1) its market-creating and market-growing role; (2) its ability to enable competition (counter-intuitive but often true); (3) its ability to protect consumers. The question is not whether regulation is good or bad, but whether it is well or badly designed (reads in 7-9 min).