Project Syndicate "Against the Current"
Economists versus the Economy
| Friday, December 23, 2016
LONDON – Let’s be honest: no one knows what is happening in the world economy today. Recovery from the collapse of 2008 has been unexpectedly slow. Are we on the road to full health or mired in “secular stagnation”? Is globalization coming or going?
Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn't. Fiscal contraction was supposed to restore confidence. It didn’t. Earlier this month, Mark Carney, Governor of the Bank of England, delivered a speech called “The specter of monetarism.” Of course, monetarism was supposed to save us from the specter of Keynesianism!
With virtually no usable macroeconomic tools,Continue reading...
Slouching Toward Trump
| Saturday, November 12, 2016
LONDON – The Republican establishment has gone into overdrive to present President-elect Donald Trump as a guarantor of continuity. Of course, he is nothing of the sort. He campaigned against the political establishment, and, as he told a pre-election rally, a victory for him would be a “Brexit plus, plus, plus.” With two political earthquakes within months of each other, and more sure to follow, we may well agree with the verdict of France’s ambassador to the United States: the world as we know it “is crumbling before our eyes.”
The last time this seemed to be happening was the era of the two world wars, 1914 to 1945. The sense then of a “crumbling” world was captured by William Butler Yeats’s 1919 poem “The Second Coming”: “ThingsContinue reading...
LONDON – The most dramatic economic effect of the United Kingdom’s Brexit vote has been the collapse of sterling. Since June, the pound has fallen by 16% against a basket of currencies. Mervyn King, the previous governor of the Bank of England, hailed the lower exchange rate as a “welcome change.” Indeed, with Britain’s current-account deficit running at over 7% of GDP – by far the largest since data started being collected in 1955 – depreciation could be regarded as a boon. But is it?
Economists would typically argue that the way to balance a country’s external accounts is through a fall in its currency, which would make imports more expensive and exports cheaper, causing the former to fall and the latter to rise. Higher import pricesContinue reading...
Helicopter Money Is in the Air
| Thursday, September 22, 2016
LONDON – Fiscal policy is edging back into fashion, after years, if not decades, in purdah. The reason is simple: the incomplete recovery from the global crash of 2008.
Europe is the worst off in this regard: its GDP has hardly grown in the last four years, and GDP per capita is still less than it was in 2007. Moreover, growth forecasts are gloomy. In July, the European Central Bank published a report suggesting that the negative output gap in the eurozone was 6%, four percentage points higher than previously thought. “A possible implication of this finding,” the ECB concluded, “is that policies aimed at stimulating aggregate demand (including fiscal and monetary policies) should play an even more important role in the economic policy
The Scarecrow of National Debt
| Monday, August 22, 2016
Most people are more worried by government debt than about taxation. “But it’s trillions” a friend of mine recently expostulated about the United Kingdom’s national debt. He exaggerated a bit: it is £1.7 trillion. But one website features a clock showing the debt growing at a rate of £5,170 per second. Although the tax take is far less, the UK government still collected a hefty £533.7 billion in taxes in the last fiscal year. The tax base grows by the second, too, but no clock shows it.
Many people think that, however depressing heavy taxes are, it is more honest for governments to raise them to pay for their spending than it is to incur debt. Borrowing strikes them as a way of taxing by stealth. “How are they going to pay it back?”Continue reading...