Three recent books explore important changes in the way we understand the economy. Robert Shiller focuses on the need to bring in ‘narratives’ that circulate within the economy or that can be borrowed from other disciplines; Thomas Philippon asks why America gave up on free markets and looks again the importance of regulation in relation to market competition; and James Gerber examines the influence of financial crises and the lessons we learn in their aftermath. Together these books tell us a lot about where economic thinking is headed. The novel coronavirus pandemic has done little to change the direction of travel and much to accelerate the pace.Continue reading →
US Federal Reserve Chairman Jerome ‘Jay’ Powell opened a window on the central bank’s new monetary-policy strategy in August 2020 by stressing that he was focused on the Fed’s ‘core constituency, the American people’. A few days later, the Dutch central-bank governor, Klaas Knot, gave a speech in Amsterdam to underscore that the job of the central-banking community is ‘to manage the risks that normal people have to face’. This was no coincidence. Both men were responding to a call made in 2019 by the Australian central-bank governor Philip Lowe for monetary policymakers to ‘talk in stories people can connect with’. If former Fed chair Alan Greenspan could once pride himself on being incomprehensible, that time is over. Central bankers need to be understood – and quickly.Continue reading →
I went back into the classroom in the third week of September to greet a very enthusiastic group of MA students from across the globe. Many of them were in the classroom. We are one of the very few parts of Johns Hopkins universe that is teaching in person. Many of the students were also on Zoom. We started class in the evening in Italy; my American students were straddling lunch time; my students in China were burning the late-night oil. The experience of being with them was a breath of fresh air after a long time at home. If you ignored the masks, the social distancing, and the ban on any kind of organized celebration, it almost felt like things might possibly be returning to normal – almost, but not quite. And I doubt they ever will.Continue reading →
Nationalism is only one of many exclusive identities; it is also only one of many powerful forces in Europe and elsewhere that shape political events. Religion and ideology also matter, both in bringing people together and in driving them apart. The energy they create is potentially lethal, particularly for those who find themselves holding onto the wrong (sort of) identity. Identity conflict inevitably creates refugees – people who do not belong to the ‘in-group’ and so find themselves cast out of society. The challenge for governments and societies is to manage the consequences with the least possible dislocation and to their greatest advantage.
June 4 brought two important pieces of good news. The first was an agreement within the German grand coalition government to add €130 billion to its fiscal response to the economic consequences of the coronavirus pandemic. The second was the decision by the European Central Bank’s (ECB) governing council to add €600 billion to its pandemic emergency purchase program, to extend that program to June 2021, and to maintain or rollover any holding in that program through 2022. The question is whether this is going to be enough to hold disaster at bay. Given the nature of this crisis, the answer is always going to be uncertain. The same doubts apply to the European Commission’s proposal for a ‘next generation EU’ (European Union) recovery program.
Europeans can still afford to be optimistic. Even if they turn out to be inadequate, this collection of policies shows that Europe’s leaders have mastered the lessons from the last crisis and are determined to respond to the current crisis in an effectively coordinated fashion. So long as Europe’s leaders continue along this path, they should be able to rise to the occasion.
The European Commission’s proposal for a ‘next generation’ recovery fund is an important step in forging a common response to the economic challenges that will follow in the wake of the COVID-19 crisis. Together with fiscal efforts at the national level, this fund should add useful stimulus to European economic performance. What remains to be seen is how the negotiations will play out within the European Council. There is reason for optimism but also reason for caution in that respect.
Meanwhile, the European Central Bank remains the primary source of macroeconomic stabilization. When the ECB’s Governing Council meets on 4 June, we should expect to see them add more stimulus of their own into the mix. The pandemic emergency purchase program will need to be larger. The Governing Council may need to adjust some of its other instruments as well. But Europe’s heads of state and government should be under no illusion that such actions will solve Europe’s macroeconomic problems or that they take any pressure off the European Council in agreeing on an ambitious recovery fund. The ECB can buy more time, but it cannot be the only game in town. And, as we have seen, even buying time is getting expensive. Increasingly, the Governing Council finds itself in situations where it is damned if it does and damned if it doesn’t: The ECB is a hostage to the effects of this crisis, to the actions of the European Council, and to the economic and political consequences of its own policy response – both real and imagined.
Bucharest is not an historic city, but it is rich in history. The distinction turns out to be important both for our understanding of Romania, politics, and historiography more generally. Emanuela Grama uses the politics that surrounded the Old Town of Bucharest over the past century to force us to reconsider the constitution of the state, the relationship between identity and ideology, and the balance in historical development between grand narratives and incremental change. Moreover, she does all this by demonstrating that the study of history and the stuff of history are rarely if ever the same.
Has Europe has arrived at its Hamiltonian moment? That may not be the right question. Assuming these kinds of comparisons make sense, Europeans might want to focus more on Madison – and particularly his Federalist 10. Madison leads off the essay arguing: ‘AMONG the numerous advantages promised by a well-constructed Union, none deserves to be more accurately developed than its tendency to break and control the violence of faction.’ Translated out of 18th Century political jargon, Madison insists on the virtues of political pluralism as opposed to the vices associated with fixed political interests and coalitions; he also makes the case for a constitutional arrangement that balances the distinctiveness of individual states with the need for harmony across the union. That insight demands attention as Europe seems ever more deeply divided over how to respond to the economic consequences of the COVID-19 pandemic.
The recent decision by the German Constitutional Court has triggered an avalanche of commentary about the primacy of European law and about the political independence of the European Central Bank. These are important issues for debate. I am persuaded by colleagues like R. Daniel Kelemen, for example, that you cannot have a ‘rule of law’ in Europe without a clear hierarchy of legal interpretation. Hence, while I can see the point being made by the German constitutional court about its obligations to uphold the constitutional rights of German citizens, I can also see why the European Court of Justice would insist on having the last word in any assessment of whether a European institution acted within its European mandate.
By contrast, the debate about the political independence of the ECB has taken a detour. The focus lies too narrowly on whether complying with the German court would or would not violate the ECB’s political independence given the wording of the Treaty on the functioning of the European Union and the Statute of the European System of Central Banks. That focus is too legal and in any event crabwalks back into the debate about the primacy of European law. The focus should lie on why the ECB is politically independent instead. Along the way, we should ask whether that independence is necessary for the ECB to forge an effective response to the current economic crisis.
There is a big conversation brewing about the deepening East-West divide in the European Union. Much of this conversation started long before the pandemic. Social scientists like R. Daniel Kelemen have been worried for a long time now about the diverging trajectories in democratic institutions and about the possible roles that European Union (EU) institutions may have played in supporting that evolution. More recent scholarship shows how the onset of the COVID-19 pandemic has exacerbated that tension. This raises questions about whether such developments were always likely to happen, and about how we can better understand East-West relations in Europe. Fortunately, three brilliant new books promise to help in that understanding. The first, by Larry Wolff, examines the role of Woodrow Wilson in help shaping the politics of Central and Eastern Europe. The second, by John Connelly, explores the evolution of East European nationalism. The third, by Lenka Bustikova, examines the problem of extreme right mobilization. The conclusion I take away from these books is that there are important political dynamics at work in Eastern Europe that need deeper understanding; it is not that East and West are fundamentally different. We can learn a lot from the study of Eastern Europe as we struggle to interpret developments elsewhere as well – Western Europe very much included.