Universities do not like to study people who live in places anymore. Instead, they emphasize the importance of theory and method. There are many good reasons for doing so, particularly as you consider the wide range of skills involved in analyzing the enormous amounts of data that the internet makes available. But there are also costs. Theory is a relatively poor guide for understanding why Russia invaded Ukraine, for example. You can make arguments from theory after the fact, but a close examination of developments in the country offered a better chance for anticipating what Russia did and where we are likely to go from here. The first book in this collection is a good illustration of what I mean with that statement. That book was published just weeks before the Russian invasion. The insights it offers on the war as it is unfolding are compelling.Continue reading →
The Italian electoral college will start voting for the successor to Sergio Mattarella as President of the Republic on 24 January. Between now and then, at least two pages of every major national newspaper will be devoted to rumours and speculation about what Italy’s party leaders are planning, who might get drafted as a candidate, and how the votes are likely to line up. It is the usual blizzard of noise that comes at the end of the white semester — the last six months of any presidential mandate, during which the President of the Republic is no longer able to dissolve parliament. What is at stake is not just who will take over the leadership of the Italian state but also whether the current government can hold together and whether the any new President will send Italy’s parliamentarians back to face the voters. By implication, Italy’s successful implementation of its national recovery and resilience plan is also on the table — together with all that entails for the rest of the European Union.Continue reading →
Last autumn I reviewed three books that highlighted different perspectives on money, finance, and central banking that deserve closer attention.
In the first book, Gottfried Leibbrandt and Natasha de Teran point out that the main reason to have money is to make payments – which means that when you start to change the payments system, you wind up changing just about everything connected to money. That ‘wallet’ on your cell phone is only the tip of the iceberg.
In the second book, Fabio Mattioli explains that when we talk about finance, we are primarily talking about forward looking contracts – and those contracts are only as good as their enforcement. By implication, a financialized economy looks very different when politicians start deciding which contracts will be honoured and which will not. Any debate about ‘rule of law’ goes to the heart of the financial economy.
In the third book, Willem Buiter reminds us that the central bank is a public asset owned by the national state. If national governments accounted for that asset in their balance sheets, they would uncover important revenue streams that could stimulate the economy and reduced burdens on taxpayers. The ‘helicopter money’ that policymakers talked about both during the global economic and financial crisis and at the start of the pandemic is not as strange or uncommon as you might think.
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The election of Joseph R. Biden, Jr., as the 46th President of the United States creates an important opportunity to change American politics and the transatlantic relationship. In his acceptance speech to the nation, the President-Elect argued that ‘the refusal of Democrats and Republicans to cooperate with one another is … a decision. It’s a choice we make. And if we decide not to cooperate, we can also decide to cooperate.’
Making that choice to cooperate will not be easy for either side. The differences between the constituencies that the two major U.S. political parties represent are structural. Bringing them together will involve important concessions. Moreover, those concessions will not be equal because the differences across American society are not evenly balanced. Worse, trust is lacking — which means no one is eager to make the first concession. Biden may lead, but neither Democrats nor Republicans are likely to follow without a clear vision of where they should be headed and a strong incentive to go there.Continue reading →
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.