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Jeffrey Frankel

Jeffrey Frankel

Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

Articles by Jeffrey Frankel

Carbon Prices, not Monetary Policies, Are the Tools to Fight Climate Change

5 days ago

TweetJanuary 23, 2020 —  Everyone agrees that Climate Change is at the top of the list of most important policy issues that we face – everyone, with a few exceptions such as Trump supporters who call it a hoax.  Identifying the problem, however, is not much use unless we also identify the appropriate tools to address the problem.
Financial institutions
In my own field of specialization, central bankers have caught Climate Change fever.  Perhaps the first was Governor Mark Carney — recently departed from the Bank of England.   Christine Lagarde – newly arrived at the ECB from the International Monetary Fund —  has declared the global environment to be “mission critical” for her institutions.
Financial institutions do indeed need to fundamentally re-think some things.  Consider a bank or

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The Best Tool to Fight Climate Change

8 days ago

If they are serious about tackling climate change, governments must quickly establish the expectation that the price of carbon will follow a generally rising path in the future. Lofty statements from public officials and optimal calculations from climate modelers will not do the job.

AMSTERDAM – Although many supporters of US President Donald Trump seemingly believe that global warming is a hoax, almost everyone else agrees that climate change should be at the top of the list of important policy issues. Identifying the problem, however, is not much use unless we also identify the appropriate tools to address it.
The Truth About the Trump Economy

Bryan R. Smith/AFP via Getty Images

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Most important event of 2020? The US election

December 27, 2019

TweetAn interview question from Chosun Ilbo (the #1 Korean newspaper) for the New Year:   Which political event of 2020 should concern us the most? (E.g., the U.S. presidential election, the geopolitical crisis on the Korean Peninsula, Brexit…?)
My response:
Perhaps I am too US-centric.  But out of all events in 2020, I see November’s presidential election in the United States as warranting the greatest concern, not just for my home country but for the world.
To recap briefly a familiar story, in the 2nd half of the 20th century, a majority of countries enjoyed a historic path of relative peace and prosperity, broadly speaking.  This was largely the result of a liberal multilateral system which had been consciously designed after World War II to avoid mistakes that had been made after

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Six Practical Proposals for Progressive Tax Policy

December 20, 2019

TweetDecember 20, 2019 —  It was quite a surprise, three years ago, when Donald Trump won a majority in the US Electoral College, thus becoming the 45th president.  In the search for explanations, one immediately dominated:  Democrats had not been sufficiently aware of the problem of income inequality or had neglected to propose good solutions to it.
This is presumably the logic behind radical proposals coming from some of the leading contenders for the Democratic nomination in the 2020 presidential election. Senator Elizabeth Warren, for example, has proposed an annual tax on the wealth of the wealthiest Americans (originally to be 2 % per year, but now up to 6 %).
The problem with the wealth tax is not so much that it is radical.  I, like many economists, would for example support a

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Six Tax-Based Ways to Tackle US Inequality

December 17, 2019

Some of the leading candidates for the 2020 Democratic presidential nomination have proposed radical measures to reduce inequality, such as a wealth tax. But there are many other progressive tax policies that would be both easier to enforce and more likely to get a Democratic candidate elected.

CAMBRIDGE – Three years ago, Donald Trump’s victory in the United States’ presidential election triggered a search for explanations of what is still a shocking outcome. One immediately came to dominate: his Democratic opponents had been insufficiently aware of the problem of income inequality, or had neglected to propose effective solutions.
Cronies Everywhere

PS OnPoint

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Let’s Go Back to Good Old Tariff-Cutting

December 1, 2019

TweetNov. 30, 2019  — The “bicycle theory” used to be a metaphor for international trade policy.  Just as standing still on a bicycle is not an option — one has to keep moving forward or else the bike will fall over – so it was said that international trade negotiators must continue to engage in successive rounds of liberalization, or else the open global trading system would be pulled down by protectionist interests.  I don’t know if the theory was ever right.  (And, to be honest, I don’t entirely understand why forward movement keeps a bicycle from falling over.)  But if we had stood still on trade policy over the last three years we would be a lot better off than where we are now.
Trade is faltering — global trade volumes shrank an alarming 1.1 per cent over the 12 months —  but the

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The Case for Old-Fashioned Tariff Cuts

November 27, 2019

Had governments stood still on trade policy over the last three years, the world would be a lot better off than it is now. Today, policymakers could do worse than return to the post-World War II formula of negotiating the reciprocal elimination of tariffs.

WASHINGTON, DC – The “bicycle theory” used to be a metaphor for international trade policy. Just as standing still on a bicycle is not an option – one must keep moving forward or else fall over – so it was said that trade negotiators must engage in successive rounds of liberalization. Otherwise, global openness would gradually succumb to protectionist interests.
The Patriot versus the President

Chip Somodevilla/Alex

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Weaponization of the Dollar May Backfire Yet

October 26, 2019

TweetOctober 26, 2019 —  This is a good time to gauge the rankings of the dollar and its rivals as major international currencies.  The Bank for International Settlements came out in September with its triennial survey of turnover in the world’s foreign exchange markets.  The IMF’s statistics on central bank holdings of foreign exchange reserves have gotten much more reliable lately, because China has joined in on reporting its holdings to the IMF (as Eswar Prasad explains).  And SWIFT offers every month its numbers on use of major currencies in international payments.
The rankings
The results?  The bottom line is that the US dollar remains in first place by a wide margin, followed by the euro, the yen, and pound sterling.  In September 2019, 47% of payments were in dollars, far ahead

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How a Weaponized Dollar Could Backfire

October 23, 2019

United States foreign policy under President Donald Trump continues to run counter to America’s traditional post-war objectives. Should the US carelessly relinquish leadership of the global multilateral order, the dollar might eventually lose its own long-standing primacy.

CAMBRIDGE – The language of international monetary policy has turned militaristic. The phrase “currency war” has now been popular for a decade, and the United States government’s more recent “weaponization” of the dollar is generating controversy. But ironically, a martial approach could end up threatening the US currency’s global dominance.
Why Rich Cities Rebel

Pablo Rojas Madariaga/NurPhoto via Getty

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It’s Finally Time for German Fiscal Stimulus

September 30, 2019

TweetSeptember 30, 2019 — As long as the German economy was doing well, as it was during the recovery from the 2008 global financial crisis, there existed a coherent rationale for German fiscal austerity.  The national commitment to budget discipline was enshrined in the 2009 “debt brake,” which limits the federal structural deficit to 0.35% of GDP, and by the 2011 “schwarze Null” (that is, “black zero”) policy of fully balancing the budget.  Indeed Angela Merkel’s government proudly achieved a balanced budget in 2012 and surpluses in 2014-18.
With unemployment low and growth relatively strong, fear of overheating the domestic economy was a legitimate counter-argument against the other countries that were always urging Germany to undertake fiscal stimulus.  They wanted more German

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It’s Time for German Fiscal Expansion

September 30, 2019

The United States has made some bad fiscal choices, in particular by cutting taxes for the rich at the peak of the business cycle. German policymakers should not make the symmetric mistake of preserving the country’s budget surplus as the economy risks sliding into recession.

CAMBRIDGE – As long as Germany’s economy was recovering well from the 2008 global financial crisis, policymakers had a coherent rationale for fiscal austerity. Rejecting other eurozone countries’ constant urging that they undertake stimulus, they enshrined the national commitment to budget discipline in the 2009 “debt brake,” which limits the federal structural deficit to 0.35% of GDP, and in the subsequent schwarze Null (“black zero”) policy of

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Median income flattens

September 10, 2019

TweetSept. 10, 2019 —    Median real household income is the most useful single measure of the extent to which the typical American family has shared in GDP gains.  The latest annual number, released today by the Census Bureau, confirms the answer that many had suspected: the typical family has not experienced a statistically significant rise in income.  The gains have, rather, gone to those at the top of the income distribution.  Median household income did rise during 1993-2000 (during the boom of the Clinton years) and again during 2012-2017 (as the recovery from the global financial crisis started to spread more widely).  But its level last year was statistically the same as in 2017 (despite respectable growth in total national income).  It was also virtually the same as in 2000,

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RMB reaches 7.0; US names China a manipulator

August 12, 2019

TweetAugust 12, 2019 –The US-China trade war heated up in the first week of August.  On August 1, Donald Trump abruptly announced plans to impose a 10 % tariff on the remaining $300 billion of imports from China that he had not already hit with earlier tariffs.   The Chinese authorities then allowed their currency, the renminbi (RMB), to fall in value below the highly visible line of 7.0 RMB/$.  The US Administration promptly reacted on August 5 by naming China a “currency manipulator” — the first time any country had been given that designation in 25 years.   Pundits declared a currency war, while investors responded by immediately sending stock markets down.
The accusation that depreciation of the RMB is manipulation of the currency to gain unfair competitive advantage is not true.

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The Currency Manipulation Game

August 9, 2019

The United States government’s assertion that the recent depreciation of the renminbi amounts to currency manipulation is not true. It would be more correct to say that the Chinese authorities gave in to market pressure – the immediate source of which was US President Donald Trump’s announcement of new tariffs on Chinese goods.

CAMBRIDGE – The trade war between the United States and China is heating up again, with US President Donald Trump abruptly announcing plans to impose a 10% tariff on the $300 billion worth of imports from China that he had so far left untouched. The Chinese authorities then allowed their currency, the renminbi, to fall below the symbolic threshold of CN¥7 per US dollar. The Trump

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Parallel to US-China trade war, Japan & Korea fall out

August 8, 2019

TweetAugust 8, 2019 — I responded to 9 questions in an interview today with Chosun Ilbo.  They concern the US-China trade war and the new simultaneous dispute between Korea and Japan.
 The trade war between the world’s two largest economies continues and it appears the war is spilling over to currency now. What do you think are the fundamental reasons for this conflict?
JF         It was legitimate for the outside world to ask China to make some changes.  But we did not sit down in a responsible manner with China’s leaders to negotiate. The reason for the trade war is that an ignorant and reckless man by chance became president of the United States. He has aggressively raised tariffs against China as well as other trading partners.  He has departed from past international commitments,

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Trump escalates China trade war

August 5, 2019

TweetAugust 5, 2019 — The China’s People’s Daily in an interview had three questions about the US threat of August 1 to apply tariffs on the remainder of Chinese goods.
As the tariff list of Trump now covers all the goods from China, economists are warning that consumers will pay more for the tariff. Do you share this concern?
JF Answer:
Yes, the additional tariffs — 10% on the remaining $ 300 billion of imports from China — will clearly raise the price that American consumers have to pay for many items.  This is one reason I am concerned.
2. It seems the trade war between the two countries will not end soon. Do you see any evidence that it’s having more impact on global economy?
JF Answer:
One would expect that a trade war between the world’s two largest economies would have an

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Let’s Forget about 2% Inflation

July 28, 2019

TweetJuly 28, 2019 — The Fed has some reasons for cutting interest rates at its meeting July 31, or subsequently if the US economy weakens. (And there are some good arguments on the other side as well, if growth remains as strong as it has been over the last year.)  But I find less persuasive one argument for easing: a perceived imperative to get inflation up to 2.0% or higher.
Federal Reserve Chairman Ben Bernanke set a 2% target for the US inflation rate in January 2012.  Some other countries had already done the same.  Japan followed suit a year later. Indeed Shinzo Abe’s successful accession to prime minister in late 2012 was predicated on the promise that monetary policy would raise inflation (Japan having previously suffered from negative inflation).
The case for trying to raise

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Central Banks Should Forget About 2% Inflation

July 25, 2019

Despite years of monetary stimulus, inflation in the United States, Japan, and the eurozone continues to undershoot central banks’ 2% target. Rather than doubling down on their oft-missed goal, however, perhaps the Fed and other central banks should quietly stop pursuing it aggressively.

CAMBRIDGE – The United States Federal Reserve has some reasons to cut interest rates at its July 31 meeting, or subsequently if the US economy weakens. (There is also a case for holding rates steady, if growth remains as strong as it has been over the past year.) But one argument for easing is less persuasive: a perceived imperative to get US inflation up to or above 2%.
Is Politics Getting to the

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Tenth birthday of the June 2009 recovery

June 17, 2019

TweetJune 17, 2019 — This month marks the 10th birthday of the US economic recovery.  June 2009  saw the “trough,” the end of the Great Recession of 2007-09. (As always, a declaration that the recession was over could as easily have been phrased less cheerfully as a declaration that the economy had hit “rock bottom.”)
Why such a long expansion?
Who or what deserves credit for the length of the expansion? There is plenty of credit to be parsed out to explain the end of the free-fall that the economy was experiencing in January 2009 (a free-fall that was reflected in job loss, output loss, and financial market decline) and the beginning of the recovery in June 2009.  There is also plenty of blame that can be allocated to explain the slow pace of the ten-year recovery that followed (at

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The US Recovery Turns Ten

June 14, 2019

The best explanation for the current ten-year US economic expansion – tied for the longest since 1854 – is disappointingly simple: the Great Recession was the worst downturn since the 1930s. And if the dates of American business cycles were determined by the rule that most other countries apply, the current expansion would be far from beating the record.

CAMBRIDGE – This month marks the tenth full year of the US economic recovery that began in June 2009. Back then, a “trough” in business activity signified the end of the Great Recession that followed the 2007-08 global financial crisis. The current expansion has continued, uninterrupted, ever since.
The Growing Risk of a

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Remembering Martin Feldstein

June 14, 2019

TweetJune 13, 2019 — Here in Cambridge, we are reeling from the passing of Martin Feldstein on Tuesday. He was tremendously influential both as scholar and teacher.  He was also a  policy-maker:  Below, the last section of this remembrance offers some recollections of his time as Chairman of Ronald Reagan’s Council of Economic Advisers.
In addition, remembrances at his funeral service today appropriately emphasized some qualities not known to those who knew of him only as a conservative economist: his generosity and humanity.  He was greatly interested in other people, especially young people.  A personal anecdote.  Once, leaving a conference at Stockbridge, VT, I discovered that somebody else had taken my taxi, leaving me in danger of missing my plane from the airport in Lebanon, NH.

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The Trade War Resumes

May 26, 2019

TweetDonald Trump on May 5 suddenly revealed that a trade agreement with China was not imminent after all.  To the contrary, the Administration on May 10 raised its earlier 10 percent tariff on $200 billion of Chinese goods to 25%, and threatened to extend 25% tariffs to the remainder of imports from China by late June (roughly $300 billion of goods).  China, of course, retaliated against US exports [announcing reciprocal 25% tariffs on $60 billion of US goods, to start June 1.  Surprised stock markets fell in response, with the S&P 500 down 4 per cent over the first week of the renewed trade war.
The mystery is why market investors or anyone else had up until May put faith in White House statements that a deal with China would be forthcoming any day. Why believe this Administration

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The Real Cost of Trump’s Tariffs

May 23, 2019

Whereas winners tend to outnumber losers when trade is liberalized, raising tariffs normally has the opposite result. US President Donald Trump appears to have engineered a spectacular example of this: his trade war with China has hurt almost every segment of the US economy, and created very few winners.

WASHINGTON, DC – Earlier this month, US President Donald Trump suddenly revealed that a trade agreement between the United States and China was not imminent after all. On the contrary, on May 10, the Trump administration raised its previous 10% tariff on $200 billion worth of Chinese goods to 25%, and threatened to apply the same rate to the remaining $300 billion or so of US imports from

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Moore on Gold and Commodities

May 1, 2019

TweetApril 30, 2019 —   A century ago, the gold standard was considered a guarantor of monetary stability.  That golden era is long-gone.  (If it ever really existed at all.  The general price level fell 53% in US and 45% in the UK during 1873-1896 due to a dearth of gold deposit discoveries.)
Continuing my thoughts on the Fed candidacy of Stephen Moore: he has said several times that he favors a return to gold.  In true Trumpian fashion, he recently denied having said it despite the clear video evidence.
Commodity-basket proposals
In any case, he now says he favors having monetary policy focus on a basket of commodities, not just gold alone.  This has brought him some ridicule.  It is true, however, that a price index based on a variety of commodities would attenuate the volatility of

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Moore Troubles for the Fed

April 30, 2019

TweetApril 30, 2019 — Of the two men whom Donald Trump had intended to nominate to empty seats on the Federal Reserve Board, Herman Cain has now withdrawn his name.  This leaves the other one, Stephen Moore.
The Senate would have to decide whether to confirm Moore. He has some problems roughly analogous to Cain’s:  he is considered to be under an ethical cloud and he often gets his economic facts wrong.  Cynics might respond that he would thereby fit right in with the roster of Trump nominees throughout the government.  But Trump’s earlier appointments to the Fed have been people of ability and integrity and have been doing a good job, Chair Jerome Powell in particular. Perhaps Trump did not start paying attention to Fed appointments until recently.
That Moore does not have an

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Moore Problems for the Fed?

April 27, 2019

US President Donald Trump’s intended nominee for the US Federal Reserve Board, Stephen Moore, may end up doing whatever Trump wants, instead of what is best for the economy. Moore’s views on the Fed’s interest-rate policy, and his support for returning America to a gold standard, are disturbing.

CAMBRIDGE – One of US President Donald Trump’s two intended nominees to fill vacancies on the US Federal Reserve Board of Governors – Herman Cain – has now withdrawn. Trump’s other potential pick, Stephen Moore, is also under an ethical cloud, and often gets his economic facts wrong. By contrast, Trump’s earlier appointments to the Fed have been sound choices, in particular Jerome Powell, the current chair.

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Xi & Trump Miss a Chance to Expand Markets

March 24, 2019

March 24, 2019 — Donald Trump has postponed until
April the supposed deadline for a conclusion to China-US trade
negotiations.  A good outcome for both
sides would have China agree to better protect private property rights and to reduce
the role of the state in its economy; the US agree to strengthen national saving and public investment;
and both sides agree to reverse their recent tariff increases and the resulting
shrinkage of international markets. 
Unfortunately this deal is not likely to happen.

What does the US want?

Trump fixates on the bilateral US merchandise trade deficit with China. Beijing could probably deliver on the verifiable – but worthless – step of reducing the bilateral balance by committing to buy more soybeans, natural gas and other commodities from

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Xi and Trump Miss Their Chance

March 21, 2019

A successful US-Japan agreement on structural reforms three decades ago could potentially serve as a useful model for the current China-US trade negotiations. But Chinese President Xi Jinping appears to care only about maintaining political control, while US President Donald Trump seems to care only about himself.

CAMBRIDGE – President Donald Trump has postponed until at least April the supposed deadline for concluding the United States’ current trade negotiations with China. A good outcome for both sides would be reached if China agreed to protect property rights better and reduce the state’s role in its economy; the US agreed to strengthen national saving and public investment; and both sides agreed to reverse their recent

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Bold Ideas are Not Always Better than Old Ideas

February 28, 2019

February 28 — US Democrats are moving to the left, we are told.  It is not yet clear that the median voter is in fact moving left, nor the median congressman who was elected last November.  But it is clear that many of the candidates for the 2020 Democratic presidential nomination are experimenting with “bold new ideas”, or at least bold rhetorical formulations.  They are receiving what seems a disproportionate amount of attention for doing so.  Many of the policy proposals, if interpreted literally, are not entirely practical, either economically or politically. 

Fortunately, few of the Democrats — the announced candidates or those considered likely — have yet committed irrevocably to extreme policies.  Any of them could build a campaign on solid practical proposals to

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Should Bold Ideas Drown Out Old Ideas?

February 25, 2019

Radical ideas are not unusual in the early stages of a US presidential election campaign, but many of the Democratic candidates for 2020 are advocating unrealistic policies. Just because a new idea seems more exciting does not make it better than an established, more practical one.

CAMBRIDGE – America’s Democratic Party is moving to the left, we are told. It is not yet clear whether this applies to the median American voter, or the median member of Congress who was elected last November. But it is clear that many of the candidates for the 2020 Democratic presidential nomination are experimenting with “bold new ideas.” They seem to receive a disproportionate amount of attention for doing so. If interpreted literally, many of

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